Holiday companies show signs of panic

'SUMMER '93 Give-away]' screams the window display at Thomas Cook. The other main travel agency chains are being equally generous. 'Super Sale: A Massive Ten Per Cent Discount Per Person,' promises Lunn Poly. Pickfords Travel is 'Taking off even more]'

The special offers indicate troubled times in the package-holiday business. Despite an alluring array of early-booking offers by the major tour operators in their Summer '93 programmes, launched in September, by Christmas bookings were well down on last year.

Roger Allard, chief executive of Britain's second biggest operator, Owners Abroad, says the market was down by about 10 per cent. Other industry sources suggest the situation is even worse. Thus, in the time between Boxing Day and New Year's Eve, which used to be one of the busiest booking periods for package holidays, travel companies were having to seek custom with the most generous ever special offers.

Thomson chief executive Charles Newbold said the special offers had paid off: in the past week the company had handled 75,000 bookings. 'People are keen to buy - they are chasing the bargains,' he said.

Thomson, Owners Abroad and Airtours have all launched special post-Christmas cut-price programmes to stimulate bookings - Thomson, for example, has trimmed prices by a total of more than pounds 50m. There has also been a realignment in the travel business recently. Thomson now owns Lunn Poly, Airtours acquired Pickfords Travel, and Owners Abroad is now in partnership with Thomas Cook, with the result that the big operators are clearly directing events.

Last year was one of the most difficult for the industry since the collapse of Clarksons and Court Line in 1974. At the start of the year, tour operators were hoping to sell more than 9 million packages but in the end total sales amounted to around 7.5 million.

With supply heavily exceeding demand through June and most of July, tour operators were forced to make holidays available at incredibly low prices. Thomson and Owners Abroad offered return flights to the Mediterranean for as little as pounds 49.

In these circumstances, bankruptcies were inevitable. The most spectacular was the failure of unbonded Bath-based operator Land Travel. There was also a string of collapses of better-known companies, including Turkish Delight, Flight Seekers, Airbreak, Sands, Paloma Holidays and, just before Christmas, Novotours.

The industry fears that the bankruptcies will continue. The decline of the pound after its withdrawal from the ERM in September caused severe problems for many operators, even those who took the precaution of protecting their 'no surcharge' guarantee schemes by buying their foreign currency in advance.

Some operators have put off paying their hotel bills for August, September and October in the hope that the pound will rise. The fall of the pound against Cyprus's currency is believed to be costing one operator as much as pounds 2m.

The three major operators are saying that if bookings fail to reach sufficient numbers they will reduce capacity rather than cut prices even further. They are keen to avoid a repetition of last summer's last-minute discounting.

But the fact that the holiday supply has been matched by demand in only one year in the past 10 suggests that an end to last-minute discounting is unlikely. Operators will have to decide by the end of February whether to cut the number of charter flights. With Thomson anxious not to lose market share to its competitors - and small newcomers such as Inspirations and Riva keen to win business - the major operators may be unable to trim much capacity.

The major operators also have the problem of sluggish winter-holiday sales. Holidays to the Canary Islands this week are widely available for less than pounds 150 for seven nights. Seven-night packages to Egypt are on offer for less than pounds 200.

Another headache for tour operators is the EC Directive on Package Travel, which finally came into effect on Friday. The new legislation makes tour organisers legally responsible for everything that goes wrong with their holidays - there can be no buck-passing for overbooking hotel rooms or non-existent coach transfers to resorts.

The most important aspect of the new directive is that all travel organisers must be bonded. In theory, this means that a future collapse like that of Land Travel - where thousands of customers lost their holidays - is impossible.

In practice, according to Noel Josephides, chairman of the Association of Independent Tour Operators, many small companies are unable to find insurance firms who can provide them with the necessary bond. 'The infrastructure does not exist within the private sector to cope with this,' said Mr Josephides.

The Government has put the enforcement of the EC Directive in the hands of Trading Standards officers, who have already said that they do not have the resources to deal with it.

If any tour operators are enjoying the New Year this weekend, they are doing so because of the fact that, despite the odds, they are still in business. How many will still be around at the start of 1994 is another matter.