Leading financial analysts Morgan Stanley have warned investors to be “cautious” over the future of tour operators generally and Thomas Cook more specifically.

Thomas Cook yesterday issued a profit warning - its third in a year – stating trouble in the Middle East and a faltering UK market were hurting the company.

However, worse could be to come, argued Morgan Stanley.

“Traditional package holidays seem to be seeing an accelerating market share loss to independent holidays, aided by the internet and low cost airlines,” explained a bulletin.

“Legacy business models with high fixed-costs, stretched balance sheets, and a number of other concerns mean significant forecast risk.

Thomas Cook has been hard hit by such concerns.

While booking numbers and load factors are up at the tour operator, margins are being squeezed.

Added costs from rising fuel prices are not being passed on to the consumer, with the market in the UK particularly depressed, while some destinations – including Tunisia and Egypt – have been hit by falling demand.

However, much of this demand has been shifted to other mid-haul destinations, including Turkey.

Shares in Thomas Cook feel nearly 30 per cent yesterday to a low of 87 pence per share. However, shares recovered a modest 0.1 per cent today.

“A dividend cut could see further share price pressure given its large income fund base,” warned Morgan Stanley.

The solution? A merger with TUI could offer a way out for Thomas Cook, concluded Morgan Stanley.