A deal to create a £12 billion holiday giant took a step forward today after the European Commission approved a merger between two rivals.

The new company - to be called Tui Travel - brings together Sussex-based tour operator First Choice and the tourism arm of German company Tui, owner of Thomson Holidays.

The commission has given its approval to the deal subject to Tui selling its Budget Travel business in Ireland, as the combination with First Choice's Irish Falcon/JWT operation would give the new group more than 50 per cent of the market.

The massive new organisation formed by the merger will have 48,000 staff, serving 27 million customers.

The consolidation in the travel sector comes as traditional operators come under increasing pressure from internet competition and cheaper flights.

In February MyTravel and Thomas Cook announced merger plans to form a group with combined sales of £8 billion, a deal also cleared by European officials in May.

First Choice chief executive Peter Long said: "We are pleased that the Commission has recognised the sea-change in the leisure travel industry brought about by internet-based travel and tourism businesses and the low-cost airlines."

The new company will be listed on the London Stock Exchange by October. It is committed to building up internet sales as well as saving £100 million through cutting costs and streamlining its retail shop operation.

Thomson has been the biggest UK tour operator since 1974. Its holiday airline - formerly Britannia Airways - is now Coventry-based Thomsonfly.

Formerly called Owners Abroad, First Choice has its headquarters at Crawley. Its airline was formerly called Air 2000 and is now First Choice Airways.

Thomson holiday brands include Simply Travel, Headwater Holidays, Crystal Holidays, Thomson Ski and Snowboarding, Thomson Lakes and Mountains, and Jetsave.

First Choice's brands include Sovereign, which has had a number of owners over the package holiday era and is one of the best-known names in the travel business.