Package holidays are a British institution. They’re up there with bacon butties and tea at three in the afternoon. We have been jetting off for a couple of hassle-free sun-filled weeks in the sun for decades.

What’s not to like about a holiday where from the moment you step on to the plane you have no responsibilities other than to let the air steward know whether you’d prefer chicken or fish?

But according to recent reports, package holidays could be on the decline. Credit management solutions company Euler Hermes reports that package tours are on the wane as holidaymakers go in search of adventure. What’s going on? It seems greater demand for customised holidays, activity-based holidays, long-haul destinations, city breaks and cruises are eating into demand for the traditional package.

A report entitled Package Holidays – all wrapped up? suggests that while there were more than 18.8 million package holidays taken in 2006, the proportion of such holidays compared with more personalised adventures is declining fast. Greater price transparency in the market, prompted by new business models and innovations in technology, has significantly increased competition.

Consumers have certainly enjoyed the ride and will continue to do so as the market evolves, according to the report’s author, Emma Holland, senior credit analyst at Euler Hermes UK. “In the short term, the boundaries between high street retailers, online agents and tour operators are expected to become increasingly blurred,” she says.

“More and more travel agents and consumers themselves are expected to move into the online arena and piece together their own packages in direct competition with the traditional tour operators.”

“To make sure their own journeys are not cut short, tour operators and travel agents must focus on providing unique offerings to ever more adventurous, discerning and demanding holidaymakers. Successful players will be those who differentiate their customer base and target them appropriately.”

The report also signals a note of caution in relation to proposed changes next year to ATOL (Air Travel Organiser’s Licence) bonding, and the rules that state that any company that currently sells a package must be bonded by a DTI-approved body.

Holland explains: “The proposal is to replace ATOL bonding from April 2008 with a £1 levy on each booking, called an ATOL Protection Contribution (ATC). Whereas tour operators have welcomed the change, the bonding and insurance industries are concerned that failures may be more frequent without adequate financial vetting and monitoring. We predict more peak-season failures with the levy system as the banks will have little incentive to keep companies afloat if they have no exposure to bonding and can simply pick the most favourable time to cancel facilities.

“It is also questionable whether the £1 levy will be sufficient to top up the Air Travel Trust Fund (ATTF), which is still £21 million in the red due to a large number of large failures, including Laker Airways, going back 25 years.

“Customers booking lower-priced holidays will therefore pay proportionately more levy than those on luxury or longer haul breaks.”

The future for package holidays may not be so sunny.