Severe overcapacity will lead to an aggressive price war for summer 2007, according to an annual travel survey.

Professor Allan Beaver’s 2007 travel industry report claims tour operators have raised capacity by 2% for summer 2007 – equivalent to a 7% jump on summer 2006 sales. The industry had forecast a capacity drop of 5% on 2006.

The capacity increase is a worry with pre-Christmas trading for the summer 17% down on last year. Beaver warned “severe overcapacity” would lead to a dramatic fall in prices, ultimately leading to pressure on margins for operators and agents.

Thomas Cook commercial director Ian Derbyshire agreed “prices will be very competitive to stimulate demand”. It is offering holidays for free if consumers find the same holiday cheaper elsewhere after booking.

Advantage managing director John McEwan added: “Everybody will be fighting to get their share of the bookings; margins are sure to be cut.” 

Despite pessimistic predictions based on the economy, high taxes and levels of disposable income, operators are confident of a good summer.

Thomson managing director Peter Rothwell, who claimed capacity was in line with demand, said: “Operators have been relatively cautious. Without the football, sunshine and terrorist alerts it could be a reasonable year.”

But Beaver said it is operators’ confidence that has led to the overcapacity.

“Operators are predicting a tough summer, but believe it won’t impact on them as there are perceived opportunities. There is no football World Cup this year which should have a positive impact on bookings. Judging capacity is a ‘seat of the pants’ personal thing.”

Despite domestic holidays enjoying a bumper 2006 due to the World Cup, heatwave and airport security alerts, holidaymakers may head overseas in 2007 because of the “poor quality and poor value for money” of a UK break, he added.