The collapse of Brisbane-based Air Australia last week left 4,000 passengers stranded on the other side of the world. But the failure should resonate with the UK trade by highlighting the hole in consumer protection while airlines remain outside Atol.
Budget carrier Air Australia entered voluntary administration on Friday. The company was registered as Strategic Airlines Pty until November when it established Air Australia as a scheduled operation, flying domestic services and to Bali, Phuket and Honolulu.
The carrier had previously held contracts with the Australian government to ferry troops to and from the Middle East, but lost a major contract with the defence department in 2010.
A subsidiary, Strategic Airlines Luxembourg, flies charters from Gatwick and Manchester for Olympic Holidays.
Tour operator Olympic Holidays confirmed it has a contract with Strategic Airlines this summer, but insisted Strategic and Air Australia are separate companies. The CAA is examining the situation.
Air Australia administrator KordaMentha confirmed companies in the failed group include Strategic Airlines Pty and Strategic Aviation Group. In a statement the administrators said: "There are no funds to meet operational expenses. It appears highly unlikely there will be any flights in the medium term."
Insurers withdrew insolvency protection from Strategic Airlines Pty on November 28, in the month Air Australia was launched, yet it continued to sell tickets until Wednesday of last week.
UK-based International Passenger Protection (IPP) and Australia’s biggest insurer CoverMore Travel Insurance confirmed the withdrawal of cover. However, Melbourne newspaper the Herald Sun reported: "Travel agencies kept selling Air Australia tickets, asking customers to sign an extra form that meant they understood their tickets were not covered under standard travel insurance."
Separately, Olympic Holidays sourced charter flights from Strategic Airlines Luxembourg a year ago after losing flying with Monarch Airlines.
The Luxembourg operation was set up in 2010 after Strategic Airlines France – established a year earlier – lost its French operating licence.
Olympic Holidays commercial director Photis Lambrianides said: "Strategic Airlines is registered in Europe. It operates as a charter carrier. There has been no issue." Lambrianides added: "We have a big programme and no one airline can carry all our passengers." However, he insisted: "Our flying is covered."
IPP director Paul McLean said insolvency protection would not apply to a charter carrier and said: "If Olympic is using Strategic Airlines that is a commercial decision." But he added: "They [Olympic] are open to financial loss and would have to find another carrier if Strategic went bust. The customer wouldn’t lose out."
However, McLean warned the failure highlights the lack of cover for scheduled airlines and the risks agents will take on with the new Flight-Plus Atol arrangements.
He said: "We are concerned about Flight-Plus. Agents should be aware of their liabilities. If a scheduled airline goes bust it could cause agents to collapse.
"We are seeing tremendous amount of losses from the airline industry."
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