Air Australia Collapse: How It Happened

When Australian discount-travel airline Air Australia decided to file for bankruptcy in the wee hours of Friday morning, the decision did not reflect a long thought-out restructuring as was the case in the recent bankruptcy of American Airlines. Instead, the development came out of the inevitable, as a refueling station in the Phuket, Thailand, refused to gas up one of the company's Airbus A330-200 planes, citing Air Australia's unpaid fuel debts. Rather than pony up the tens of thousands of dollars owed, the firm simply called it quits.

The convoluted path of Air Australia, which is less than four months old and operated on a leased fleet of five aircraft, is being framed as a case study in which corporate hubris and a hands-off approach from corporate regulators combined to deliver a spectacular demise. Rughly 4,000 tourists were stranded in Thailand, on Friday with many travellers left searching for alternative ways home as Air Australia was forced to ground their entire fleet.

Just weeks after the airline opened, launching into the low-price fare field being abandoned by competitor Virgin Australia, it flew plane-loads of local celebrities to Hawaii to raise its profile. It also sponsored an Australian IndyCar racing event, spending hundreds of thousands to transport the vehicles involved in the race. It also became a major sponsor of the Australian Open golf tournament. Meanwhile, the company was struggling.

In December 2011, just weeks after launching, two large insurers announced they would not be dealing with the company since it refused to open its finances for inspection. Staff on the airline were reportedly paid as little as AU$90 ($96.58) per day, and told not to eat on-board offerings. Just a week ago, Air Services Australia, the government agency involved in airport operations, said it was suing Air Australia for unpaid fees.Yet according to one Australian newspaper, The Age, another government agency that should have raised a red flag earlier was asleep at the switch.