Thousands of travellers have been left stranded across Europe after the collapse of an Icelandic budget airline.

Sterling, which operated out of Denmark and flew from the UK to destinations in Scandinavia, said that rising fuel prices and the global financial crisis had left it with no choice than to file for bankruptcy.

The company will not be refunding tickets bought on its website and passengers stranded overseas will have to make their own way home.

Six flights were due to leave Gatwick yesterday, affecting between 600 and 700 passengers. Another five that were due to arrive have also been cancelled as all the company's aircraft have been grounded.

Sterling, which has been in financial difficulty for several years, was until two months ago owned by Northern Travel Group, comprised of Icelandic investment groups Fons, FL Group and Sund. In mid-August it was sold to Palmi Haraldsson, the chairman of Fons and an Icelandic business tycoon, who became the sole owner.

Iceland’s once booming financial sector has collapsed under the weight of the worldwide credit crunch, pushing the country to the brink of bankruptcy and forcing the Government to take control of its big banks as its currency has nosedived.

The company said: “On September 29, 2008, the Icelandic financial system melted down and that resulted in our shareholder being unable to continue to support the company.”

It added that high fuel prices and slowing demand, coupled with a heavy expansion plan, had left it particularly exposed. "It was impossible to make ends meet", it said.

Sterling flies from Gatwick to Billund in Denmark, Copenhagan and Stockholm, and from Scandinavia to European destinations. The airline also flew during the summer from Edinburgh and East Midlands airports.

SAS, the Scandinavian airline, has said it would help passengers where possible who were abroad and could not get back to their original destination because of the collapse.

A spokesman for SAS in Europe said: “We will try to repatriate anybody who is already stranded in Europe.”

Passengers who have completed the first half of their journey would be helped where possible, and would only have to pay airport taxes.

Sterling advised customers to contact their bank or credit card company to see if they were covered by insurance and to make alternative arrangements for their return journey.

Forty-four Sterling flights left Gatwick airport, its main UK hub last week, according to a spokesman for the airport. Each flight can carry about 150 passengers, meaning up to 6,000 passengers could be stranded from the airport alone.

Sterling is the latest in a line of carriers that have ceased operation in recent months. Others have included XL Airways, Zoom and Eos, Maxjet and Silverjet, the transatlantic business class airlines.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive