Tui Travel UK and Ireland suffered an 11% slump in annual profits due to poor customer confidence and repeated airspace closures during the ash cloud crisis.
Operating profit from the two key markets dropped to £127 million from £142 million a year earlier as carryings declined by 5%.
However, the group as whole still managed to to grow underlying profits by 11%.
The Thomson and First Choice parent followed rival Thomas Cook in saying it suffered from a weaker performance from its UK businesses in the year to September 30.
The Icelandic ash cloud alone cost the group almost £70 million.
Summer trading in the UK and Ireland was not strong enough to offset increased winter losses, the company said.
“The summer trading performance was affected by a slowdown in bookings following a downturn in consumer confidence in early summer,” Tui said.
“Consumer booking trends were affected by the recurrence of airspace closures caused by the volcanic ash, the emergency budget and subsequent austerity measures, and the better than average UK weather, combined with the expected quite trading period during the World Cup.
“The slowdown resulted in more stock left to sell in the lates period than expected and although this period traded well, margins were inevitably affected by the shift to later booking patterns.”
In-house distribution increased by three percentage points to 81%, driven by online growth supported by improved functionality of the Thomson and First Choice websites and personalised portals such as MyThomson.
Chief executive Peter Long said the 2010 result was affected by “a weaker trading performance in the UK, primarily due to increased winter losses resulting from capacity-led volume reductions in anticipation of lower demand.
“The early summer period was disrupted by a number of factors that increased customer uncertainty, including the volcanic ash-related airspace closures.
“We then experienced an improvement in demand later in the summer period and trading closed out well in all source markets.”