Five-star demand prompts a strong summer for TUI

TUI Travel said its underlying operating loss for the first quarter had narrowed by some 20m. Full results are due next week.

Bookings were up between eight and 16 per cent overall in its key markets on demand for "differentiated" or higher-margin products, such as five-star Sensatori hotels and holiday villages designed for families.

"In the UK, bookings for differentiated products are up 26 per cent and we expect these products to represent half of all holidays sold over the full season," the company said.

Chief executive Peter Long said TUI Travel plans to focus on rolling out these products to offset margin pressure on mass-market trips.

It also plans to expand online and invest in its accommodation-only businesses. However, it remained cautious given the uncertain economic and geopolitical environment.

Unrest in Tunisia resulted in customers being repatriated, while a contraction in fourth-quarter GDP prompted warnings of a grim 2011 for the British economy.

The company, which competes with Thomas Cook Group, also said it could make a further 40m of cost savings at its UK business and central functions.

Its UK operations came under scrutiny last year after accounting errors led to the departure of finance chief Paul Bowtell, two further directors and the company's auditors, KPMG.

Equinet analyst Jochen Rothenbacher upgraded his recommendation to 'hold' from 'reduce', based on a higher share price for TUI Travel and a higher value for TUI's stake in shipping firm Hapag-Lloyd.

TUI Travel was formed in 2007.