Thomas Cook has emerged as a key rival to MyTravel in a bidding battle for the £500 million mainstream package holiday operations of First Choice, which are up for sale.

The German-owned Thomas Cook is thought to have held discussions with banks during the past week and is expected shortly to appoint advisers to open formal talks with First Choice.

The moves come on the heels of First Choice’s announcement last week that it is already in preliminary talks with a number of interested parties over a sale of its main package holiday business.

In the wake of that statement, shares in First Choice shot up to a record high of 267p. On Friday, the shAVares closed at 264.25p.

A sale of the company’s mainstream package operations will pave the way for the tour operator to push ahead with a strategic shake-up that will allow it to concentrate its energies on more profitable specialist travel activities.

Thomas Cook yesterday refused to comment on any potential interest in First Choice.

However, reports of a possible offer to First Choice come as the German group is itself undergoing far-reaching changes. Its joint parents, KarstadtQuelle, the German retailing group, and Lufthansa, the country’s flag-carrying airline, are in the throes of negotiations over its future.

Thomas Middelhoff, KarstadtQuelle’s chief executive, is believed to be keen to acquire the 50 per cent of Thomas Cook presently controlled by Lufthansa.

Travel industry observers suggest that such a change in Thomas Cook’s ownership could help to pave the way for a successful acquisition of the First Choice package tour business.

KarstadtQuelle may face a tough struggle to secure the First Choice operations against rival bidders, however.

Last week, MyTravel, of Britain, said in its own statement that acquisition of the First Choice operations would provide “an opportunity to deliver significant value to both First Choice and MyTravel shareholders, given the value of potential synergies and other consolidation benefits”.

MyTravel’s approach to First Choice comes only three years after the group, which was once Britain’s biggest tour operator, came close to collapse after its debts ballooned to £1.3 billion.

More recently, it has staged a recovery after a drastic restructuring under Peter McHugh, the chief executive, following a financial overhaul in 2004 with an £800 million debt-for-equity swap. MyTravel has said that it will be profitable by the end of the present financial year and pledged to begin paying a dividend to investors by early 2008. The opportunity to write off its tax losses against First Choice profits will make an offer for the rival operator more enticing.

The contest for First Choice comes against a backdrop of intense competition and tough trading in the package holiday industry.

Operators in the already highly competitive marketplace have more recently been hit hard by the twin impact of low-cost budget airlines and the growing enthusiasm of holidaymakers for internet travel websites, such as Expedia and Travelocity. The combination has seen many people opting for do-it-yourself holidays.

First Choice is seen as having fared better than most by focusing on more profitable adventure holidays and short breaks.

First Choice failed to return calls yesterday.

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