Tour firms face ruin

BRITAIN'S package holiday industry stands on the threshold of its biggest financial catastrophe since the collapse of Clarksons and Court Line 18 years ago. The first signs were revealed over the past week in newspaper small ads.

In the London Evening Standard, for example, Britain's biggest tour operator, Thomson Holidays, announced that it was offering seat-only deals on charter flights to Palma and Malaga and three other Mediterranean destinations for pounds 49 return. In an adjacent advertisement the second-biggest company, Owners Abroad, had seats to Alicante and the Canary Islands from pounds 59.

Holiday companies are always desperate to dump surplus seats at the last minute: they discount prices to encourage buyers. What makes this week's price cuts so surprising is that they are huge (a one-way seat on British Airways' London-Manchester shuttle - less than a tenth the distance of a London-Malaga return - costs pounds 84).

But what really worries the industry is that such large discounts are available so late in the summer. With the main school holiday period just under two weeks away, Thomson and the other big operators are being forced to dump unsold seats at less than half the cost price.

The major operators appear to have stopped worrying about whether they make a profit - they simply want to sell off the 2 million unsold holidays at whatever they can get.

The trade is optimistic that the cheapies will disappear from 24 July when main school holidays start. But while bookings are better for August, there are still gaps.

Thomson's managing director, Charles Newbold, threatened on Friday to continue selling holidays 'for whatever we can get for them', even if this means making pounds 49 deals available during the August peak season. His competitors have no choice but to match Thomson prices.

If Thomson and Owners Abroad are feeling the chill, small well-respected and long-established companies are fighting for their lives this month. It seems likely that a substantial number will have been forced into liquidation by the end of next month.

The Hampton Court-based Melita Holidays, a small Malta specialist, ceased trading on Friday. The Civil Aviation Authority said it would make arrangements for Melita's customers to take their holidays as planned this weekend: the fact that only six people were due to travel with Melita highlights the scale of the problem for small operators.

Industry experts expect the main crop of failures to begin in mid-August, when a holiday company's cash flow can be stretched to breaking point.

The real problem is not so much a shortage of bookings - business is probably slightly up on last year's Gulf war depressed level - but that there are far too many holidays available.

According to the latest CAA figures, tour operators are planning to sell 13.5 million holidays this year compared with 10.06 million in the last year. Tour operators hoping to cash in on last year's disappearance of Intasun increased the size of their programmes dramatically. Owners Abroad and Airtours, the second- and third-biggest companies, each added more than half a million holidays. Thomson decided to offer 300,000 more holidays.

There was widespread confidence that once the election was over, there would be a boom in holiday sales. It never materialised: in line with poor high street sales, the holiday business has remained in the doldrums.

In normal circumstances the tour operators would have made drastic cuts in the number of holidays on sale. However, Thomson is so worried about losing market share that it refused to cut back. Owners Abroad and Airtours were also reluctant to retrench.

The result has been millions of unsold holidays. Supply now so far exceeds demand that heavy price cutting is the only option. Bargain prices are available to all destinations served by charter flights from Alicante and Palma to Kenya, the Caribbean and Florida.

Noel Josephides, chairman of the Association of Independent Tour Operators, described the current round of price-cutting as the logic of the lunatic asylum. 'People have been so conditioned to buy holidays at low-cost rates that if they buy at the true price they feel they are being cheated.'

The spate of bargains poses future problems for the trade. Last- minute holiday cheapies - particularly the 'blind date' packages where you choose the destination and the operator allocates the accommodation - tend to generate a disproportionately high ratio of complaints.

Mr Newbold is confident that sensible pricing will return, depending on demand matching supply. An increase in demand depends on whether the sun and sand package holiday has a future. With the beaches washed by the noxious waters of the Mediterranean, and the sun threatening carcinomas of the skin, the traditional package has a doubtful future - at any price.