Simon Calder explains turbulence in the eastern Mediterranean

One of Europe's oldest airlines closed down last weekend, leaving tens of thousands of passengers facing uncertainty. At 9pm local time on Friday 9 January, Cyprus Airways flight 337 from Athens landed at Larnaca airport – the final touchdown for an airline established 68 years ago.

Was the airline's demise a surprise?

Far from it. The national airline of Cyprus has been struggling for years to compete with the likes of easyJet and Ryanair. In the past few months the airline has tried to stay afloat by, for example, selling its slots at Heathrow. Its main owner, the Cypriot government, had put the airline up for sale. But last weekend things took a turn for the worse.

Cyprus Airways had been propped up over the past few years by the island's government with the help of €100m (£77m) in state aid. The European Commission has strict rules about subsidies that jeopardise competition. Brussels judged that Cyprus Airways had to hand the money back. When this happened, it rendered the airline bankrupt – leaving 550 staff looking for new jobs.

What happens to people with tickets?

That depends what sort of booking they hold. Anyone who has bought a proper package holiday with a tour operator should contact the firm (via the travel agent, if it was booked through one). The tour operator is obliged to find an alternative flight. Passengers who bought tickets direct are in a less certain position. Usually, such travellers have few rights. They are unsecured creditors, at risk of losing all their money – which they may then be able to reclaim from their credit-card provider. Passengers may also face painfully high fares for new flights. But in an unusual move, the Cyprus government said it would make alternative arrangements for all the affected travellers: "The Republic will undertake fully the cost of the alternative flights and therefore the passengers will not be burdened in any way." It has appointed a Nicosia travel agent, Top Kinisis, to handle the fall-out (00 357 2286 9999; topkinisis.com).

How are travel plans affected?

Passengers with imminent trips have been rebooked on alternative airlines. These are not exact matches; passengers booked on the daily 1pm flight from Stansted to Larnaca on Cyprus Airways may find themselves booked from Gatwick on easyJet or from Heathrow on British Airways. The rebooking programme is handling the most urgent cases first; passengers booked to travel up to 9 February are being dealt with currently.

What about the February half-term, over Easter or during the summer peak?

The Cyprus government has put the carrier's name and logo up for sale, raising the possibility that it might be revived as a new, privately owned airline. Were this to happen, then bookings on the network for the coming months may simply be transferred to the new carrier. If a taker is not found, there will be pressure on key travel dates in the school holidays – though both British Airways and Aegean Air have announced new route from London to Larnaca from the end of March.

I'm flying imminently and need certainty

If you have not yet been rebooked on another flight, British Airways has put in place a £75 one-way "rescue fare" between Heathrow or Gatwick and Larnaca until 31 January. You cannot book online; call 0844 493 0787 in the UK or +44 20 3564 5911 from Cyprus. Note that it may be difficult to claim this extra cost from a credit-card provider or travel insurer because of the Cypriot government's stated intention to look after passengers.

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