European holiday prices could rise by as much as 10% next year, Holidaybreak chief executive Carl Michel has predicted.
Most tour operators hedged prices for this summer based on a more favourable euro-sterling exchange rate.
However, if the pound continues to struggle against the euro, operators will be forced to hedge for summer 2010 brochures based on a less favourable exchange rate, pushing up brochure prices.
Already, major tour operators have delayed brochure launch dates because of pricing difficulties and the later booking trend.
Holidaybreak - which operates brands including Key-camp, Explore and Superbreak - says it will be working hard to negotiate lower rates with suppliers for next year.
Michel said: "Most companies were hedged at about €1.25 to the pound for this year. For next year there is a lot of uncertainty. No travel company is in the game of currency forecasting.
"Essentially at the time of brochure production you have to decide on the pricing and take a view on hedging. It's very hard to predict.
"What is certain is that next year will become more expensive for holidaymakers going into Europe. We are looking at some increases. We will negotiate very hard with campsite owners [for Keycamp and Eurocamp brands], but the expectation has to be some modest price increases next year."
He added that next year's market is also unlikely to see the kind of capacity reductions seen this year and last year following the mergers of the major operators, which has created a more evenly matched supply of holidays in line with demand.
Michel added: "The question is how customers will react [if] overseas prices go up by between 5% and 10%."
The group's Explore and Eurocamp brands have already begun to offer UK holidays this year as a result of the trend away from expensive European destinations. Michel said: "It's about affordable travel and testing out a limited UK range of holidays to see how it works."
For next year, Explore is likely to focus on destinations where the exchange rate provides good value for money, such as Turkey, and potentially drop product in more expensive destinations, added Michel.
This could hit destinations such as Croatia, which has a currency tied to the euro, or Morocco, where much of the prices are dollar based.
"One or two tours have gone up by 25% in price and we might drop some more expensive countries. Explore will have to change its programme to fit the marketplace or switch to shorter durations we are in a much more value-led environment," said Michel.
- Confused by hedging? Read 'Understanding the currency hedging dilemma' [Travolution]
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