Europe's largest holiday firm TUI Travel yesterday warned that its profits would be at the lower end of expectations as it blamed disruption from the volcanic ash cloud and uncertainty over the Government's emergency Budget for a "marked slowdown" in its UK market.
In addition to UK consumers booking their holidays later, the operator of Thomson Holidays said that more German customers had opted for less expensive, lower margin holidays, although bookings remained strong in the country.
TUI had previously guided towards profits of between £440m and £480m for the year to 30 September, but the shortfall in the UK and Germany means it will now be in the low "£440 millions". The update from TUI wiped nearly 10 per cent off its market value.
"The strong booking trends experienced up until the volcanic ash disruption in mid-April and the subsequent rebound in early May were not sustained throughout the early summer period," said Peter Long, chief executive of TUI Travel.
"This was particularly marked in the UK source market, where trading was affected by further airspace closures, good weather and post election uncertainty regarding the emergency budget."
As a result, TUI will now have to offload a higher expected proportion of holidays at a lower prices during the remainder of its financial year, which will hit margins.
For the nine months to 30 June, TUI's pre-tax losses widened to £540m, compared to £411m last year.
Its revenues tumbled by 7 per cent to £8.3bn over the period, although the fall was a less painful 4 per cent over the most recent three months.
TUI said it expected the recovery of Sterling against the euro would result in a foreign exchange hit of between £10m and £15m on its full year results. But on the upside, it expects cost savings to be £15m higher at £75m.
TUI painted a picture of UK consumers nervous about making bookings. The holiday operator said that while industry-wide UK booking volumes had tumbled by 10 per cent since its last update on 11 May, TUI's were down by just 2 per cent over the last 12 weeks.
"In the UK, the market has slowed markedly following the recurrence of airspace closures, the emergency budget and subsequent austerity measures and the better-than-average UK weather, combined with quiet trading during the World Cup," Mr Long said.
"Within this difficult market context we traded relatively well."
While TUI said that demand had improved in recent weeks, margins are lower than it previously forecast and load factor is now 83 per cent, which is one percentage point lower than last year. In terms of medium haul destinations, the most popular destinations for summer 2010 were the Balearics, Greece, Turkey, Canaries and mainland Spain. Further afield, consumers opted for Mexico's Cancun, Florida, the Dominican Republic's Punta Cana and Jamaica.
With the dust appearing to have settled on the Icelandic volcanic ash disruption in the spring, TUI said that almost 400,000 of its customers were affected by either having their holidays cancelled or being stranded abroad.
The company raised the total costs of welfare, repatriation and cancelled flights from the volcanic ash crisis by £10m to £105m.
Mr Long also warned on the outlook for the holiday industry, as consumers batten down the hatches.
He said: "It remains difficult to predict how the later booking pattern will change over the next 12 to 18 months, in the light of the current economic environment."