TUI Group has announced that it has ended talks with Etihad Airways (EY, Abu Dhabi International) over the proposed establishment of a new leisure operator, based on the German tour operator's TUI fly (Germany) (X3, Hannover) unit and the Austrian production company Niki (Austria) (Vienna).

Under the plan unveiled last year, Niki's parent, Air Berlin (1991), would sell its 49.8% stake in the Austrian carrier to Etihad for EUR300 million. Thereafter, the Emirati carrier would have contributed this shareholding to the new European leisure airline group in which it would have owned 25%, TUI AG 24.8%, with Austria's NIKI Privatstiftung foundation holding the remaining 50.2%. The carrier project was to have come online in time for the start of the 2017 Summer Season but has been hamstrung by regulatory delays.

In a statement issued on Thursday, June 8, TUI Group said the talks had now been called off blaming overcapacity in the German market in particular.

"Strategically, a strong European tourism airline continues to make a lot of sense," Sebastian Ebel, Member of the Board of Management of TUI AG for the Central Region (Germany, Austria, Switzerland, and Poland) said. "We will continue to push the repositioning of TUI fly in order to develop long-term prospects for the airline and its employees."

Despite the move, TUI Group said it was still open to a partnership or the creation of joint ventures if the strategic aim is to reshape the German market.

In a separate statement, Etihad said the parties had been unable to reach agreement on the final nature of the joint venture.

As such, Air Berlin's leisure operations will continue to operate as a separate business unit, under the Niki brand. Air Berlin will disclose more details in the coming weeks, Etihad said.