Low-cost airline Wow Air has stopped flying, leaving thousands of passengers stranded.

The Icelandic carrier cancelled all its flights and advised customers to check with other airlines for alternative services.

It added that passengers may be entitled to compensation but added: “In case of a bankruptcy, claims should be filed to the administrator/liquidator.”

Earlier on Thursday Wow Air had said it was in the “final stages” of completing an agreement with investors over raising new funds, and flights were “postponed” until the deal was completed.

But shortly after 8am the company announced it had ceased operation.

Wow Air plane
(Patrick Pleul/dpa/AP)

Wow Air offered low fares between Europe and North America via its Icelandic hub near Reykjavik. It once advertised flights between London and New York for £99 each way.

The airline was due to operate two flights between London Gatwick and Iceland on Thursday, and was set to switch all its London flights to Stansted from Sunday. It also planned to fly a summer service between Edinburgh and Iceland from June.

Thousands of passengers due to return home across the Atlantic or from Iceland are stranded, although several airlines are offering discounted rescue fares on certain routes for Wow Air customers.

A woman, who asked not to be named, was due to fly home from Berlin, Germany to Toronto, Canada on Saturday.

She said: “I have yet to receive any formal indication from Wow, and only a few days ago they emailed me to see if I wanted to upgrade my flight. So now I have paid for a return flight home that no longer exists. I still can’t believe it.

“I’m now scrambling to find a flight that same day. It’s last minute so the prices have skyrocketed and I don’t imagine I’ll be getting a refund from Wow.”

The Civil Aviation Authority said consumers who paid for flights by credit or debit card may be able to obtain a refund through their card provider, while those with a travel insurance policy including scheduled airline failure may be able to make a claim.

Only a small number of Wow Air customers booked flights as part of an Atol-protected package, which means companies have to make alternative arrangements to bring customers home when an airline fails.

Rory Boland, editor of Which? Travel magazine, expressed concern that Wow Air continued to sell flights until it ceased operations.

He said: “Passengers will quite rightly be appalled that Wow Air was still selling tickets right up to the moment it collapsed, knowing full well that any tickets sold would likely not be worth the paper they are printed on.”

Wow Air was founded by entrepreneur Skuli Mogensen and began flying in 2012.

During the past six months the budget airline has been involved in turbulent negotiations over a potential sale, first to Icelandair and then to US-based private equity firm Indigo Partners, which has stakes in several other airlines including Wizz Air.

The Associated Press reported that Mr Mogensen wrote a letter to employees on Thursday which said: “I will never forgive myself for not acting sooner.

“Wow was clearly an incredible airline and we were on the path to do amazing things again.”

A number of airlines have suffered financial troubles in recent months, partly due to increased fuel costs and competition.

Budget carriers Primera Air and Cobalt Air collapsed in October.

Flybmi went out of business in February, while the cut-price sale of Flybe to a consortium consisting of Virgin Atlantic, Stobart Group and investment firm Cyrus Capital was recently completed.