Hundreds of Bristol holidaymakers have been stranded abroad after the UK's third largest tour operator collapsed.

XL Leisure Group, which had two aircraft based at Bristol International Airport, went into administration in the early hours yesterday, ceasing all operations with immediate effect.

Holidaymakers who turned up at Lulsgate yesterday morning to catch an early flight to Tenerife were greeted with a notice telling them the company, which owed £140 million, was no longer in business.

By the time an evening departure to Crete was due to take off all customers had been advised not to travel to the airport and none turned up.

An estimated 85,000 people in the middle of their holidays, hundreds of whom had flown from Bristol, were left wondering how they would get home.

And those who had spent hundreds or even thousands of pounds on the 200,000 advance bookings cancelled because of the company's demise were left waiting to find out what would happen to their money.

Among those stranded was IT service manager Thomas Barrell, aged 28, of Clifton, who was last night stuck in Palma, Majorca, after a week's holiday with a friend, which cost £610 each.

He found out from friends back home that the company had gone into liquidation and was expecting to have to spend days sleeping rough at the airport waiting for a flight home with another carrier.

He said: "I have no idea what I'm supposed to be doing. I have been calling the company's hotline but there is a message saying they are busy all the time.

"The people at the hotel don't have a clue what is happening either. They are the ones getting all the stick from everyone.

"At the moment it looks like I am going to have to pay for a flight back to the UK. I am very angry about the situation.

"We could have made alternative decisions. We shouldn't have to deal with things like this on holiday."

Vanessa Willcox, 37, who works in advertising and lives in Emersons Green, booked a holiday to Egypt with Travel Republic – a subsidiary of XL – with partner Paul, 39, on Thursday morning – less than 24 hours before the administrators were called in.

She paid £1,300 for the holiday, due to be taken in October, using her debit card.

Ms Willcox said: "I can't believe that a company on the brink of going bust can be allowed to take people's money like that.

"I don't have £1,300 to throw away. The holiday was going to be our first together; we've only been seeing each other for six months. I'm gutted."

The companyblamed rising fuel costs and the credit crunch for its collapse.

XL customers faced a race to get tickets on alternative flights if they wanted to go ahead with their holidays, although some just turned round and headed home.

A distraught former employee of the company, who asked not to be named, was at Bristol International Airport yesterday morning.

He was due to fly out with another airline and only found out he had lost his job when he turned on the TV a few hours before leaving for the airport. He said colleagues had been alerted by text on Wednesday that the company was on the brink of collapse.

XL Airways operated 21 aircraft from all UK airports to more than 50 destinations across Europe, America and Africa. It was the third biggest carrier operating from Bristol International Airport.

Among the destinations it served, where holidaymakers are now stranded, are Tenerife, Crete, Majorca, Cyprus, Egypt, Skiathos, Kos, Rhodes, Zakynthos, Kefalonia, Kerkyra, the Algarve, Gran Canaria, Rhodes, Zakynthos, Lanzarote, Malta, Alicante and Fuerteventura.

Today and tomorrow flights had been due to return from Heraklion in Crete, Palma in Majorca, Rhodes, Kos and Zante. Flights had been due to take off from Bristol to Palma, Rhodes, Kos, Zante and Kefalonia.

In a statement, Bristol International Airport said: "Following the notification that the XL Leisure Group has ceased trading, Bristol International can confirm that all flights to and from Bristol operated by XL have been cancelled."

Passengers yet to travel were being told to make alternative arrangements, while those already on holiday were being offered the chance to be brought home on flights arranged by the Civil Aviation Authority (CAA), a statement on the firm's website said.

XL Leisure Group chief executive Phil Wyatt apologised for the massive disruption to travellers and the uncertain future the company's staff now faced.

He admitted the company had debts of £143 million, but insisted it did not have to fail.

Mr Wyatt said: "Up until 9pm on Thursday night there was dialogue with the CAA and individuals were coming forward with money potentially to put into the business."

A further statement from the group said: "The companies entered into administration having suffered as a result of volatile fuel prices, the economic downturn, and were unable to obtain further funding. The joint administrators cannot continue trading the business and therefore all flights operated by the companies have been immediately cancelled and the aircraft grounded.

"Going forward, the joint administrators are unlikely to be able to trade the business or operate the aircraft."

The CAA said customers who booked packages – flights and hotels – through tour operators owned by XL would be protected under the Air Travel Organisers' Licensing (ATOL) scheme.

However, those who booked flights only through XL.com and XL Airways will not be line for a refund through the scheme and have to pursue one through their credit card company or bank.

The CAA estimated there were 50,000 customers abroad who had booked through an XL tour operator, 10,000 on holiday with XL Airways, and 25,000 with other tour operators who shared the XL flights. A further 200,000 customers had advance bookings with the XL tour operators.

A spokesman said: "The CAA will make arrangements for those customers currently abroad who booked their holiday or flight with an ATOL tour operator to complete their holidays and fly home.

"All future departures with the XLUK tour operators and XL Airlines have been cancelled.

"Customers due to travel from the UK are advised not to go to their departure airport. Tour operator customers will be able to claim a full refund from ATOL."

ATOL spokesman David Clover described the group's collapse as "a huge failure" and urged holidaymakers to be patient.

He said "repatriation aircraft" were being scrambled and ATOL would be working with "external agencies", including Thomson First Choice, to settle claims.

He said: "With XL Airways no longer operating we are having to bring in substitute aircraft to bring people home.

"We ask people to be patient while we organise that... bear with us, this is a huge failure.

"Our priority is the stranded passengers abroad and getting them back to the UK.

"Clearly if people do incur some additional costs, if they are delayed in their return, then they can put a claim in to the CAA under the ATOL scheme."

Mr Clover defended the decision to allow the company to continue trading until it went bust.

He said firms should be given every opportunity to find a "white knight" investor to save them.

He added: "It's right that a company is given every opportunity to continue to trade. Clearly we got to a point where the game was up and the company wasn't able to operate and had to close."

EasyJet was offering XL passengers stranded in Spain, France, Greece, Italy and Portugal the chance to get home for £75. Flybe was offering a similar service from Alicante, Faro, Malaga and Palma.

XL Leisure Group, based near Gatwick, West Sussex, employed about 1,700 people worldwide, according to administrators Kroll.