Improving demand has helped TUI end its financial year on a high, with losses narrowing despite tough trading and a large hit caused by the Icelandic ash cloud crisis. Customers of Europe’s largest travel group were also shifting to all-inclusive packages as they seek value in times of austerity.

Europe’s largest travel group reported a pre-tax loss of £36m in the year to 30 September, lower than the £94m it lost during the same period last year.

The 12 months to the end of September had been difficult for the company, which warned on profits in August because of delayed bookings and consumer uncertainty.

Revenues for the year dipped slightly to £13.4bn, but operating profit rose 11 per cent to £447m due to strong contributions from its German and Nordic businesses.

The group, which owns Thomson and First Choice, said that the impact of the ash crisis cost £104m. Revenues fell 3.3 percent to £13.4bn.

However TUI Travel UK and Ireland continue to suffer, with an 11 percent fall in profits due to poor consumer confidence.

Chief Executive Peter Long said this uncertainty was set to continue.

He said: “There is a lot of uncertainty in terms of our customers with regards to what affect the public expenditure cuts will have. However, despite a reduction in consumer confidence, what we are seeing is strong trading coming through the UK, and within the mainstream businesses across all markets.”

UK revenues rose 5 percent despite a 5 percent fall in British travellers, which Long attributed to a shift towards all-inclusive holidays. Sales to Spain were particularly strong.

Customers were also cutting two-week holidays to ten or 11 days in order to “save money while having the quality of holiday that they want.”

He said: “Brits don’t want to forego their holidays, so what we are seeing is customers taking all-inclusive holidays, and they’re spending more of their holiday budget up-front with us and therefore having less expenditure when they’re in resort.”

In contrast, the amount of Scandanavian and Belgian travellers both rose 4 percent, with revenues up 13 percent and 4 percent respectively year-on-year due to strong demand.

TUI has continued its cost cutting programme, and estimates 250 - 300 total job losses through voluntary redundancies and “natural turnover”.