Tour operator Thomas Cook said today that full-year profits will be about £60 million lower than expected as a result of the squeeze in consumer spending and the turmoil in the Middle East and North Africa.
The company said its profit margins in the UK were being hit as it kept its prices competitive to attract cautious consumers, despite rising oil costs which are making it more expensive to fly.
The turmoil in North Africa and the Middle East had also impacted bookings to popular tourist destinations in the region such as Tunisia, Egypt and Morocco.
For the first three quarters of its financial year, operating profits are about £40 million lower than a year ago. It now expects full-year profits of around £320 million whereas previously the City had expected a figure in the region of £380 million.
Average UK selling prices for the summer are up just 4% as customers opt for better value all-inclusive deals, such as packages that provide food.
Despite the "difficult trading conditions", bookings by UK customers are up by 1% for the key summer season.
The number of holidays Thomas Cook has left to sell are 5% lower than a year ago, but this is partly because it has reduced the number of packages it is selling to UK consumers by 1%.
Underlying profits for the quarter to the end of June are likely to be around £20 million, which is £5 million lower than this time a year ago and below its previous guidance.
The group had already announced it was to take a £22 million hit after the uprisings in the Middle East and North Africa caused holidaymakers to cancel bookings. But it said today that the turmoil had a greater impact than previously thought, with its French market particularly badly hit.
However, the company said its businesses in Central and Northern Europe continue to perform well despite the impact of the disruption in North Africa and the Middle East.
Europe's second biggest travel firm recently launched a "fundamental" review of its operations in the UK, which will include looking at the type of products it offers and reducing its airline fleet as it seeks to reduce winter losses.