One of Britain's biggest airlines, Flybe, collapsed Thursday with passengers left stranded as the coronavirus epidemic takes a heavy toll on air travel around the world.

A statement on Flybe's website said the no-frills airline, which employs 2,000 people, had entered administration and could not arrange alternative flights for its passengers.

"All flights have been grounded and the UK business has ceased trading with immediate effect," said the company, which avoided going bust in January only after being granted a tax holiday by the government.

Flybe is the biggest operator of UK domestic flights and carries around eight million passengers annually.

But it failed to turn around its fortunes since being purchased by the Connect Airways consortium last year, initially owing to weak demand and fierce competition.

That has now been compounded by the new coronavirus, with a slew of airlines cancelling flights and warning profits would take a hit from decreased demand.

The announcement came hours after media reports that the airline could collapse following its failure to secure a ?100 million ($129 million, 115 million euros) state loan to help stabilise the business.

The impact of COVID-19 on travel "has made a bad situation much worse", sources told the BBC, while Bloomberg News reported Thursday that no agreement could be reached on a virus-related government bailout.

Small British airlines have suffered recently from volatile fuel costs and a weak pound.

Flybe operates from 43 airports across Europe and 28 in Britain, and its collapse left potentially thousands of people stranded far from home.

"If you are due to fly with Flybe, please DO NOT TRAVEL TO THE AIRPORT unless you have arranged an alternative flight with another airline," the airline said.

The British government said it had asked bus and train operators to accept Flybe tickets and other airlines to offer reductions to help passengers reach their destination.

"Flybe's financial difficulties were longstanding and well documented and pre-date the outbreak of COVID-19," a spokesperson said in a statement.

Flybe's owner, the Connect Airways consortium, is led by Virgin Atlantic and also includes investment firm Cyrus and infrastructure specialist Stobart.

Chief Executive Mark Anderson said "every possible attempt" had been made to avoid the collapse, but that the airline had been "unable to overcome significant funding challenges".

In January, Flybe said it had agreed a payment plan with authorities to defer tax payments of less than ?10 million.

That announcement came just days after the airline was saved from collapse in a last-minute financial rescue, with Prime Minister Boris Johnson's government agreeing to review air passenger duty (APD) paid by Flybe's customers.

Following the tax deferral, rival companies including British Airways-parent IAG complained to the European Union that it was receiving unfair state aid.

The decision also sparked the ire of Greenpeace UK, which at the time called the air-ticket tax cut a "poorly thought-out policy that should be grounded".

"Cutting the cost of domestic flights while allowing train fares to rise is the exact opposite of what we need," the environmental campaign group said.

The government said its assistance did not breach EU rules and that help was based on the importance of the company's domestic services.

However, that contrasted with the fate of British holiday giant Thomas Cook, which collapsed without government assistance in September, causing the loss of 22,000 jobs worldwide and stranding 600,000 holidaymakers abroad.

Copyright AFP. All rights reserved.

Flybe collapses
Flybe, which employs 2,000 people, had failed to turn around its fortunes. Photo: AFP / Oli SCARFF