As global tourists get cold feet, let's hope we won't all be heading to Skegness this year

It happened after 11 September, and looks set to happen again: the nesting phenomenon. In 2001, faced with the horrors of the terrorist attacks on New York and Washington, people cancelled holidays and stayed in. That was bad news for airlines and tour operators, but for the retail sector it meant record trading figures.

Eighteen months on, and another set of geopolitical events is hitting home. Faced with war, Sars and terrorism, some predict a resurgence of the trend. John Butler, economist at HSBC, says: "We can already see it in the results from the airline and holiday sectors: they have had a pretty disastrous time and are slashing prices. And it has to be because people are worrying about Sars and so on, because unemployment is still very low, so they're not worrying about their jobs."

This time the trend could have an even bigger impact, coming just before the crucial summer months. Retail could well be a main beneficiary, and this good fortune comes not a moment too soon: only last week, government data showed high-street demand, long a backbone of UK economic growth, had slowed in April. Gloomy updates from retailers backed up the statistics.

But if people remain in the UK over the summer, it means that money normally spent abroad stays here. Richard Hyman, chairman of retail research consultancy Verdict Research, says: "The war in Iraq is over but the threat of terrorism is a growing concern, and people are becoming more cautious. The idea of the home as a sanctuary is gaining ground."

He concedes that even with this extra fillip, retail sales cannot reasonably be expected to grow at the red-hot levels seen in the past two years. Some downward pressures remain, notably pension worries, growing personal debt and a rise in national insurance. But he believes DIY and food retailers will still benefit if domestic tourism thrives this summer.

All this coincides with a £4m government campaign to get people to take holidays in the UK. The British Tourist Authority (BTA) reports a strong response, and that will be music to the ears of some companies. One is Parkdean, which runs leisure parks in the South-west, Wales and Scotland. The City has not been blind to the charms of the Aim-listed group: since the start of the year its shares have risen 33 per cent. Another to benefit is De Vere. The hotel chain has 35 UK outlets, just one in London, with facilities ranging from golfing to spas (De Vere owns The Belfry, which ironically suffered when the Ryder Cup was postponed after 9/11). So while its peers have taken a battering, both in the City and on their balance sheets, De Vere remains optimistic.

Its chief executive, Paul Dermody, says the group, faced with a slowdown in the lucrative conference market, decided at Easter 2001 to focus on leisure breaks. Prices have not been cut, so while the margins are not as strong, the group reports earnings growth. "What we have been able to do is introduce people to the short-break market who were not using it before. They have stayed in the UK and seen that this hasn't actually been too bad." The chain reported a 10.5 per cent rise in year-on-year sales for Easter 2003 and, as Mr Dermody points out, even with the lower margins, "it's a very lucrative market for us".

It was a strong Easter for many UK operators. The BTA says Cumbria did particularly well, with visitor levels not seen since before the foot-and-mouth disaster. If that is repeated throughout the UK, it means good news not only for De Vere, Parkdean and regional retailers but also bed-and-breakfast establishments around the country, and restaurants, bars and pubs. According to the BTA, 130,000 businesses are involved in tourism in the UK. A 1 per cent increase in domestic trips by UK residents adds more than £200m to the economy.

For the trailblazers of global expansion, the summer could prove painful. Millennium & Copthorne, the luxury hotel chain which garners almost a third of its profits from Asia, has been battered by the outbreak of Sars, while other high-end groups, such as InterContinental Hotels and Le Meridien, have also suffered. A weak summer, with people preferring a weekend in the Cotswolds to a week in Hong Kong, will compound that. Most expect the hotel chains to pull through - most, for example, have strong balance sheets - but it will be a bumpy ride.

For the airlines, more woe is set to be heaped on a seemingly endless tale of woes: the long-haul carriers have never had the chance to recover fully from the 11 September attacks. Last week British Airways, which has overhauled itself via its Future Size and Shape restructuring programme, returned to profit but still lost about £1m a day in the fourth quarter. Rival Virgin Atlantic was in talks on closer co-operation with BMI, a move seen as defensive. As news of the talks emerged, Singapore Airlines, owner of 49 per cent of Virgin, warned that second-half profits were likely to slump.

Low-cost carrier easyJet is more bullish. It believes people still want overseas holidays, but are simply booking at the last minute. A spokesman says: "Since the end of the war, there has been a slow recovery although we are seeing people book slightly later." Certainly Europe is seen as a safer destination, although the prospect of industrial action by airline crew and ground staff could take the shine off the Continent's allure. France, for example, has already suffered a spate of strikes over pension reform.

To keep people flying, easyJet has cut prices, despite the fact that its business model is already based on cheap fares. The firm insists it is simply responding to market demand but the spokesman concedes: "Every airline in the world is looking at a difficult six months."

Holiday companies face a similarly tense time, although the industry is putting on a brave face. A survey by the Association of British Travel Agents in March found that 17 per cent of respondents were planning to take a holiday this year but war and terrorism meant they were delaying final decisions. Only 2 per cent said they would holiday in the UK. Since the survey, however, Sars has arisen and there has been more terrorism.

Of all the tour operators, arguably the toughest time will be had by MyTravel. The troubled firm, which is in the middle of a financial restructuring, said business had been "encouraging" after the end of the Iraq war, but as one analyst warns: "If everyone decides to stay at home it cannot survive - the banks will pull the plug at the height of summer."

Still, he remains tentatively confident: "For six weeks of the year the British will get on a plane and go to Spain. It's up to the companies to hold their nerve. They won't go to Turkey, or Morocco, but they will go somewhere." For the sake of companies such as MyTravel, let's hope it's not just Cumbria.