Europe's biggest travel firm TUI Travel saw full year pre-tax profits rise by 43 per cent. The group, created last year from the tie-up between TUI AG's travel division and First Choice, made a pre-tax profit for the year to Sept 30 of £319.7 million, compared with a proforma figure of £222.8 million the year before.

The increase came as the Thomson parent group benefited from a strong performance in the UK and merger synergies. The UK and Ireland division saw underlying profits rise by £76.5 million to £132.9 million as loss-making scheduled flying was cut for last winter by 22% and 43% in summer while total charter capacity came down by 5% and 7% respectively. The group is seeing "encouraging" early sales for summer 2009 with UK charter averge selling prices up by 10%. Capacity from the UK for next summer has been cut by 16%, with volumes down by 17% on selling pirces up by 10% year-on-year.

The company said it was continuing to focus on managing capacity "in anticipation of a weaker early booking environment". Synergy savings are now expected to rise by £25 million to £175 million. But the company revealed that underlying profits at Island Cruises dropped by £400,000 due to softer demand in the UK cruise market resulting in the business being unable to pass on "higher input costs" to the customer.

TUI has since agreed but buy out the half share in Island Cruises from Royal Caribbean and will retain one of its two ships, the Island Star, which is to be integrated into the Thomson Cruises fleet. The group acquired 16 companies in the past year worth £108.6 million.

Chief executive Peter Long said: "Our customers continue to regard their main holiday as an essential, not a luxury, which they are reluctant to forgo. "More than ever they want to book their holidays with trustworthy brands that provide excellent value for money."

He added: "I believe that the actions we are taking to manage supply and accelerate the synergy benefits puts us in strong position to manage the current economic environment and continue to meet our expectations for 2009." The group believes it can outperform the market in 2009 and 2010 through a mix of its fuel hedging, capacity management, brand leadership and management experience.