Thomas Cook, Europe's No.2 travel company, reported strong trading as consumers continued to book holidays despite an economic slowdown stretching household budgets.

"We recognise that uncertainty will remain on bookings for summer next year until the end of this year, early next year and, after a 40 per cent bounce over the last month, think that some profit taking is possible," said Investec analyst Joe Thomas.

Thomas Cook chief executive officer Manny Fontenla-Novoa told reporters the group, a unit of German retailer Arcandor, has so far seen no evidence of consumers cutting back on holidays or trading down.

"The main holiday is a 'must have' item for consumers. In our experience, people will cut back on all sorts of other things before they cut back on their holiday," he said.

The group, created last year from the tie-up of Arcandor's travel unit and Britain's MyTravel, said trading this summer season is strong in all markets and early indications show bookings to be ahead of last year for winter 2008/9 and summer next year.

Thomas Cook said it is on track to meet its expectations for the current financial year. The average forecast for pre-tax profit is €426 million, according to Reuters estimates.

The group said it has taken steps to increase flexibility for next summer in capacity, accommodation, cost base, and fuel hedging. Fuel has been 92 per cent hedged for 2008/9.

Thomas Cook and rival TUI Travel have been cutting capacity, stripping out unprofitable or less profitable lines, leaving them with fewer holidays to sell and enabling them to avoid deep discounting on late bookings.

They have also been adapting their product offering to sell fewer holidays to expensive euro-denominated countries such as Spain and Portugal and more in non-Euro countries such as Egypt and Turkey, which are rapidly growing in popularity.

Winter bookings to Egypt are 20 per cent up year-on-year, with Turkey bookings up 13 per cent.

ABN Amro kept a 'buy' recommendation on the stock but said it is "conscious that despite good initial bookings, concerns over the consumer outlook for 2009 are unlikely to go away".

Last month, German carrier Air Berlin scrapped its takeover of Thomas Cook's charter airline Condor, putting the brake on attempts to create a rival network to Lufthansa.

Thomas Cook said, while talks are continuing with Air Berlin about the feasibility of an alternative transaction, it is pursuing other options for Condor.

Sources familiar with the situation told Reuters last month that these could include a three-way merger with fellow charter airline TUI Fly and Lufthansa unit Germanwings.

Meanwhile, TUI Travel said that demand for package holidays remains strong and it was confident of meeting its expectations for this year and 2009, despite slowing economies.

The group, created last year from the tie-up of TUI AG's travel division and First Choice, reported a 39 per cent increase in third-quarter underlying operating profit to £65.4 million.

Revenue rose by nine per cent to £3.6 billion and the underlying operating margin was up 40 percentage points to 1.8 per cent.

TUI Travel said it has significantly fewer holidays left to sell for this summer compared with last year. UK sales were up five per cent with average selling prices 13 per cent higher.

The group said winter 2008/9 and summer 2009 have started positively with average selling prices up eight per cent and 12 per cent respectively.

TUI Travel said it has already completed the actions necessary to deliver the majority of next year's targeted merger savings of £80 million and is confident of delivering at least 150 million of synergy benefits in total.

TUI Travel said it will make further reductions to capacity in next summer, particularly in the UK and Germany, with year-on-year capacity reductions of 15 per cent and six per cent.

The average forecasts for 2008 and 2009 pre-tax profit are £317 million and £403 million respectively, according to Reuters Estimates.

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