Profits at Britain's second largest holiday operator, Airtours, slumped drastically in the last quarter.

The group said it had taken a loss on its operations on the Continent and in North America.

In the three months to June 30 Airtours made only £700,000 in profits before tax, compared with £20.5 million in the same period last year.

The shortfall came despite a 16 per cent surge in UK holiday bookings.

Last month the group warned that profits this year would be hit by the underperformance of its German operation Frosch Touristik (FTi) and continuing poor trading at its North American operation.

Chairman David Crossland said: "The result for the quarter reflects good underlying trading in the UK operations, offset by increased losses in FTi together with disappointing results from our businesses in Belgium, France and Holland.

"We have taken the opportunity this year to make significant strategic changes to our group to strengthen our competitive position, including investments in new businesses, prime hotel accommodation and e-commerce."

He added the group expected to see "significant benefits" from its rationalisation plans in the next year.

The group said its recent U.S. acquisition, Travel Services International, continued to perform ahead of expectations.

In addition, Airtours is in discussions with the owners of Hoteur, a leading Spanish hotel group, to form a joint venture involving their 18 hotels.

Airtours is also in discussions to convert part of its freehold property portfolio to long-term leaseholds which should generate a "significant one-off profit".

Turnover in the three months to June 30 was £1.16 billion, compared with £970 million at the same stage last year.