THE boss of the troubled holiday group MyTravel has pledged to return the company to profitability next year.

Chief executive Peter McHugh was in upbeat mood, despite disclosing pre-tax losses of £617million for the first six months of 2003.

Business Editor ANDREW CALVERT looks at MyTravel's place in the holiday industry and assesses what the future holds for the once-mighty operation.

NEWS of MyTravel's record losses came at the end of a year which saw three profits warnings, the discovery of accounting irregularities and a collapse in the share price which wiped a billion pounds off the value of the company.

As part of an industry still reeling from the aftermath of September 11, the Iraqi war and Sars, MyTravel has been hit harder than most holiday groups.

After a decade of aggressive expansion, the company has had to review its entire operations, announcing a total of 2,700 redundancies and the sale of parts of its empire.

Mr McHugh admits that the group - formerly known as Airtours - would remain in the red in the current financial year.

But he is adamant that the company - having agreed a £1.3 billion refinancing deal with its bankers - was now heading in the right direction.

"We believe the business will be profitable next year and going forward," he said, adding that the group has seen a good recovery in bookings since the end of the conflict in Iraq.

"Starting after Easter, in all our businesses, we began to see significant recovery, most notably in the UK. We're seeing a slower recovery in North America, but they are still recovering well at this point."

But according to industry insiders, MyTravel and other large operators will continue to struggle because of the pace of change within the market.

Paul Astley, managing director of Blackburn-based PA Travel said the rapid growth of the internet over the past five years had transformed the industry.

"Holiday-makers are becoming more sophisticated and more and more people are packaging their own holidays," he said. "Instead of booking their holiday at a High Street travel agency, they can now book their flights and hotels separately.

"Specialist firms can customise holidays to meet customers' needs. We can source flights, hotels, car hire and anything else that people want and, with having ABTA and ATOL bonding, they have full protection." Mr Astley said the major tour operators like MyTravel had been slow to react to the threats posed by 'low frills' airlines and internet bookings.

"I have no doubt that they can spot the trends in the industry, but you have to ask whether they are simply too big to react to them," he added. One travel commentator, a lecturer in tourism marketing based in the North West, said there had been a fundamental change in consumers' expectations.

"They are far more knowledgeable and discerning and many are no longer prepared to take the package presented to them by the travel agent," he said.

"Most households now have access to the internet and people are happy to do their own research to find a holiday that fits their needs."

He said large holiday companies had to plan well in advance to organise flights and hotels, which left them susceptible to world events like September 11. "They are like a juggernaut - it is not easy to turn them around," he added.

A leading travel industry analyst said MyTravel's results were not unexpected in the City.

"By their own admission, they were a poor set of results which were at the lower end of expectations," he said.

"Holiday companies have traditionally made losses in the first six months of the year before they start collecting revenues from summer holiday bookings. In good years, profits from the second half more than cover losses from the first half.

"Clearly, given the size of the group's losses at the interim stage, that will not happen this year with MyTravel. But what is significant is that the group has agreed a refinancing with its banks that will run until 2006 which will give it the breathing space necessary to restructure the business.

"Provided the company resolves its position over its convertible bonds, it should have the stability to turn the business around."

Brokers who closely follow the fortunes of the company have said the MyTravel share price had held up remarkably well, given the scale of its losses.

After falling to an all-time low of 8p a share, the price has rallied over the past month. It would appear that the City is giving the new management team the benefit of the doubt - for the moment at least.

Despite its troubles, MyTravel is still one of the world's largest holiday companies. From its humble beginnings at Pendle Travel in Burnley in 1972, it now employs employs 25,000 people in the UK, North America, Germany and Scandinavia.

Its 12 million customers are serviced by more than 100 travel brands, 1,900 retail travel agents, 49 aircraft, four cruise ships and more than 100 resort complexes.

Mr McHugh and his new management team have undertaken a thorough review of the MyTravel operation.

It has already announced there will up to 700 redundancies this year in a bid to reduce overheads and Mr McHugh has warned there will be further cuts.

"We have already taken steps to reduce our administrative and overhead costs in an effort to protect our profit position and we are targeting a further significant reduction in 2004.

"Unfortunately, after reviewing all the alternatives, some of these savings, necessarily, result from redundancies."

Although MyTravel moved its headquarters from its former Lancashire base in 1999, it still employs more than 600 people at Helmshore and at the Globe Centre in Accrington.

The GMB union has made some progress in recruiting new members from MyTravel, but the company has refused to give it negotiating rights.

Regional official Neil Holden said staff at MyTravel had been working under a cloud of redundancy for too long.

"It is wrong of any company to have its workers in constant fear for their jobs," he said. "Although news of the refinancing of the company has to be welcomed, it has given no reassurance on jobs and the uncertainties will just drag on.

"With the banks quite clearly pulling the strings, I fear there will be more bad news to come."