On The Beach has said bookings have improved since the Iran war prompted a diversion away from resorts in the Middle East, but that holidaymakers remained cautious and were leaving it later to organise trips.
The package holiday firm said it was reintroducing its annual profit outlook but at a lower level than analysts had previously expected as a result of the disruption.
It had suspended forecasts last month following concerns the conflict would impact holiday bookings and warned that it was expecting profits to take a hit.
The new forecasts show the company generating an adjusted pre-tax profit in the range of £18 million to £25 million.
This is lower than the £39 million to £43 million range that analysts had previously been expecting.
The change sent shares in the business tumbling by about 16% on Tuesday morning.
On The Beach said that although it does not have much exposure to countries in the Middle East, it experienced a sharp slowdown in demand following the onset of the US-Israel’s war with Iran at the beginning of March.
This was being exacerbated by a “rolling programme of cancellations” to the United Arab Emirates, a surge in customers getting in contact with concerns about trips to regions surrounding the conflict, and a “higher than normal level of flight schedule changes”.
Demand for holidays remained more “subdued” as a result of the conflict and the knock-on effects to consumer confidence and worries about potential travel disruption over the summer, amid reports about jet fuel shortages threatening flights.
However, the firm said that booking activity had gone back to more normal levels since the end of March, with the volume of bookings up 9% over the last six weeks ahead of the peak summer months.
Meanwhile, On The Beach said that across the industry, consumers were increasingly booking summer holidays closer to the date of departure in a sign of people stalling when it comes to booking trips or preferring to have more flexibility over their travel plans.
Victoria Scholar, head of investment for Interactive Investor, said: “Shares have plunged by around 15% today reflecting the profit slowdown amid weak demand for holiday destinations like Dubai and Egypt because of tensions in the Middle East.
“Consumers are also booking later, creating uncertainty for the online travel agent.
“The company will be hoping for a flurry of late bookings and a strong summer trading performance to offset a challenging start to 2026.”
