Thousands of holidaymakers are stranded and scrambling for alternative flights after Iceland-based budget airline, Wow Air, ceased operations without warning Friday morning.

The now-defunct carrier, which operated between Iceland, Europe and North America, issued an unexpected travel alert alerting passengers that the company had shut down effective immediately and abruptly cancelled all flights.

Up to 4000 passengers had been affected by the grounding of the aircraft, which came as a result of its failure to secure funding over the past few months.

“This is probably the hardest thing I have ever done but the reality is that we have run out of time and have unfortunately not been able to secure the funding of the company,” WOW CEO and founder Skuli Mogensen wrote in a letter to the company’s 1000 employees.

“I will never be able to forgive myself for not taking action sooner,” he added.

20 min to board, @wowairsupport cancels the flight. But then sends an email that it’s just delayed until 9pm. Oh but the crew left because it was cancelled. Updates coming from the guy in the middle of this crowd. pic.twitter.com/bRmnQUXvz4

— Mike Wendling (@WendlingMike) March 27, 2019

Wow Air advised passengers to check flights with other airlines for ways to reach their destinations.

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

American Saurabh Aggarwal, who was due to fly to Iceland on Wow Air, said passengers were not issued refunds or provided with accommodation after it cancelled flights late Wednesday night but only notified customers the morning after.

“This really scared everyone,” Mr Aggarwal told CNN.

Passenger Jonathan Koo said he discovered his flight was cancelled on social media.

“They didn’t even notify any of us directly, had to find out from twitter and reddit,” he tweeted.

Passengers voiced their frustration on Twitter, describing scenes of chaos and confusion.

One passenger stranded at Newark Airport described “pandemonium at the gate”, after having only received a $12 voucher from the airline.

https://twitter.com/derekGUMB/status/1111114721200128006

Wow Air said: “Passengers may also be entitled to compensation from Wow Air, including in accordance with European regulation on Air Passenger Rights.

“In case of a bankruptcy, claims should be filed to the administrator/liquidator.”

The Civil Aviation Authority said travel firms with an Atol licence are responsible for making alternative arrangements to bring their customers home if they are currently overseas with a Wow Air booking.

The regulator said there are a number of options for passengers who booked flights via other methods, including requesting a refund through credit and debit card providers or making a claim with their travel insurance provider.

Rory Boland, editor of Which? Travel magazine, 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.”

Its bankruptcy comes after six months of turbulent negotiations to sell the low-cost carrier.

-with AAP