The Tui and Etihad Aviation groups have ended talks on a joint venture to merge TuiFly in Germany with Air Berlin subsidiary Niki to create a new leisure airline in German-speaking markets.

Tui and Abu Dhabi-based Etihad, which owns a near 30% stake in Air Berlin, have been talks on the merger since last October.

The companies gave no reason for the breakdown in negotiations. However, Tui indicated it remains open to a joint venture to “reshape the market”.

Lufthansa, Tui, Thomas Cook and Air Berlin have repeatedly referred to overcapacity in Germany eating into profit margins.

The plan had been for a new airline based in Vienna with a fleet comprising 30 TUIfly aircraft, 19 from Niki and 14 leased by Air Berlin.

Tui planned to hold a near 25% stake and Etihad 25% with just over 50% held by Niki-Air Berlin investors.

Announcing the end of negotiations, Tui executive board member Sebastian Ebel said: “The aviation sector is characterised by overcapacity in Germany.

“A strong European leisure airline continues to make great strategic sense. However, Niki is no longer available for a joint venture.

“We will push the repositioning of Tui further ahead in order to develop long-term prospects for the airline and its employees.”

In a statement, Tui said: “Tui Group remains prepared to contribute to the stabilisation of the German aviation market.

“Tui remains open for the formation of joint ventures serving the strategic goal of reshaping the market.”

The cessation threatens to spell the end for Air Berlin which has struggled for years and is in the midst of yet another downsizing and restructuring process.

The carrier is the process of transferring 33 aircraft to Lufthansa subsidiary Eurowings under a wet-lease deal, which includes crew.

Air Berlin was also transferring most of its European leisure flying to Niki in anticipation of the joint venture with Tui.

Yet the carrier has been hit by repeated airport strikes at its base at Berlin Tegel and at Dusseldorf. Air Berlin had to cancel 783 flights last month and more than 2,600 since the start of the year.

The airline suspended one of its two daily flights between Berlin and New York at the start of June and dropped several routes from Berlin and Dusseldorf.

Chief executive Thomas Winkelmann issued a public apology for the delays and cancellations, but suggested it was no longer financially viable to operate short-haul routes with staff on German employment contracts.

Winkelmann said: “We must find a partner in 2017.” The Lufthansa Group now appears to offer one of the only viable alternatives.

Amid the uncertainty, Ryanair intends to expand rapidly in Germany with plans to more than double its market share in the coming months.