Thomas Cook says it plans to sell more upmarket holidays this summer, with the cost of an average getaway rising by 9%.
The firm blamed mounting competition in the market for the change of approach.
It comes as Thomas Cook reported a loss of £49.1m in the the first quarter, despite seeing rising demand for holidays in Greece.
It said it was “cautious” about prospects for this year, and its shares fell as much as 10% in morning trade.
Explaining its move, Thomas Cook, which has six million customers in the UK, said there had been a resurgence in interest in Spain last year, as fewer tourists visited Turkey, Egypt and Tunisia following a spate of terror attacks.
As a result, Spanish hotels have pushed up prices by as much as 8% – costs Thomas Cook has had to pass on. Rival airlines and holiday firms have also ramped up their services to hotspots such as Majorca and the Canary Islands.
“In this context, and consistent with our strategy, we have taken a deliberate decision to focus on higher margin, quality holidays, rather than chase volume growth,” the firm said.
Despite reporting a loss, the firm said revenue in the quarter had grown 1% to £1.6bn.
It also said bookings for holidays in Greece were up more than 40%, offsetting a fall in visitors to Turkey – one of its most important markets – that hit profits in its last financial year.
Commenting on the results, chief executive Peter Fankhauser said the firm had made a “solid start” to the year, despite the “backdrop of continued uncertainty”.
However, he added: “We remain cautious about the rest of the year, given the uncertain political and economic outlook.”
Looking ahead, the company said bookings across the group overall were 1% higher for the current winter season and 9% higher for summer 2017, with around a third of holidays sold.
However, total UK bookings – including holidays and flights – are up just 1% for the key summer period.
The firm’s German airline, Condor, also continues to struggle due to overcapacity in the short-haul market and weak demand.
“Another loss shows just how hard it is in the tourism sector at the moment,” said Neil Wilson, an analyst at ETX Capital.
“Key will be the summer season coming up, when the real money is to be made.”