The XL Leisure Group is in talks with Argo Holidays with a view to it running the specialist operator.
It is not known whether the talks will involve a direct acquisition of Argo, which uses XL Airways for its charter flights.
Argo Holidays sales and marketing director Kathryn Beadle said: “It’s no secret that we are talking to XL about working closely, but nothing has been agreed yet, it’s still at the discussion stage.”
She denied rumours that a “letter of intent” has already been issued.
If a deal is struck with the XL Leisure Group it is thought the two brands could be kept separate as Argo has established itself as an upmarket brand.
Argo Holidays staff were told of the situation last week and have also been told they are to move from the company’s central London Wigmore Street offices because the operator’s lease ends in December.
“Regardless of this, we will be moving offices but we don’t know where to yet,” said Beadle.
However, if the XL deal went ahead, Argo could share offices with operator Kosmar in north London. Kosmar is owned by the XL Leisure Group, which has a majority shareholding in Medlife Hotels, previously part of the InterArgo Group.
One industry observer claimed niche operators to Greece were all struggling to compete on price with major tour operators, making consolidation more likely in the sector.
Argo is bonded to carry 62,800 passengers numbers this year.
Independent agents welcomed the news provided the two brands are kept separate. Eton Travel assistant manager Elaine Kane said: “If Kosmar was to absorb Argo it could probably provide the better-quality properties.”
XL Leisure Group was unavailable for comment.