Rise in holidays at home as tourists shun air travel

This month, about 200 British travellers will return to the UK carrying a potentially fatal disease. On average, one or two will die.

Malaria has long been a fact of travelling life. Yet the existence of this mosquito-borne parasite, and the absence of an infallible means of prevention, does not deter millions of British holidaymakers from travelling to tropical destinations where this "killer bug" resides.

The panic among travellers over Sars is of a different order. Hong Kong has, in effect, been wiped off the map as a tourist destination, and its "home town" airline, Cathay Pacific, faces economic difficulties. A week ago it offered flights from London to all its Australasian destinations for a flat £400 plus tax and a modest margin for the agent. Even though the World Health Organisation says changing planes in Hong Kong is safe, there have been few takers.

Cathay Pacific is more exposed than any other carrier to travellers' fears about Sars but almost all have been affected. The prospect of war in Iraq hovered for so long that airlines were able to prepare for the downturn in traffic that accompanied the hostilities. Travel industry veterans looked forward to the fall of the regime in Baghdad as the trigger for a rush of bookings, as happened after the Gulf War in 1991.

Sars has upset that prediction. The virus has jeopardised the business plans of luxury hotel chains, budget hostels, tour guides and guidebook publishers. Whispers are rife about the financial health of various airlines, tour operators and cruise lines.

On Wednesday, American Airlines' financial results revealed it had been losing £100 per second in the first quarter. Air Canada looks increasingly vulnerable, too. It recently sought protection from its creditors while it finds a way to stem its losses.

Now that Toronto has been added to the WHO blacklist, traffic to and from Air Canada's biggest market is certain to fall, plunging the airline into more gloom.

Fortune has been doubly cruel to Canada. Previously, the country had been seen as a safe bolt-hole for travellers. Even though Canada is the world's second-biggest country and only one city has been deemed off limits, the repercussions will be felt by everyone from taxi drivers to restaurateurs.

Predictably, the low-cost airlines insist that neither the war nor Sars will slow their rise. Judging from the level of activity at Stansted airport yesterday, they are persuading plenty of people to fly within Europe.

But in this market, the fares are slipping. My lunchtime flight from Stansted to Kerry was 82 per cent full, but cost only £20. Ryanair's cost structure allows it to absorb a fall in average "yields", but some other European airlines cannot.

There are two clear beneficiaries of the present slump. The domestic holiday industry is booming. The other winner is the traveller. Within a few months, the industry will have downsized to a position where supply and demand are better matched, and prices can rise. But at present it is a buyers' market like never before.