The consolidation of the travel industry took off yesterday as TUI, the German owner of Thomson, announced plans for a £4 billion-plus merger with First Choice Holidays. It is expected to result in thousands of job losses.

The deal, which comes just six weeks after Thomas Cook and MyTravel unveiled a £3 billion merger, would propel the enlarged company, to be called TUI Travel, into the FTSE 100.

TUI Travel will be 51 per cent owned by the German company’s shareholders and 49 per cent by First Choice investors.

TUI will inject about £600 million of net debt into the new London-listed company, including pension liabilities.

The combined board will be dominated by First Choice, with Peter Long and Paul Bowtell retaining their present roles of chief executive and finance director respectively. Michael Frenzel, the TUI chief executive, will become nonexecutive chairman, while Peter Rothwell, TUI’s Northern Europe boss, will become deputy chief executive.

The enlarged company is expected to have an enterprise value, including debt of £850 million, of between £4 billion and £4.5 billion, with combined turnover of about £12 billion.

The companies said that they expected the merger to create annual cost benefits of at least £100 million within three years. Mr Long conceded that there would be job losses, most of them in Britain, but said that he could not yet quantify them. The combined estate of 1,100 high street shops is expected to come under particular scrutiny.

He insisted that the merger was driven not by cost-cutting but by the desire to create “a company that has global aspirations”. He cited Asia-Pacific, Russia, India and China as areas ripe for expansion. He added that, while improving TUI’s profit margin from its present level of about 2 per cent would be a priority, “the last thing on our minds is increasing prices. We’re not going to do it, and, frankly, our customers wouldn’t accept it.”

Mr Long said that, although the two proposed mergers would reduce the four biggest tour operators to just two, he did not expect either deal to trouble the European competition authorities. “The market can no longer be measured by the traditional tour operators. The world has changed. It’s now all about what the budget airlines do and what the online intermediaries do. Four going to two in the subset is not the relevant comparison.”

Shares in First Choice added 24p to 308p.

Tours guide

TUI Travel

— Number of customers 21.9 million

— Aircraft 127

— Shops 1,650

— Employees 32,800

— Sales (2006) £9.37 billion

— Ebitda £375 million

First Choice Holidays

— Customers 4.9 million

— Aircraft 34

— Shops 409

— Employees 15,300

— Sales (2006) £2.71 billion

— Ebitda £194 million

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