Preussag AG, Europe's largest travel group, on Thursday forecast an "extremely difficult" year ahead, in particular in Germany, and said it will step up a cost-cutting program in a bid to make up for the continued weakness of its domestic market.

Chief executive Michael Frenzel said the market was set to contract by 6–8% this year, though this contraction was not expected to be reflected in the figures of group's travel operators, headed by TUI. At present revenue booked this year so far remains 8.5% below the year-ago period. And with conditions becoming more difficult also for Preussag's other divisions, it was unlikely that the record result of 2001 could be repeated.

The first quarter would be clearly weaker than the year-ago period, Frenzel said. After the Sept. 11 attacks, Frenzel repeatedly forecast that the market would recover quickly and criticized Thomas Cook chief Stefan Pichler for his more pessimistic outlook. But the hoped-for recovery did not materialize over the winter season, leaving Preussag's operators with a 11% downturn in revenue. Since then Frenzel has been reluctant to give forecasts.

Shares in Preussag have since fallen so much that they hardly responded to the latest news on Thursday. After a brief dip into negative territory in the morning, the stock traded virtually unchanged for most of the session before closing up 1.26% at 30.61 euro. Most analysts said the figures presented were in line with expectations. More than 400 million euro net profit was a "good performance" considering the difficult conditions, said Christian Obst, analyst at HypoVereinsbank.

"It will definitely not be a catastrophic year but we are facing major operative challenges," Frenzel said. These are to be met mostly with another cost-cutting program. In addition to the savings of 120 million euro that it has already earmarked, the group is aiming to shave another 40 million euro of its costs across all its divisions.