Tony Blair is not the only one predicting a doom-laden 2003. The travel industry is equally downbeat as the traditional post-Christmas holiday-booking bonanza fails to materialise. The months of January and February are when the bulk of summer holidays are booked, but the threat of war with Iraq and increased terrorist activity seem to be taking their toll, with bookings down by as much as 20 per cent on last year for some holiday companies.

The big package-tour operators such as Airtours and First Choice have cut their prices but it seems that not even the offer of £99 holidays is enough to persuade people to book ahead when every week the Foreign Office adds another destination to its list of no-go areas. Only yesterday a colleague cancelled a trip to Zanzibar because his mother was 'freaking out' over news reports that the island had been singled out as a possible terrorist target.

Perhaps a more fruitful strategy in the current climate would be a more flexible approach to cancellations. If the Foreign Office advises against travel to a destination the big tour operators will offer a refund or transfer to another holiday. But what if the advice is enough to put you off travelling but stops short of saying don't go there? Unfortunately, normal booking terms and conditions apply, which means losing around 80 per cent of the cost of your holiday if you cancel within a month of your departure date.

With such a stiff penalty it's hardly surprising that people are reluctant to commit to a holiday six months in advance. And there are no signs that the likes of Airtours and Thomson are about to soften their stance. 'Running a "book now, cancel later" policy is not an option for a business like ours. It would leave us very exposed,' said a Thomson spokeswoman.

This is where the smaller, independent travel companies come into their own. Without huge allocations of charter flights and hotel rooms to fill, they can afford to be a bit more flexible when things go wrong. Martin Randall Travel, which specialises in cultural tours to Europe and the Middle East, has a particularly enlightened policy. Managing director Martin Randall says that if any of his clients who are booked to travel to 'volatile' places have concerns about safety he will offer a full refund, even on the day of departure.

After 11 September this resulted in the company running many of its Middle East tours at a loss as over half of his clients cancelled. However, Randall believes the customer loyalty generated by such a goodwill ges ture more than compensated for the lost bookings. Last year was the company's most successful yet.

Abercrombie & Kent took a similarly compassionate stance offering holidaymakers the chance to cancel trips to Egypt, Jordan, Syria and Iran without penalties other than a loss of their deposit.

So if you don't want to leave it to the last minute to book a holiday, find out what the cancellation policy of your tour operator is before you book. Flexibility usually comes at a price. You won't get the rock-bottom prices the package holiday giants are offering but you may get some peace of mind.