British tour operator MyTravel is in talks with rival First Choice on buying its main package holiday arm for about £500m ($966m), according to a report.
First Choice is focussing on long-haul and adventure holidays
First Choice is considering selling its mainstream holiday division to focus on specialist and activity breaks, the Sunday Times reports.
Another rival, Thomas Cook, could also be interested, the paper said.
Tour firms are consolidating as they try to fight off competition from budget airlines and internet operators.
"We believe that in the package holiday business in the UK consolidation is likely to happen - but I don't know whether that will happen in three months or three years," MyTravel chief executive Peter McHugh said earlier this month.
At the time he said that UK trading had still not yet recovered from the impact of the summer's security alerts.
He also warned that UK winter trading remained "challenging".
However, the owner of the Going Places chain of travel agents and the Airtours tour operators said its forecasts for the current financial year remained unchanged, with pre-tax profits expected to be between £40m-£45m.
That would be its first pre-tax profit since 2001.
First Choice made a pre-tax profit of £114m last year, but has increasingly focused itself on long-haul and adventure holidays amid stiff competition in the package holiday sector.
My Travel said it would not comment on the story.