As the champagne flowed and winners partied at the Observer Travel Awards in Cape Town last weekend, there was one piece of sobering news. Laskarina, the Greece specialist which in the 20 years of the Observer awards has won more trophies than any other tour operator, is closing down.

The company has been taking clients to the unspoilt islands of Greece since 1976, but this summer made its first loss, prompting managing director Ian Murdoch's decision to wind up operations at the end of the year. That such a successful company can no longer make a profit is being viewed by some as proof that the traditional tour operator is doomed.

'Market conditions have changed,' said Murdoch. 'It's evolution. We are not losing our business to other tour operators, customers are simply choosing to go elsewhere and they are choosing different ways of getting there.'

Murdoch said that his type of business, which employs a rep on every island to help travellers if, for example, a ferry is cancelled and they need new accommodation, cannot compete with the prices offered by low-cost airlines. Shorter school holidays mean tour operators can sell fewer two-week family summer holidays, while a huge rise in regional flight departures also threatens companies like Laskarina which only operate out of Gatwick and Manchester.

'Why would a customer in the west country travel all the way up to Gatwick when they can fly out of Bristol?' said Murdoch. 'Now at the end of the summer each week brings a new profits warning or company failure and the Civil Aviation Authority itself is predicting the end of traditional tour operating.'

Noel Josephides, director of the Association of Independent Tour Operators, agreed that tour operators were struggling, but argued they could adjust and survive. He said increasing fuel charges and tighter regulations on financial bonding would end the 'golden age of low-cost travel', with a return to package holidays. 'The wheel will turn within the next two or three years,' he added.