Iceland’s Wow Air has stopped operating and cancelled all flights after a failure to secure emergency funding left 4,000 passengers stranded.

The budget carrier, which flew from Edinburgh, London Stansted and Gatwick airports in the UK, advised passengers to find available flights with alternative companies after becoming the latest in a string of airlines to run into financial difficulty.

The Icelandic Transport Authority said the company’s collapse into administration had left 4,000 people stranded, including 120 UK passengers, returning either from Iceland or North America.

Wow employs 1,000 people directly but more jobs depend on the airline at airports and elsewhere. Iceland’s directorate of labour held an emergency meeting on Thursday morning and is preparing for a surge in job applications, according to local media.

A message on its website reads: “Wow Air has ceased operation. All Wow Air flights have been cancelled. Passengers are advised to check available flights with other airlines.

“Some airlines may offer flights at a reduced rate, so-called rescue fares, in light of the circumstances.”

Four airlines are offering rescue fares for Wow passengers including Icelandair, EasyJet, Norwegian and Wizz air.

The airline said customers who paid for their tickets with a credit card should contact the credit card company to check whether they are entitled to a refund. Those who bought a package holiday from a travel agent within the European Economic Area are protected by the package travel directive, Wow said.

Passengers may be entitled to compensation from Wow Air, the airline said.

Wow made headlines in 2015 when it promised £99 outbound fares from Europe to the US. The carrier, founded by Icelandic tech tycoon Skúli Mogensen started flying in 2012. It used smaller, single-aisle planes to fly between Iceland and many destinations in the US and Europe, and carried 3.5 million passengers last year.

It comes after six months of negotiations in an attempt to sell it to its main rival Icelandair, and then to Indigo Partners, a US private equity firm that has stakes in several airlines, including Hungary’s Wizz Air. Indigo and Icelandair both walked away in recent days, leaving Wow Air scrambling for a financial restructuring with bondholders and other creditors.

Its deteriorating finances forced the loss-making airline to more than halve its fleet from 24 to 11 aircraft and to reduce its destinations in recent months.

Mogensen wrote in a letter to employees on Thursday: “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.”

It is the latest carrier to succumb to pressures from high fuel prices and overcapacity. Recent failures include the British regional airline Flybmi, while the fellow UK regional carrier Flybe was taken over in a cut-price deal led by Virgin Atlantic in January. The low-cost airline Norwegian launched an emergency £270m fundraising and the UK’s Monarch Airlines collapsed in 2017.

The consumer group Which? noted that at 7am on Thursday Wow was still selling flights. Rory Boland, travel editor at the consumer group, 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.”

• This article was amended on 3 April 2019 because an earlier version omitted Edinburgh as an airport Wow Air flew from in the UK. This has been corrected.