German-owned Thomas Cook is to buy British package holiday rival MyTravel – creating a travel company worth about #2.8 billion.
However, the deal means jobs will be axed.
Thomas Cook, which is owned by stores group KarstadtQuelle, will hold 52 per cent of the new company and MyTravel's shareholders will control 48 per cent. It will be called Thomas Cook Group and will take around 19 million people a year on holiday.
MyTravel chief executive Peter McHugh said the deal would create a company with annual revenue of around #8 billion and close the gap on Europe's biggest travel operator TUI, which has sales of around $23 billion (#11.79 billion). The deal is due to be completed by June.
The new firm, to be headquartered in London and listed on the London Stock Exchange, would be worth around #2.8 billion following a sharp jump in MyTravel shares yesterday.
Because of the merger the companies said they had ditched plans to take over the mainstream package holiday business of British competitor First Choice.
The package holiday industry has declined as more people use the internet and low-cost airlines to plan their own trips. Companies are trying to counter this with cost savings and by branching into leisure markets such as cruises.
Mr McHugh said the bulk of any job losses would be in Britain as the company closes High Street stores and eliminates duplicated administrative roles.
MyTravel has 12,947 employees, and Thomas Cook 19,775. The two groups have 1,030 shops in Britain, with 18,781 staff.
"The major focus of job losses will be in the UK," said Thomas Cook chief executive Manny Fontenla-Novoa, who will be chief executive of the new company after working alongside Mr McHugh.
Brendan Gold, national officer of the Transport and General Workers Union, which has hundreds of members at Thomas Cook, said: "Any merger clearly raises the spectre of job losses, so we will be seeking an urgent meeting to secure the best interests of our members."
Manuel Cortes, assistant general secretary of the Transport Salaried Staffs Association, said: "The new company’s commitment to savings of #75 million a year may lead to widespread closures among Going Places or Thomas Cook shops.
"We are due to discuss the merger with Thomas Cook this week and we obviously welcome their commitment to improve service to customers. Clearly, we need to know in detail what impact these changes will have on our members.
"But we do have fears that this may lead to shops closing on the High Street with warnings coming from senior management sources that the main impact of any job cuts will be here in the UK. That can only mean one thing – fewer shops with fewer jobs for our members and less choice for customers.
"The holiday market is changing fast with the growth of the internet and we do not want to see less choice for customers because of this."
Thomas Middelhoff, KarstadtQuelle's chief executive and chairman of Thomas Cook, will chair the new company, and MyTravel chairman Michael Beckett will be deputy.
Formerly known as Airtours, MyTravel almost collapsed under the weight of its debt in 2003 when leisure markets turned down.
The company, which runs Going Places travel agents, has cut costs, closed shops and reduced the number of holidays it sells. It reported a pre-tax profit of #43.8 million in the year ended October 31.