Thomson Travel shocked the market with the admission that UK demand for holidays in September and October had weakened and that it was cutting prices to sell millennium holidays, dashing hopes of a travel boom over the New Year.
Roger Burnell, Thomson's acting chief executive, said demand for millennium holidays started well last year but evaporated in the past six weeks. "Crazy prices" appear to be the main deterrent rather than fears that the Millennium computer bug might make flying more dangerous.
"Sales have deteriorated and are a long way off our initial expectations," he said. It is thought that Thomson has only sold 60 per cent of its Millennium packages.
As shares in travel companies plunged on the stock market, the Association of British Travel Agents confirmed that demand for mass market millennium breaks might be faltering though sales to more exotic locations had done well.
"If a travel company is selling holidays to destinations like Sydney, Rio de Janeiro, New York or Jerusalem, they would be OK. These places are flooded out with people who booked a long time ago, paid top prices and are happy to have done so," an ABTA spokesman said. "But sales to places like the Costa del Sol, Benidorm and the Canaries might have suffered."
Jeremy Skidmore, editor of Travel Weekly, said the market was "flat" but that Thomson's performance was even worse due to poor management.
Thomson's bombshell is the latest in a series of reports suggesting that the millennium might be a damp squib. Discount travel agents have been reporting the first signs of panic among airlines that may not fill all their seats at a time when profits are usually maximised.
A woman who had set up a baby-sitting service charging pounds 200 for the night said earlier this month that she had not received a single booking.
And pub group JD Wetherspoon confirmed yesterday that it would be closing its pubs at 8pm on New Year's Eve. It felt the additional wage costs for bar staff would not prove economic and its workers would probably prefer to have the evening off.
Thomson's profits warning is a severe blow for the army of private investors who bought shares in the company when it came to the stock market in May last year. It was one of the most popular flotations of recent years with investors lured by a 10 per cent discount on holidays for becoming members of its so-called "Founders club."
But the share price has been hit by two profits warnings in six weeks, the resignation of the group's chief executive and a disastrous threat of a price war in response to Airtours' attempt to buy rival holiday firm First Choice. The shares, 170p on flotation, fell 18 per cent yesterday to a new low of 103.5p.
Thomson, which reported interim losses of pounds 5m yesterday, is now planning a major overhaul of its business which includes the Britannia airline and Lunn Poly travel agents.