Kinki Nippon Tourist Co. and Nippon Travel Agency, the nation's second- and third-largest travel agencies, announced Monday that they have canceled a merger plan for January 2003 due to ramifications of the Sept. 11 attacks in the United States.

The two companies said that the September attacks hurt the travel industry so badly that the two firms now don't have sufficient financial strength to finance the merger.

"From now on, each company will focus on rebuilding its own basic business," said Hideo Takahashi, president of Kinki Nippon Tourist during a news conference in Tokyo.

TiS, a travel agency unit of West Japan Railway Co., had already merged with Nippon Travel to prepare for the three-way merger with Kinki Nippon.

The three-way merger was announced in January 2001. At that time, travel agencies were struggling due to plunging corporate demand amid the recession, intense competition from newcomers offering discount package tours, and the growing popularity of Internet bookings.

The merger was designed to create a travel agency to rival JTB Corp., which with turnover of 1.4 trillion yen makes it by far the nation's No. 1 agency.

The two major travel agencies hoped Kinki's package tours for individuals and Nippon Travel's group tours would give them greater bargaining power in negotiations with airlines and hotel firms, allowing them to challenge JTB.

But the September attacks, which discouraged many Japanese travelers from going abroad, will force both Kinki and Nippon to post pretax losses for 2001, the two firms said.

The two companies have already completed a new joint computer center in Tokyo's Chuo Ward, but key software and customer data are still separately managed and will no longer be integrated, said Takahashi of Kinki Nippon Tourist.

During the news conference, the presidents of the firms denied media reports that rifts over key restructuring measures led to the breakup and placed all blame for the failed alliance on the unexpected terror attacks.

"We did have conflicting opinions, but they were things that could have been overcome for the sake of the merger," said Akira Kanai, president of Nippon Travel. "We were, in fact, in the middle of that process."

Kinki Nippon, set up in 1941, has about 6,250 employees with 270 branches in Japan and about 25 overseas. Nippon Travel, established in 1905 and one of the oldest agencies in Japan, has about 4,100 employees, with 267 domestic outlets and 42 abroad.

Revenues at Kinki Nippon was an estimated 733 billion yen in fiscal 2000 and revenues at Nippon Travel came to an estimated 460 billion yen. Both are based in Tokyo.