A mixture of the austerity budget, cabin crew strikes and volcanic ash have combined to produce a late summer bonanza of bargain basement holidays as tour operators slash prices to offload unsold flights and hotels.

The best bargains are in the Balearic islands of Majorca, Menorc and Ibiza, and Greece, where there are discounts of up to 40%, according to experts. Those who wait until the end of the school holidays can expect to get up to 60% off.

But while holidaymakers may be happy, it is not good news for the industry.

Tui Travel, owner of Thomson Holidays and Europe's largest travel company, issued a warning on profits, blaming several factors including the emergency budget for causing Britons worried about job security and making ends meet to leave it to the last minute to book.

The company still has about 650,000 flights and holidays left to sell in the UK this summer, according to Tui's chief financial officer, Paul Bowtell. The result is that the company expects its annual profits to be at the bottom end of forecasts, sending its shares down almost 10% in early trading and wiping £230m off the value of the FTSE 100-listed business. Shares in rival Thomas Cook lost more than 5% in early trading.

The Icelandic ash cloud, the BA strike, the coalition government and its emergency budget, and expected job losses in the public sector have all contributed to poor sales, combined with civil unrest in Thailand, Greece's well-publicised woes, the World Cup and recent good weather at home.

Travel analyst Bob Atkinson of comparison website travelsupermarket.com said: "When major tour operators were firming up plans for this summer in January and February in terms of aircraft contracts and beds there was no indication of what would happen later in the year.

"What we have seen in the summer market, and what Tui is referring to, is that they are finding it increasingly difficult to shift holidays at the margin they want to shift them at. In other words, they are having to sell cheaper."

Tui's chief executive, Peter Long, said: "The strong booking trends experienced up until the volcanic ash disruption in mid-April and the subsequent rebound in early May were not sustained throughout the early summer period.

"This was particularly marked in the UK source market where trading was affected by further airspace closures, good weather and post-election uncertainty regarding the emergency budget.

"Consequently, the booking curve has shortened and the mix of 'lates' market sales for summer 2010 has increased."

He warned that predicting how the later booking pattern would change over the next 18 months was very hard "in the light of the current economic environment".

Clare Banham, from the travel association Abta, said: "We have seen that a lot of people have delayed booking their holidays this year. The vast majority are still travelling, but booking closer to departure. People are getting fantastic value for money."

The Co-Operative Travel said the biggest savings were in the eastern Mediterranean – Paphos, Crete, Zante and Turkey in particular. "We reckon the typical family holiday to these places has fallen by 13.5% on last year – that's a £232 saving for the average family," said a spokesman.

"Certainly the booking patterns have changed. This has been an unprecedented year for the travel industry."

Atkinson said traditional tour operators such as Thomson and Thomas Cook were also suffering from the recent incursion of budget airlines easyJet and Ryanair into areas such as Morocco, Egypt, Turkey and Tunisia. "There are many pressures on tour operators and it has been a fairly tough year."

Alarm bells rang in May, he said, as companies discounted June breaks.

"When you get within 12 weeks of departure, you see prices really start to drop for lates – up to 70% in some places. They are managing prices on a day-by-day, hour-by-hour basis to ensure they are not left with stock which has effectively gone off because the date's gone.

"At the moment, where they are really struggling to give it away is the Balearics and Greece. If you want a last-minute package to one of these places, you can pick them up for around 30%-40% discount on self-catering, and up to 20% discount on all inclusive. Other destinations could also see huge savings. After the school holidays, discounts could reach 50%-60%.

"Tour operators hold out as long as they can, but right at the last minute, two or three days before, they are dropping prices down as much as they can. If you are the ultimate flexible customer, you can grab a real bargain."

He said the late booking trend would see even further reductions for much of September and October, outside of half-term. "September and October will be a bloodbath for last minute deals, and it has already started. You've got tour operators punting stuff at £150 a week, and budget airlines at £10, £15 and £20 return.

"It is clear demand is suppressed at the moment. And I cannot see it changing in the next few months.

"My advice is to keep looking right up to the last minute, and if you are prepared to take anything, you will get bargains, no doubt about that."

Last minute holiday deals

Lastminute.com Seven nights in Luxor, Egypt, at the five-star Sofitel Karnak for £399 per person, bed and breakfast. Flying from Gatwick on 16 August.

Expedia.co.uk Seven nights in Barbados for £918 per person. Staying at the four-star Silver Point hotel, room only, based on two sharing with a partial ocean view. Flying with Virgin Atlantic from Gatwick on 25 August 2010.

Sunshine.co.uk Seven nights in Hammamet, Tunisia, staying at the three-star Emira hotel from 29 August 2010, for £184.50 per room, half board. Flights cost from £249 from Gatwick or £332.60 per person from Birmingham.

Lastminute.com Four-star Loryma resort, Marmaris, Turkey, flying from Gatwick on 31 August.

Thomas Cook Seven nights in Costa de Almeria, Spain, from £384 per person. Staying at the four-star Best Mojacar hotel in Mojacar. Half board, flying from Gatwick on 2 September 2010.

Thomas Cook Seven nights in Gozo, Malta, from £462 per person. Staying at the three-star Hotel Calypso, bed and breakfast, flying from Manchester on 3 September 2010.

Sunshine.co.uk Seven nights in Prague from 20 August for £104.24 per room and £179.46 per person for flights from Manchester, £232.36 from Gatwick.

Expedia.co.uk Seven nights in Cancun, Mexico for £751 per person, staying at the four-star Hyatt Regency Cancun, room only, based on two sharing. Includes flights with Virgin Atlantic from Heathrow, departing 8 September.

Tropical Sky Seven nights all-inclusive at the Verandah Resort in Antigua from £1,079 per person. Selected departures in September. Includes flights from Gatwick, accommodation in a hillside suite, transfers, taxes and surcharges. Go to www.tropicalsky.co.uk or call 0870 907 9600.

Lastminute.com Fourteen nights in the Dominican Republic at the four-star Grand Paradise Bavaro for £699 per person. Flying from Gatwick on 22 September. All inclusive.