Susssex-based tour operator First Choice says the UK holiday market is recovering and it is seeing robust bookings.

The Crawley-based group, which slashed capacity and axed 1,100 jobs in the wake of the September 11 terrorist attacks on the United States, said the cost-cutting strategy was working.

First Choice said it had planned prudently for the summer period, cut capacity and costs and resisted any temptation to be over optimistic about trading conditions.

It said: "The business has responded well and we have been encouraged by booking trends."

Losses for the half year to April 30 widened however, to £59.8 million from £46.1 million.

The statement came in contrast to the recent shock profits warning from rival MyTravel, the former Airtours, which saw holidaymakers delay booking their summer breaks, leaving it with a glut of holidays to sell.

The warning prompted some critics to say MyTravel had failed to cut capacity sufficiently.

First Choice chief executive Peter Long said: "We continue to see a robust level of bookings, have fewer holidays left to sell than the same time last year and remain confident of our full-year outcome.

"Looking forward to next year, initial booking levels for winter 02/03 and summer 03 are encouraging, albeit still at a very early stage."

The figures came a week after a court overturned a decision by the European Commission in 1999 to block a £850 million hostile takeover bid for First Choice by Airtours.

The decision led to speculation a wave of mergers will sweep through the travel industry.

However some analysts think there is a possibility that First Choice and MyTravel could attempt a deal.

There has been speculation that this time it would be First Choice bidding for MyTravel, rather than the other way round.

MyTravel is the bigger of the two in terms of market value, despite its recent profits warning.

It is valued at about £840 million on the London Stock Exchange, while First Choice is valued at about £570 million.