Cyprus on Friday announced an immediate halt to flights by its national carrier after EU regulators ordered Nicosia to recover illegal state aid granted to the holiday island's ailing airline.
Cyprus Airways ticket-holders will be offered alternative arrangements, the government of the small recession-hit EU member state said.
Finance Minister Harris Georgiades told a press conference Cyprus Airways was no longer "economically viable" after the decision from Brussels and was ceasing operations.
The 68-year-old carrier was to make its last flight Friday night.
"We are saddened by the turn of events, and the government will seek to maintain air links between the island and abroad," said Communications Minister Marios Demetriades.
Demetriades had warned the airline could not survive if the EU decided Cyprus broke the rules by giving it a 31-million-euro ($37 million) capital increase and a 34-million-euro rescue loan.
He said the government was looking into the prospects of creating a new airline if they could find serious investors and had already bought the Cyprus Airways logo for such a scenario.
"Following today's decision for immediate termination of the flight programme of Cyprus Airways, the Cyprus government decided to offer alternative arrangements to all passengers who have in their possession tickets of Cyprus Airways flights," an official statement said.
It listed the alternatives as the use of chartered airplanes or passengers being switched to another airline, perhaps with transits, with the Cypriot government footing the bill.
In Brussels, EU regulators ordered Cyprus to recover from Cyprus Airways about 65 million euros ($77 million) in illegal state aid.
"Following an in-depth investigation, the European Commission has concluded that a restructuring aid package... for Cyprus' ailing flag carrier Cyprus Airways gave the company an undue advantage over its competitors in breach of EU state aid rules," Competition Commissioner Margrethe Vestager said.
"Cyprus Airways has received large quantities of public money since 2007 but was unable to restructure and become viable without continued state support," Vestager said.
- Last-ditch survival bid -
The carrier, 93 percent state-owned, has struggled to survive against intense competition on its most popular routes to Greece and London.
Several cost-cutting plans as part of last-ditch survival efforts failed to stem losses.
It posted a net loss of 55.8 million euros in 2012, more than double the 23.88 million euros of the previous year.
The government launched a search for potential buyers of the carrier last year but failed to receive any serious interest.
Ireland's budget airline Ryanair and Greece's Aegean were whittled down from an initial 14 suitors when expressions of interest for Cyprus Airways were launched last July.
But the interested parties were reportedly concerned about the European Commission investigation of a breach of EU state aid rules.
A Cyprus Airways back-up plan would reportedly have seen the carrier reduced to three aircraft and its staff cut to 230 from the current 560.
The national carrier also sold off assets, including three slots at London's Heathrow airport, and reduced its fleet to six aircraft.