Casualties in the online travel agency sector in Europe are likely due to the current economic downturn, the boss of lastminute.com predicted.

Ian McCaig, speaking at Monday's WTM Captains of Industry lunch, said having 19 large online agencies with turnovers of £100 million-plus was "unsustainable" in the present economic conditions.

He said business models evolve in a particular way and either you have to be large and able to take advantage of scale, like lastminute, or small and niche and able to drive higher margins from differentiated product.

"If you are in the middle, you cannot compete with the economics of the big mass-market players. or the other extreme against those companies that do bits and pieces of your business model better than you ever do.

"The recession accelerates that. Being caught in the middle where you lack differentiation or have insufficient scale, to me, does not work," he said.

He added the big changes that will shape the online industry in the near future will be related to search, which he said had not really "come on an awful lot" but is set to with advances in technology.

McCaig advised firms not to change their strategy as a result of the recession, but to evaluate it and aware that it might have to change.

He added that the "sweet spot" for the retailer in terms of profitability was hotels. He conceded it was difficult to make money out of seat-only but that this, along with its accommodation business, feeds its dynamic packaging business.

He told the audience of top industry bosses that the difficulty with the current recession was that different countries within Europe entered the downturn at different times and at different speeds.

"It has not, within Europe, been a singular recesion, it has been a set of recessions," McCaig said, adding lastminute responded to the downturn in the UK at the end of last year by escalating cost-cutting programmes and honing its product mix.

"We adopted the mentality of working closely with suppliers. We needed to find the sweet spot with UK consumers and that has been very deal led," he said.

"When people do spend it has to be something special, it has to be something that's intrinsically appealing and you have to catch them at that moment."

Strong brands that build customer belief, trust and loyality, particularly in areas that have not become commoditised, will be an important to maintain margins, McCaig said.

He highlighted the success of lastminute's "When It's Gone It's Gone" deals offering limited product and special rates. One saw 5,000 London hotel nights sold in one-and-a-half hours, he revealed.

He claimed lastminute was ahead in terms of revenue from where it was last year and also in terms of EBITDA (a measure of profitability), although he did not reveal actual figures.

The retailers' life-style products, like theatre tickets, although not the highest revenue part of the company, were up 40-50% year on year and were another growth area for the business, McCaig said.

In terms of destinations, ex-UK non-euro to destinaations such as Turkey and north Africa and inbound London has been strong for lastminute this year, McCaig said, due to the weakness of the pound.

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