Europe’s largest tour operator, TUI Travel, has reported a doubling of net quarterly losses to £124 million due to planned capacity reductions and tougher trading. But strong demand for holidays this summer has led to rising prices and an improved outlook.

However it said there had been a significant improvement in profitability in the current quarter, leading TUI chief executive Peter Long to suggest that the worst of the downturn may be over.

He said: “I expect positive momentum in each of the remaining quarters of 2010 as trading benefits from improved demand in all source markets.”

In the UK, TUI has increased capacity for this summer by 3%.

It has added an extra ship to meet a growing demand for cruise trips, while it has increased its presence at regional airports where it is either under-represented or where a competitor has gone out of business.

“We continue to monitor supply and demand and have retained sufficient flexibility to adjust capacity accordingly.”

However families are facing more expensive holidays this summer with the group reporting a 9% rise in its average selling price.

Prices have strengthened in recent weeks after UK bookings improved 6% in the period between November 22 and January 31.

Long said: “We are seeing holiday demand improving across all our source markets, with sustained improvements in booking volumes over the last three to four months.”

TUI said the average cost of a winter break was also 10% higher in the UK after it managed to match capacity to demand.

TUI Travel has also been suffering losses on costs linked to its creation in late 2007 following the merger of British travel group First Choice and the tourism activities of German travel giant TUI.