TUI Travel ups cost savings and mulling airline merger

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Outlining results of a 100 day review of the business following its 12 billion pound tie up with First Choice, TUI Travel said on Tuesday cost savings from the deal would now to be at least 150 million pounds by 2010, up from the 100 million previously expected.

It also revealed it had signed a memorandum of understanding with Lufthansa about a potential merger of TUIfly and Lufthansa's Germanwings airline.

Shares in the firm rose almost five percent in early trading as analysts cheered the prospect of increased merger savings and better margins.

The firm's Chief Executive Peter Long said that talks with Lufthansa had been "ongoing for some while," but declined to comment on how much of a stake TUI would take in the merged airline.

The firm said much of the increased savings would come from its UK business. Long told reporters around 100 of its UK travel agents would be closed although job losses were expected to be limited, while central costs would be chopped to save 50 million pounds.

The firm, created from a merger of TUI AG's travel division and First Choice, revealed it was selling more holidays than a year ago saying that holidaymakers were refusing to cut back on annual getaways despite fears of an global economic implosion.

Long said trading had been particularly strong in the last two weeks with 2008 summer holiday sales up 9 percent in western Europe, 12 percent in Scandinavia and 8 percent in central Europe.

He added lousy summer weather and constant downpours over Christmas had helped boost summer package holiday sales 8 percent.

Long said capacity across the European holiday market was around 5 to 10 percent lower than a year ago as travel firms cut down the number of breaks they sell in the hope of bolstering prices.

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