Oasis, the pioneer of £75 air fares to Hong Kong, has collapsed, raising fears that the era of cheap international flights is over.

The carrier, which operated for only 18 months, informed British passengers landing in Hong Kong yesterday that there would be no return flight. High fuel prices and the rising cost of debt have taken their toll on airlines around the world and Oasis is the fifth to ground itself in the past week.

Oasis’s Gatwick to Hong Kong flights were popular but the airline was still unable to make money because of rapidly rising costs. Rumours in Hong Kong suggest that the carrier collapsed with debts of about £60 million. The airline was unable to increase ticket prices for fear that passengers would desert to more service-oriented rivals such as Cathay Pacific and Virgin Atlantic.

All budget carriers are under the same pressure and Ryanair gave warning in February that its profits could halve next year if oil prices stayed high. A profit warning last month from easyJet wiped 17 per cent off its share price in one day and even British Airways has been forced to cut profit margin forecasts in anticipation of a difficult year ahead.

Shoestring start-ups such as Oasis are particularly vulnerable to the rising price of oil as they can afford to lease only older-generation aircraft, which require more maintenance and are less fuel efficient than new aircraft.

KPMG has been appointed as Oasis’s liquidator and is hoping to find a buyer for the airline. The hundreds of Oasis passengers who have been stranded by its collapse will be offered flights on Cathay Pacific and Virgin for an extra fee.

With oil prices expected to remain at more than $100 a barrel this year there is no end in sight to high operating costs for airlines, and that means the era of cheap flights is effectively over. Airlines will continue to offer short-term incentives, such as Ryanair’s seats for £10 campaigns, but average fares are almost certain to rise. This will be compounded by climbing airport charges and rising aviation taxes.

Industry analysts are concerned that big increases in ticket prices could put off passengers, creating a perfect storm of rising costs and falling demand. In such an environment many more airlines could go bust or reduce capacity to concentrate on profitable routes. In the United States, four airlines went into bankruptcy protection in the past week: Skybus, Aloha, Champion Air and ATA Airlines. Andrew Fitchie, a Collins Stewart analyst, said: “The downturn has started. We will see more of this for sure.”

For UK passengers the demise of Oasis means less competition on the important Hong Kong route. Oasis was set up by the husband-and-wife team, Raymond and Priscilla Lee, and flew from Hong Kong to London and Vancouver.

It offered introductory fares as low as £75 for a single trip and its regular fares were still about half of what BA and Cathay charged. The failure of Oasis left a number of angry customers with no way of getting to their destinations yesterday.

One passenger said: “If they knew that clearly there was a problem, why were they still selling tickets? It is dishonest.”

Another said: “I’m frantically trying to find out what’s going on and whether I’m going to get my money back.”

Stephen Miller, the chief executive, said: “We have suspended all passenger services with immediate effect. We are very confident that somebody will come forward [to buy the company].”

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