Holiday companies hit by soaring fuel prices

The rise in fuel prices, having caused a temporary paralysis at Britain's petrol pumps, looks certain to have a longer-term effect on the country's top tour operators.

The rise in fuel prices, having caused a temporary paralysis at Britain's petrol pumps, looks certain to have a longer-term effect on the country's top tour operators.

Over the past 12 months, airline jet fuel costs have risen by more than 90 per cent in dollar terms, from $130 (£92.86) to $250 per metric tonne.

Analysts say the price increase could pose a serious threat to holiday companies, such as Airtours, Thomson Travel and First Choice, all of whom operate their own in-house airline.

Nigel Reed, of BNP Paribas, said: "There is little [these companies] can do to offset this massive increase in fuel costs." He said most were already operating at close to full capacity, so selling significantly more holidays was not an option. Passing the price rises onto customers would also be difficult, because of the competitive nature of the UK travel market, although fares for some scheduled flights did rise 3 per cent at the end of last week.

The full impact of the fuel hikes is unlikely to be felt for several months, as companies tend to hedge in advance to help protect themselves against price fluctuations. "The extent to which tour operators will be affected depends on how much they are covered forward and at what price," Mr Reed said.

The trend for higher fuel prices provides a fresh blow for travel groups, who are already battling with a slump in European demand and aggressive discounting.

And if the trend for higher oil prices continues, Mr Reed warned, it could also have a negative effect on customer demand. "If the oil price stays up and economic growth slows as a result, consumer confidence will be lessened and less holidays sold."

Airtours shares on Friday closed down 14.5p at 258.5p amid continued concern about its strategic direction following Thomson's £1.8bn takeover by Germany's Preussag earlier this year. First Choice ended down 1p at 118.5p.