The Italian airline, borne out of the recent merger of two local carriers, said it will stop the Verona-Bari and Milan Linate-Bari connections as of September 16. Bari is a gateway to the Puglia, home to many beach resorts and holiday destinations.

Small airports in Italy gave funds to Ryanair (RYA.I) for it to develop international routes, Meridiana-Air Italy said. But instead, the Irish carrier is using the money to subsidise flights within Italy, directly competing with local carriers, Meridiana-Air Italy said.

"Meridiana-Air Italy (MEF.MI) will verify the competitive conditions in each single airport. Should it find distortions, it will immediately axe the connection," the group said in a statement.

Meridiana-Air Italy reported on Wednesday a first-half net loss of 60.9 million euros, compared with a pro-forma loss of 67.3 million euros a year earlier, when the two groups had not yet merged.

Ryanair's head of communications, Stephen McNamara, said: "Ryanair does not comment on rumour or speculation and encourages all airlines to lower fares and compete, instead of making false claims and complaining". (Reporting by Elisa Anzolin, Writing and additional reporting by Lisa Jucca, Editing by Leslie Gevirtz and Mark Potter)

• A Permanent Economic Emergency