A closure of The Observer, the world's oldest Sunday newspaper, is actively being considered, the chief executive of the company behind the 218-year old title told staff in an internal email sent shortly after 12.30pm today.

Carolyn McCall, chief executive of Guardian Media Group, said the publisher, which also owns The Guardian was "examining every aspect of... publishing strategy and titles" and that "a wide variety of different options, approaches and scenarios is being developed and will be considered".

One of those options, it emerged over the weekend, was to close down The Observer. Referring to that possibility directly, she said: "This is what has leaked, and resulted in headlines about the future of The Observer. Those of you who have worked here for a while will be familiar with intermittent coverage of this nature over the years."

Guardian Media Group (GMG) lost nearly £90 million in the year to March 29, a deficit that surprised many staff at both The Guardian and The Observer. The company is in the middle of an operational review, involving Alan Rusbridger, the editor in chief for both newspapers, and John Mullholland, the editor of The Observer, which will present its initial results in the autumn.

GMG is owned by the Scott Trust, a charitable body that owns The Guardian and The Observer and other media assets through the Guardian Media Group.

The Scott Trust, which exists to safeguard the future of The Guardian — but not The Observer — “in perpetuity” and Ms McCall reminded staff today that the "core purpose" of the organisation is "securing the long-term future of The Guardian".

The Observer, which has been through many owners in its history, was acquired in 1993 from Tiny Rowland's Lonrho, and has long been loss-making. Its current losses are estimated at about £20 million a year.

One idea canvassed before the Scott Trust last month was to replace the Sunday newspaper with a mid-week magazine of the same name, but this was not accepted by the trustees.

Guardian Media Group told employees earlier this summer that it wants to examine its strategy to establish where the company is positioned in three years’ time. The advertising downturn is bearing heavily on the group's national newspapers, which lost £61 million last year. A wide range of cost-saving ideas are expected to be considered, but not all of them will be acted upon.

On Friday, Carolyn McCall, the chief executive of Guardian Media Group, said that The Guardian and The Observer could not sustain the current level of losses “for the next three years” — and savings would be found by “looking at our structure,” although that was intended to signal an examination of overheads in the business.

The Guardian and The Observer have been supported by profits made at AutoTrader, the secondhand car magazine. But after the company sold half of AutoTrader to Apax Partners for £673 million, Guardian Media Group’s share of income from the business has gone to repay debt.

Some cash from the purchase was used to buy a 29.5 per cent stake in Emap, which also pays no dividend, while £200 million was placed in an investment fund and £83 million remains in the bank.

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