WAR in Iraq threatened to derail a recovery by online travel agency ebookers which halved full-year losses.

The group benefited from the transfer of back office operations to India as losses for last year reduced to £12.3m from £25.6m a year earlier.

Strong trading was also reported in January, but ebookers said the prospect of war meant many potential customers had opted to delay bookings.

Cost-cutting measures, including a reduction in marketing, should ensure the performance in the first three months of the year remains satisfactory.

The company said: "The commencement of hostilities against Iraq will inevitably have an impact on sales and profitability for the remaining days of the first quarter."

However, ebookers said it hoped to benefit from "pent-up demand" once the conflict is over.

Plans to break into profit this year should also be helped by the acquisition in January of high street rival Travelbag for £55m.

Travelbag has annual sales of £200m through its three non-package brands - Travelbag, Bridge the World and Travelbag Adventures - and predominantly sells trips to Australia and New Zealand.

Prior to the acquisition, ebookers lifted sales in the year to December 31 by 52 per cent to £273m, with turnover ahead 55 per cent at £31m.

Despite higher sales, annual operating expenses fell by £2m to £44.6m after the opening of a 400-employee back office in India.

Staff carry out tasks including e-mail sales, customer services, competitor pricing analysis, accounting and IT development.