TUI Travel, the travel operator, today gave a positive outlook for the holiday industry, despite current economic conditions, after reporting a 39 per cent rise in profits and a sharp reduction in the number of holidays that it sells.

The company, formed through last year's merger of Thomson Holiday's German parent company TUI, and Britain's First Choice, announced that third-quarter operating profits rose from £47 million to £65.4 million for the three months to June 30.

Revenues rose by 9 per cent during the quarter.

Over the first nine months of the financial year, TUI reduced its operating losses from £274.3 million to £185.1 million while sales grew by 9 per cent.

This financial year, TUI has cut its capacity, which includes the number of holidays it sells and the flights it operates, in most of its geographical regions including a 13 per cent reduction in the UK, mainly on short-haul flights.

The company also said that it will reduce its winter holiday capacity in the UK by 21 per cent for this year and early 2009 as well as its summer capacity by 15 per cent by cutting its flights.

TUI will operate six fewer aircraft over the winter season and 11 fewer planes next summer.

The company also said that it has reduced the number of "late" packages, which are often sold at a discount as people book these holidays closer to the departure date.

TUI reported that it had 20 per cent less late holidays to sell for winter in its UK division and 15 per cent less for summer next year.

Although the company was upbeat in its assessment of current trading, it reported change in holiday-makers habits, most notably a switch from long-haul to medium-haul flights, with Greece, in particular, emerging as a popular destination.

The company reported that it has hedged "well" against rises in the oil price, and expects the group to spend $1.8 billion (£961 million) on fuel in the current financial year.

TUI also said that it is on course to deliver £80 million of synergy savings from the merger by next year, with an overall target of £150 million.

TUI said today: "Trading for all seasons on sale, especially in the UK, continues to be buoyant despite the challenging economic conditions. Our trading metrics are showing no evidence that consumers are trading down or curtailing their holiday plans.

"There has been no deterioration in cancellation rates, average durations or accommodation mix, although we have experienced a slight shift from long haul to medium-haul destinations and have altered capacity accordingly by removing a B767 aircraft from the long-haul summer 2009 programme."

Shares in TUI fell by 1p to 227p in early trading.

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