TUI Travel, the owner of travel operators First Choice and Thomson, has reported strong summer holiday demand and revealed that it has pared back its losses in the first half of the year.

In the past six weeks, UK sales for this summer have been up 9 per cent while it has 21 per cent less product left to sell compared with the previous year and has achieved "strong pricing" levels.

TUI Travel said in a statement that it is still seeing “no indication that customers are trading down or altering their holiday plans as a result of economic conditions".

The company, created last year from a tie-up of the travel division of TUI, the German tourism and shipping group, and Britain's First Choice Holidays, reported an underlying seasonal pre-tax loss of £294 million for the six months to March 31, down from a pro forma loss of £339 million last year.

The upbeat commentary and improved first-half performance from Europe’s biggest tour operator sent its shares higher in morning trading, although it later fell by 6.5p to 252.75p.

The operator said the result reflected improved profit margins and strong performances in the UK and Nordics. It had also achieved a significant turnaround in France.

Trading for next winter has been also been robust with sales up 15 per cent in the UK on 16 per cent less capacity.

When the merger was consummated, the company had predicted a margin improvement of about £165 million over three years. It said it had achieved £61 million so far and was still on target to meet its forecast.

The group said it was also confident of meeting its target of achieving merger synergies from last year's tie-up of at least £150 million a year by 2010.

Peter Long, chief executive, said that, despite the economic climate, the company was seeing "no impact whatsoever" on bookings. "Our customers are saying that their summer holiday is sacrosanct," he said.

He added: "I've been in the travel industry for 25 years and I've seen several downturns. In my experience, people do not sacrifice their holidays, but will scale back or shorten the holiday. But this time they're not trading down and they're not taking shorter holidays."

Mr Long said that he expected to make further significant capacity cuts next year, although this was to eliminate loss-making routes and duplicated capacity.

The former First Choice boss eased fears over fuel prices, arguing that the company was "well hedged" with respect to both fuel costs and the euro exchange rate.

He said that any impact from the strong euro on next summer's prices would be mitigated as the company planned to negotiate cheaper contracts with hoteliers.

TUI Travel spent £85.2 million on ten niche acquisitions during the first six months and Mr Long said he expected to spend a further £70 million or so in the second half.

Mr Long said he was particularly keen to boost its existing presence in Russia, which he said was at a similar stage of development to the UK and Germany 25 years ago. Turkey and Egypt were the most popular destinations for Russians.

The group said discussions are continuing with Lufthansa, the German carrier, regarding a potential merger of its Germanwings airline with TUI’s TUIfly.

Analysts parised the company's performance but expressed fears over the outlook for consumer spending and fuel prices.

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