IT'S BEEN fun, hasn't it? Flying to places we can't even pronounce for the weekend for less than it costs to get to the airport, a wave of new destinations to tempt us each spring, and the certainty that if you wait long enough before booking your holiday, you're bound to get a bargain.

But now the bubble has burst.

Like the banking industry, travel has been caught in the middle of a force 9 gale. The clouds started gathering as oil prices shot up over $100 a barrel, the economy inched towards the brink of recession and the pound slid in value against the euro. So far this year about 30 airlines worldwide, including the business-only trio Silverjet, Eos and Maxjet, and ten British travel companies have already closed their doors.

None caused as much shock as last week's demise of XL, the UK's third-largest tour operator, responsible for carrying two million holidaymakers a year. But XL's failure isn't the end of the turmoil: even conservative travel industry experts predict more failures.

High fuel prices make airlines the most vulnerable; British Airways' chief executive, Willie Walsh, said that 30 more could go bust in the short term. Travel companies are also facing tough economic conditions, particularly this month as summer cashflow dries up and they have to fork out money to renew their licences with the Civil Aviation Authority.

It is impossible to predict which companies will be next to fold, although the middle market is most likely to feel the crunch. This means that it is more essential than ever to ensure that your holiday or flight is protected. There are also likely to be far fewer last-minute deals available. The economics are simple: fewer holidays and flights equal higher prices and less choice.

Travel companies already began scaling back the number of holidays on offer last year with the mergers of Thomson and First Choice under the Tui banner, and Thomas Cook and MyTravel as the Thomas Cook Group.

Dermot Blastland, managing director of Tui UK, said that by next summer the company would have shed one million flights and holidays, taking its total offering to seven million. Tui will not renew the lease on ten of its aircraft at the end of this winter, leaving 66 planes.

Don't expect lower airfares next year, either. Although oil has just slipped below the $100-a-barrel mark for the first time in six months, airlines are showing no signs that they will remove fuel surchages that add £218 for a return BA longhaul flight in economy.

According to Trailfinders, of the £359 price of a BA return to Los Angeles, just 13 per cent is the airfare; the remainder comprises taxes and surcharges. Even Ryanair, which has resisted levying fuel surcharges, has quietly increased its charges for “extras”, the latest being the £4 per sector per person fee imposed in July for debit card bookings (up from £1.20). The airline's chief, Michael O'Leary, has said he prefers to ground some of his fleet rather than fly it unprofitably.

So if you want to bag a deal this winter or next year you might be better off booking now while a range of attractive early discounts is out there. To make your pound go further, the best places to look will still be outside the euro zone; even if the pound stengthens against the euro next summer, holiday companies will have contracted out accommodation at this year's exchange rate. Egypt, Turkey and Cyprus still offer good value. Meanwhile, all-inclusive breaks mean that you can be sure of what you're spending upfront.

So far, despite the economic downturn, we have carried on travelling, spurred on by the bad weather at home (travel companies are already praying for a washout summer in 2009). The market survey group Ascent MI says that this summer business was just 1 per cent lower than last year, with winter holiday bookings 2 per cent higher.

“If the credit crunch were really biting, we would expect the winter season to be hit because that is when people take second holidays,” says Sarah Smalley, Ascent MI's chief executive.

Ominously, next summer's figures are down by 5 per cent, and travel companies say that they expect the number and length of holidays we take to be further trimmed as the threat of recession looms. If that trend continues, even more companies will go under. What this will do, however, is leave behind the stronger and more streamlined operators that offer an improved travel experience. The large companies should remain, their might ensuring that while there may not be bargain-basement deals, there will always be value-for-money holidays. And so, too, should specialist companies whose knowledge and niche offerings justify a higher price. But for companies offering neither, it could be the end of the road.

ONLY THE FITTEST WILL SURVIVE: THE INSIDERS' VIEW

Sir Richard Branson, president of Virgin Atlantic

Only the fittest will survive. There will be more consolidation, either through airline failure or through mergers. Airlines offering value and quality will remain, although there may be less choice than before.

Nigel Atkinson, of the insolvency specialists Begbies Traynor

The days of cheap air travel are over. Capacity will go down and rates will go up. A lot more airlines will go bust. We had a list of nine airlines at risk in the UK and two have already gone - Zoom and XL. In Europe up to 30 per cent of airlines are at risk of going bust or being consolidated.

Noel Josephides, managing director at Sunvil Holidays and board member of Abta and Aito

Cutbacks of capacity will continue. Prices will go up by about 10 per cent. The problem is that a lot of small operators can't operate their own aircraft, so with XL out of the market, the choice will fall. I don't think there will be a flood of holiday company failures - five or six by the end of October.

Dermot Blastland, managing director of Tui UK

Prices will go up about 8 per cent as a result of higher fuel costs and the euro. That won't be across the board - there just won't be the really cheap holidays. Very cheap citybreaks, for instance, won't be available.

Manny Fontela-Novoa, CEO of the Thomas Cook Group

The era of good-value holidays is still here. Places such as Turkey and Egypt offer fantastic value.

Willie Walsh, chief executive of BA

The airline industry is facing a deeper, more protracted and more fundamental crisis than followed 9/11 - or any of the previous shocks that have beset the industry. Despite a recent and perhaps temporary fall, oil prices stand at extremely high levels and look likely to stay there. Meanwhile, demand for travel has weakened because of the general economic downturn and a decline in consumer confidence. This is a devastating combination. The era of very low fares is behind us.

Ian McCaig, CEO, lastminute.com

City hotel prices will be more flexible. The hotels that get many corporate travel bookings are seeing companies cut their travel budgets. So although the price of flights will go up, there will be more competitive pricing in hotels.

YOUR QUESTIONS ANSWERED

Should I worry if I have already booked a holiday or flight?

If you have booked a holiday that includes a flight, it will be covered by the company's Air Transport Organisers' Licensing (Atol) through the Civil Aviation Authority, so you will get your money back in the event of a failure. Packages that don't include flights are still covered under various schemes. Scheduled flights, however, aren't protected if you book directly with the airline. To stop those sleepless nights, see the panel, opposite.

Will the Atol protection carry on paying out indefinitely?

The Air Travel Trust Fund, which is the last backstop when an Atol company fails, is already £21 million in the red. The fund is backed by a £300 million insurance policy and is being topped up by a £1 per passenger levy. If too much money is spent because there is a wave of failures, the levy could be increased to ensure sufficient protection.

Should I wait to book a holiday?

If you can get away only in school holidays, the answer is no. It's a great time to take advantage of early booking incentives, from free children's places to sizeable discounts. If you have more flexibility, you can play the waiting game if you're worried about further company collapses. But you need to weigh that against the fact that prices are likely to go up next year - certainly there won't be such a range of last-minute deals available.

Should I wait to book a flight?

It's generally better to book flights as early as possible to get a good price. As long as you ensure that you're financially protected, there's no reason to delay.

Should I do it myself?

Only if you have checked that all the elements you are booking are financially protected. You may get your money back from a travel company if, for instance, your charter airline fails, but if you have booked a villa independently and can't get alternative flights to your destination, you are not covered

for your accommodation. And be aware that even if you pay by credit card, that doesn't cover you for repatriation if an airline or travel company fails once you're abroad.

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