Thursday 5 January 2017 7:26 pm

Insolvencies are on the rise for the travel industry as the weak pound and terrorism fears hit businesses

The travel industry is braced for thousands of insolvencies as the sector comes under increasing pressure from terrorism fears and rising costs.

According to data from insolvency firm Begbies Traynor, 2,679 businesses in the travel industry currently have "red flags" over them which indicates that they are experiencing significant levels of distress.

This is a 10 per cent increase in red flags compared to the previous quarter and a four per cent rise year-on-year.

"Terrorism is a growing concern, and it's having an impact on the sector," said Julie Palmer, a partner at Begbies Traynor. There has been a shift away from traditional holiday areas like Turkey and Egypt.

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"Consumers are concerned about inflation and sterling weakness. People are feeling a bit more uncertain about the pound in their pocket," she added.

There are just under 7,000 travel agents and tour operators in the UK, and 1,800, or 26 per cent, have attracted the “warning rating” of Company Watch, a database that measures the risk of insolvency.

Out of the 1,800 travel companies deemed at risk by the firm, about 450 are at “real risk” of going insolvent, said Nick Hood, business risk adviser for Opus Restructuring which uses the database. Around 160 of these are tour operators.

"Clearly, the travel industry is under severe stress from all sorts of different adverse factors," Hood said. He added that the fortunes of travel companies depend very heavily on where they're based around the world and their scale, with smaller companies will face higher risks.

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On Wednesday, the small cruise company All Leisure Holidays said it would stop trading with immediate effect, leaving hundreds of travellers stranded around the globe and leading to the cancellation of more than 13,000 booked holidays.

According to travel industry expert Simon Calder, a "perfect storm" led to All Leisure Group's downfall. Some of the company's main cruise destinations were to North Africa, including Tunisia and Libya, the Mediterranean and the Black Sea, including Crimea.

Malcolm Ginsberg, an industry veteran who works for BTNews, said rising fuel costs and transactions done in dollars are likely to have also hurt the company.

On the plus side for the beleaguered sector, UK tourism is receiving a boost from the increasing number of staycationers and inbound tourists.

Read more: Get ready to dodge even more tourists in 2017 as the pound stays low

"The weak pound will undoubtedly restrict people from going abroad, but it will attract more people to the UK," Ginsberg said, adding: "It is swings and roundabouts."

The trends report by travel association ABTA said that the number of domestic holidays increased to 71 per cent in 2016, up from 64 per cent in the previous year.