The airline was formed in 2007 by the merger of Hapag Lloyd Flug and Hapag Lloyd Express as a branch of TUI Travel. The airline codes of its predecessor are still in use, and the former callsign YELLOWCAB remained in use until it was changed to TUIJET on 24 September 2010.

In the second quarter of 2007, the load factor was at about 79%, after about 92% in the year before. Subsequently, the company closed its Leipzig/Halle and Bremen bases. On 29 January 2008, plans were announced to merge TUIfly with Eurowings and Germanwings (the Lufthansa low-cost brands) into a joint and independent holding company, but were withdrawn as talks turned out to be unsuccessful.[3]

TUI Travel confirmed on 27 March 2009 that it had sealed a strategic partnership with Air Berlin that would see Tui Travel take a 20% stake in Air Berlin, and Air Berlin 20% in TUIfly. Due to regulatory matters, this was changed to 9.9%.[4] Air Berlin will also wet-lease 17 aircraft from TUIfly and take over all of TUIfly's city connections. TUI will focus on serving the charter market with 21 aircraft of the remaining fleet.[5] From 25 October 2009, all German domestic flights previously operated by TUIfly were taken over by Air Berlin, as well as all flights to Austria, Italy and Croatia.[6] Most of these flights are still operated by TUIfly aircraft, but are marketed by Air Berlin