The 25-year-old has developed into a key component of Arsene Wenger's side in the past two years, but he has not started a match for the Gunners since damaging his knee during the 3-0 win over Chelsea on 25 September.
Coquelin's absence has allowed Xhaka - who cost a reported $48 million fee when he joined prior to the start of the season - to flourish in a holding role, although he was sent off for a cynical trip on Swansea City's Modou Barrow in Sunday's 3-2 victory.
But Coquelin, who could return to the starting line-up when Arsenal meet Ludogorets in the Champions League on Thursday (AEDT), has welcomed competition from Xhaka and Mohamed Elneny.
"Let's not forget we are Arsenal Football Club, and there's always going to be great quality in the squad," he told a media conference. "So you have to be ready for a fight.
"I think it's good for me as well to improve my game and to give even more in training and in the game. It can only improve the whole squad."
Coquelin has recovered sooner than expected from his knee injury, after there had been initial fears of a recurrence of the ligament damage that kept him sidelined for close to three months last season.
"When you make this kind of tackle, and it happened before, I was a bit scared because it was a similar tackle," he explained. "But the good thing was that when I'd done it I could run back onto the pitch even though I didn't stay on for long.
"And after we saw the scan was all positive, so it was great news. I feel 100 per cent. It took me a couple of weeks to come back to full fitness but I feel good."