WITH package holiday bookings for summer 2007 believed to be more than 20 per cent down, the New Year could see spectacular holiday bargains in a fierce new price battle among the big firms.

''In the peak selling period for summer holidays from now to March 31, it will be an extremely aggressive market place on price,'' predicts Ian Derbyshire, Thomas Cook Holidays division executive director.

He admitted 2006 was ''one hell of a difficult year'' - with holiday sales hit by bird flu in Turkey, World Cup soccer, and our summer heatwave - before revealing that Cook's Summer 2007 sales are 17 per cent down on last year.

If Cook, with its massive marketing clout, faces such a fall in sales, smaller rivals could be in worse trouble. The German giant TUI has already indicated that nearly a third of its 8,000 employees working for its UK subsidiary, Thomson Holidays, face the axe.

At Planet Holidays, which sells upmarket holidays in Cyprus and Greece, managing director Mathilde Robert says: ''Bookings for next year are absolutely dead. Anybody who says they are busy for 2007 is lying.''

Even cruising, the fastest growing sector of the travel industry, is feeling the pinch with market leader Carnival UK launching a £10m sales campaign, its biggest ever, in January to kick-start bookings.

On some Cunard voyages in 2007, prices are slashed 50 per cent, while P&O, Princess Cruises and Ocean Villages offer cuts up to 45 per cent through January.

At ROL Cruises, a leading agency for Cunard, managing director Peter Beadles says cruises are selling at less than half original brochure price - including Queen Mary 2's both-way Transatlantic crossings this summer, with a few days in New York in between, from £1,999 for an inside cabin.

QM2 travellers in Princess Grill can get a return voyage for £5,173 - against the usual one way fare of £6,339.

On the last leg of QE2's world cruise, also ''no fly'' in April from Southampton to New York and the Caribbean, 22-nights in Caronia standard cabins start at £2,789 - against top brochure price of that cabin standard of £8,179.

In the package holiday sector, some fear that soaring household bills are slashing the amount left to spend on travel.

Says Platon Loizou, managing director of Jewel in the Crown Holidays: ''Living in Britain is so expensive for things you can't avoid - gas bills, council tax, car MoTs - that families simply can't commit to paying for holidays many months ahead. They are confident they can go on the internet and find a great deal within weeks of departure.''

With more than three million holidays on offer in 90 countries, through 570 Thomas Cook stores and 2,500 other High Street travel agents, Thomas Cook's price pledge promises: ''If you find the same holiday cheaper elsewhere, you can have it for nothing.''

The holiday price war launching comes at a tough time for the industry - because there is strong upward pressure on holidays from rising fuel costs and the Government decision to double Air Passenger Duty (APD) from February 1 could slash the profits of some small operators.

First Choice, another of the big four, is so keen to grab reservations that its January sale launched a week before Christmas. It includes £1 kids' places on long-haul travel on selected dates, if travelling with two full fare-paying parents, and £100 discounts on family bookings worth at least £999.

Deals included in the First Choice offer include 14-nights' all-inclusive at a four-star resort in the Dominican Republic from £849 per adult and £1 per child, and 14 nights' all-inclusive in Cuba from £859 per adult and £1 per child, saving from £664 per child.

Jewel in the Crown (01293-533-338); Thomas Cook (0870-111-1111); P&O Cruises (0845-355-5333); ROL Cruises (0845-458-8909); First Choice (0870-850-4301).