News of talks on a merger involving charter and budget airlines controlled by Thomas Cook, Lufthansa and TUI refuelled speculation Thursday of a major shake-out in the German travel sector, Europe's largest.

TUI Travel plc, Deutsche Lufthansa AG and Thomas Cook Group plc said they were in talks on a potential merger of Condor, a subsidiary of Thomas Cook in which Lufthansa already owns 24.9 per cent, Germanwings, of which Lufthansa owns 49 per cent through Eurowings, and TUIfly Germany, a TUI subsidiary.

The companies said no commercial terms had been agreed and that there was no certainty that any transaction would result from the talks.

On July 11, Air Berlin, Germany's second-largest airline after Lufthansa, withdrew from talks with Thomas Cook on taking over Condor.

The companies announced in September last year they were considering a two-phase takeover, valued at the time at around 700 million dollars. Thomas Cook was to hold a little under 30 per cent of Air Berlin in terms of the proposed deal.

Significantly changed economic conditions, in particular a doubling in the price of jet fuel, led to the change of heart.

Budget airlines are under pressure in Germany this summer, as weakening consumer sentiment and high fuel prices cut into holiday travel.

In mid-afternoon trade Thursday, the shares of the three companies were little changed.

In Frankfurt, Lufthansa was trading at 14.34 euros, down 0.4 per cent on the day in line with the leading DAX index, while TUI was up 0.8 per cent at 13.36 euros.

In London, Thomas Cook was up 25 pence at 215.25 pounds.