Leading tour operator Budget Travel will halve the commissions it pays travel agents from next year.

From January 1st, Budget will pay agents 5 per cent commission on sales of its package holidays. Until now, it has paid the industry standard of 10 per cent.

The company yesterday blamed a changing holiday market for its move, particularly the trend of low-cost airlines to introduce direct flights to what have traditionally been package-holiday destinations.

Ryanair and Aer Lingus have already slashed the commission paid to agents. "We need to reduce our costs to enable us to compete on a level playing pitch," said Budget Travel managing director Mr Eugene Corcoran. "Ten per cent commission is simply not sustainable."

Mr Corcoran, who acknowledged that the company's relationship with travel agents was important, said his company felt that 5 per cent commission was a fair rate.

The decision drew immediate condemnation from the Irish Travel Agents Association (ITAA), which represents the bulk of the sector.

Mr Michael Doorley, ITAA president, said the decision came as a shock.

"We do not see this as a necessary move at this time," he said, adding that other tour operators contacted by ITAA yesterday had indicated they would not be following the lead given by Budget Travel.

"It would be suicide for our members to do business at 5 per cent given the costs they have to meet," said Mr Doorley.

"Travel agents who have contacted us today say they are taking a stand now and will not make Budget Travel holidays available except as a last resort. There is a wide choice of other operators to choose from."

Budget Travel provides more than 40 per cent of package holidays sold in the Irish market. It expects to carry 400,000 Irish holidaymakers this year to destinations across Europe, America and the Caribbean and report turnover in excess of €200 million.

Around half of Budget Travel holidays are sold through independent travel agents, with the rest of the business accounted for by the group's 28 stores, a call centre and online bookings.

The company was founded by Ms Gillian Bowler in the 1970s. In 1996, she sold it to German multinational TUI.

Ms Bowler still chairs Budget Travel and is also chairwoman of Fáilte Ireland, the all-island tourism development body.

TUI last week announced a radical restructuring of its UK operations with the loss of 800 jobs by the end of the year. However, Mr Corcoran said there was no connection between the cost-cutting in TUI-UK and yesterday's announcement by Budget Travel.

The Irish Tour Operators Federation said last night that it could not comment on the decision. The ITAA and Budget Travel are scheduled to meet today to discuss the decision.