Thomas Cook set to add to gloom as Brits turn backs on holidays abroad

Shares in TUI closed down 10 per cent, while Thomas Cook took a 7.4 per cent hit.

Even InterContinental Hotels, which yesterday reported the post-recession return of business travellers to its rooms, did not escape the sell-off, closing down 4.1 per cent.

Both Thomas Cook and TUI - which owns Thomson - have cut the prices of their "last-minute" deals to try and tempt Britons to travel abroad.

TUI warned that full-year profits will be at the lower end of City expectations after Iceland's volcanic ash cloud hit bookings and cost the company 105 million.

Chief executive Peter Long said: "The strong booking trends experienced up until the volcanic ash disruption in mid-April and the subsequent rebound in early May were not sustained throughout the early summer period.

"This was particularly marked in the UK market, where trading was affected by further airspace closures, good weather and post election uncertainty regarding the emergency Budget."

The firm said bookings in Britain, its second biggest market, were down 2 per cent over the past 12 weeks while a trend among customers to buy discounted holidays in the late bookings market had hit profitability.TUI said Germany, its biggest market, had seen strong growth in bookings, which were up 12 per cent, but customers had been buying cheaper holidays which have a lower profit margin.

Long said it was difficult to predict how the later booking pattern will change over the next 12 to 18 months in light of the current economic environment.

Analysts have forecast full-year underlying operating profits of between 645m and 764m.

While TUI is experiencing gloom in the consumer market, Holiday Inn-owner InterContinental said trading had strengthened during the first half, driven by Asia and especially China.

The world's second largest hotel operator said guests started to pay more in July in signs of a growing recovery.

The UK hotelier was upbeat after room occupancy levels rose through the first half and room rates turned positive in July, reflecting the strong results from hotel rivals Marriott and Starwood in the United Sates.

Chief financial officer Richard Solomons said: "Rates have gone positive across all regions in July, the business traveller has come back and we are sustaining the level of leisure travellers."

The group - which runs some 4,500 hotels worldwide, offering more than 650,000 rooms - posted operating profit of $219m (139m) for the first half of 2010, beating a $209m consensus forecast, while the interim dividend rose by 5 per cent to 12.8 cents.

The group said revenue per available room (RevPAR), a key industry measure, rose by 3.4 per cent in the half-year and by 7.4 per cent in the second quarter, and July was ahead 8.1 per cent with occupancy levels and room rates both positive.

Yet despite the upbeat figures, InterContinental shares fell along with peers in the tourism sector.

Ian Rennardson, an analyst at house broker Bank of America Merrill Lynch, said the hotelier had seen a good quarter but kept his "underperform" recommendation on the stock due to pressures ahead. He said: "First half results show a mainly occupancy led recovery is gaining momentum.

"We leave our forecasts unchanged as we are nervous about macroeconomic conditions, now forecast fewer rooms on average and expect staff costs to rise as recovery continues."

InterContinental's US rivals have reported strong second quarters as corporate business improved, with Marriott International and Sheraton-owner Starwood Hotels & Resorts both beating forecasts and raising 2010 estimates.