THE British Office of Fair Trading (OFT) yesterday began an investigation into the way travel companies sell foreign package holidays to millions of sun-seeking Britons.

The director-general of the consumer watchdog body, Mr John Bridgeman, called a Monopolies and Mergers (MMC) inquiry into ownership links between leading tour operators, such as Thomson and Airtours, and retail travel agents.

The MMC will also be able to look at the practice among travel agents of offering holidays at a discount conditional on the purchase of specific travel insurance.

Both travel companies said they were confident they would be cleared by the 12-month MMC inquiry. But shares in Airtours plunged almost 10 per cent in London, losing 69p to 644p.

Mr Bridgeman noted that vertically-integrated companies like Thomson and Airtours supply a large proportion of a market worth £7 billion and he was concerned that some of their practices could distort competition.

"I believe they have the market power to put competitors at a disadvantage, for example by de-racking (removing) or threatening to de-rack their brochures in an attempt to negotiate larger commissions," he said.

Thomson owns the leading Lunn Poly travel agency, while Airtours owns the number two travel agent, Going Places.

Together they operate around 40 per cent of British travel agents and supply around 45 per cent of more than 10 million foreign packages sold each year.

Thomson, part of Canada's Thomson Corp, welcomed the inquiry. "Thomson is confident that the industry at large, and Thomson in particular, will be vindicated from any allegations of anti-competitive practice," said Mr Paul Brett, chairman of Thomson Travel.

Airtours deputy chief executive, Mr Harry Coe, said there was no case to answer and claimed the British market offered the world's cheapest foreign holidays.