May 13 (Bloomberg) -- TUI Travel Plc, Europe's largest tour operator, reported a narrowed first-half loss after booking fewer airline seats and hotel rooms in advance and selling more vacations in the U.K. and Scandinavia.

The net loss shrank to 300.9 million pounds ($588 million), or 26.9 pence a share, in the six months through March from 344.9 million pounds, or 30.8 pence, a year earlier, the Crawley, England-based company said today in a statement. Sales gained 9 percent to 5.16 billion pounds.

The number of summer vacations left to sell is down 21 percent from last year, and there's ``no evidence'' that weaker consumer sentiment is hurting bookings, TUI Travel said. The company also forecast annual cost savings of at least 150 million pounds by 2010 following its creation last year by the merger of First Choice Holidays Plc and TUI AG's tourism business.

``Trading is incredibly reassuring,'' Mark Reed, an analyst at Landsbanki in London who advises buying the shares, said in an interview. ``TUI Travel is clearly recovering from higher fuel costs.''

U.K. sales rose 9 percent in the last six weeks, and 61 percent of all vacations for local customers have been booked, the company said. In continental Europe, vacations are between 45 percent and 65 percent booked. The figures were reported as though the company were in its current form a year ago.

Shares Gain

TUI Travel fell 4.25 pence, or 1.6 percent, to 255 pence, erasing earlier gains. Hanover, Germany-based TUI still owns 51 percent of the company, whose shares have dropped about 13 percent this year, more than main rival Thomas Cook Group Plc, which is down 1 percent.

Closings of U.K. travel shops were among steps that kept the company on schedule to meet the cost-reduction goal. First Choice and the TUI unit combined, and Thomas Cook also was formed by a merger last year, as tourism companies moved to compete more effectively against Internet travel agents such as Expedia Inc. and budget airlines including EasyJet Plc.

An increase in trips to Egypt and Thailand by British and Scandinavian travelers trips fueled first-half sales at TUI Travel, owner of tourism brands from Thomson to jet4you.com. Consumers mostly plan to maintain travel spending even as economies weaken, according to the company. Thomas Cook also has said lower consumer spending hasn't hurt bookings.

Fuel Hedges

Hedges are in place for 90 percent of this summer's fuel requirements and 69 percent of next winter's needs, said TUI Travel, which also has hedged 90 percent of its euro costs for this summer. Oil prices have doubled over the last year, and the euro has risen 8 percent against the pound in 2008.

The travel operator is setting up a joint venture in Russia with a company backed by billionaire Alexei Mordashov. Chief Executive Officer Peter Long has likened the local market to those of the U.K. and Germany 30 to 40 years ago, with rising incomes spurring demand for beach holidays abroad.

Long declined to give financial targets for the venture today, saying he aims to expand it with acquisitions. The company already has a local unit with about 500,000 customers that mainly books trips to beaches in Turkey and Egypt, where Russians can travel without visas.

The CEO also declined to say when TUI Travel may complete talks with Deutsche Lufthansa AG on merging its TUIfly budget airline unit with competing Lufthansa division Germanwings.

TUI may seek to buy the rest of TUI Travel with the proceeds from selling its Hapag-Lloyd shipping division, the Financial Times reported last week, citing comments made by Chief Executive Officer Michael Frenzel to TUI's supervisory board.

TUI Travel plans to pay a so-called second interim dividend of 2.8 pence a share.

To contact the reporter on this story: Amy Wilson in London at awilson23@bloomberg.net

Last Updated: May 13, 2008 12:15 EDT