Supporting the findings of the Monopolies and Mergers Commission, Margaret Beckett, President of the Board of Trade, said the foreign package holiday market was "broadly competitive" but that certain practices in the travel trade operated against the public interest.
She proposed measures to stop these practices but stopped short of the most drastic measure which would have been to force companies like Airtours and Thomson to sell their travel agency chains.
Shares in the big tour operators such as Airtours, and First Choice rose sharply on the news as the stock market breathed a sigh of relief over the leniency of the report.
The first change proposed by the MMC yesterday will mean tour operators will no longer be able to make some holiday discounts conditional on consumers buying specific travel insurance. Margaret Beckett said this misled consumers about the level of discount they were receiving. It said travel agents were able to inflate the level of discount because of the large margins made on insurance sales.
The report also called for greater transparency in the ownership links between tour operators and travel agents. The proposed changes mean that Airtours, which owns the Going Places chain and Thomson which owns Lunn Poly, will have to display their names on their travel agency businesses and on their brochures.
The final change demanded is the end to the "most favoured customer clauses". These are agreements between a tour operator and a travel agent to offer as big a discount on that tour operators holidays as it offers on any other company's deals.
The travel industry welcomed the report's findings. But Peter Long, managing director of First Choice Holidays, said the unravelling of the tie between insurance policies and discounted holidays could lead to higher prices. As First Choice does not own a travel agency chain, he was pleased with the decision to force tour operators to declare their ownership links. "All we ever wanted to see is a level playing field."
Airtours, Britain's second largest tour operator said the changes "would not materially affect" the financial performance of its business. Harry Coe, group managing director said: "There have now been a number of investigations by the UK competition authorities into the leisure travel industry. This latest ... examination is final confirmation that the market is working effectively."
Travel shares bucked a declining market on the report's findings. Airtours shares up 17.5p to 1220p. First Choice rose 2p to 99p.