In a trading statement, the company said its 24 hotels in the capital, which include the Mount Royal and the Tower Thistle, had been hit hard by a slowdown in foreign tourism in the second half of last year.
The chief executive, Ian Burke, claimed that the strength of the pound and the global financial turmoil kept tourists and business travellers away from London. "London has suffered from a more difficult trading environment, especially in the second half of the year."
Thistle, which last year was the target of an aborted pounds 1.5bn bid from the Japanese bank Nomura, said the downturn was behind a 3.5 per cent drop in the number of rooms sold by Thistle in the capital.
Revenues per room - the industry's method of measuring hotels' profitability - rose 3.8 per cent in London, well below the double-digit growth registered in 1997.
Thistle's 37 regional hotels fared better, posting a 4.3 per cent increase in the number of rooms sold and a 10.3 per cent rise in revenues.
Mr Burke said the number of domestic travellers showed no sign of abating, despite the harsh economic conditions in many parts of the country.
The strong performance from its regional venues helped Thistle to grow its turnover by 4.6 per cent to pounds 296.7m and pushed the shares up 3.5p to 110p.
City analysts said the numbers suggested the company would report a profit of around pounds 86m when it unveils its results next Wednesday. They noted that Thistle's figures reinforced recent statements by rivals such as Stakis over the tough conditions in the London market.
"In the second half, rates must have fallen off a cliff and London is the main culprit," one analyst said.
He added that the shares, on around nine times 1998 and 1999 earnings, traded at a discount to Stakis and Millennium and Copthorne but were no more than a hold, given the company's greater exposure to the uncertain London market.