The loss would compare with a profit of $1.37 million for the previous corresponding period.
The shares fell 12.5% on a relatively small volume.
Forsyth Barr broker Peter Young said the loss was worse than expected and took the puff out of THL's short-term momentum.
"We are disappointed with the short-term realisation that THL is now expecting a first-half loss of $1 million, but it is a timely reminder that the trading conditions remain challenging and the investment case should stay focused towards the medium-term earnings for 2012, not the here and now," he said.
THL chairman Kevin Smith said the full-year forecast would be discussed in more detail at the half-year result announcement in February.
"In the annual report sent to shareholders in September, we indicated that the current performance showed a softening in the backpacker and United Kingdom markets in particular and that the strength of both the Australian and New Zealand dollars internationally was contributing to lower spending.
"During September and October, we have seen further adverse impacts from these factors on both first-quarter performance versus last year and the forward bookings as we head into the high season," he said.
The Australian business had been most affected by the strengthening exchange rate in three major areas, he said.
Australian domestic customers were choosing to travel internationally.
Outbound travel was up 15% in the past three months compared with the corresponding period last year.
UK visitor arrivals were down on last year by about 5%.
The hire period had shortened by about 10% for THL customers as they adjusted their length of stay.
"Customers have a set holiday budget in their home currency and adjust destination, length of stay and activities accordingly."
Within New Zealand, the business was also seeing the impact of the exchange rate but most particularly was hurting from the downturn in the UK market.
Total visitor arrivals from the UK were down 19% in July and 15% in August with forward bookings indicating an ongoing decline.
More significantly, the lack of demand had seen discounting increase, Mr Smith said.
Mr Young said Forsyth Barr had emphasised in recent reports that its positive investment case for THL was based on its underlying asset backing and expectations that its earnings would recover over the next two to three years.
That view remained unchanged.
Forsyth Barr would lower its full-year 2011 forecasts and might also lower its 2012 forecasts but it still expected THL to match or slightly exceed its 2010 earnings in full year 2011, Mr Young said.
Forsyth Barr valued THL at $1.62 a share.
It last traded at 77c.
"Our buy recommendation is under review, given the softness in near-term earnings. But the 'value' proposition is unchanged," he said.
