Low-cost carrier Air Australia has been placed into administration Friday morning, a development so sudden that thousands of passengers previously booked with the budget airline were left scrambling for alternative flights.

According to the Australian Associated Press (AAP), up to 4000 passengers from Phuket in Thailand, Bali in Indonesia, Honolulu in Hawaii and within Australia were caught by surprise of Air Australia's flight grounding.

A statement posted by the airline on its official website today confirmed the news, with company officials also announcing that John Park and Mark Korda of KordaMentha have been appointed as voluntary administrators.

An accompanying notice issued the same day by an Air Australia representative at Melbourne Airport declared too that "all Air Australia flights have been cancelled."

KordaMentha followed through with its news release, informing the public that majority of the 300 Air Australia staff had been stood down.

The airline administrator also hinted that Air Australia has been operating while insolvent.

The administrator added that effective immediately, flight schedules of the Brisbane-based carrier for the rest of Friday have cancelled, the decision impacting Air Australia passengers departing from and coming to Melbourne.

Most of these passengers, according to media reports, were either bound for or coming from Hawaii, Thailand and Indonesia.

It appears too, according to KordaMentha, that resumption of Air Australia flights will not happen soon.

"It's highly unlikely there will be any flights in the short to medium term," KordaMentha said in a statement.

"It currently appears that there are no funds available to meet operational expenses so flights will be suspended immediately," the administrator added.

KordaMentha also advised all affected passengers to contact other airlines for replacement flights, with Qantas Airways immediately offering to take in stranded travellers.

Qantas chief executive Alan Joyce urged Air Australia passengers to book Qantas or Jetstar flights and assured them that they will pay the same price printed on their Air Australia tickets.

"They don't have to pay any more and they can try and recover that fare from their travel agencies or their credit card suppliers," Joyce was reported by Sydney Morning Herald as saying on Friday.

Operated by Strategic Aviation Group, Air Australia was the offshoot of Strategic Airlines - a company that has been hounded by strings of misfortunes following the lost of its lucrative deal with the Australian Defence Ministry in 2010.

That $30-million a year contract allowed Strategic to ferry Australian troops and military supplies to Kuwait and the United Arab Emirates, the SMH wrote.

Strategic started crumbling since then and it fate sealed Thursday night in Thailand when a fuel supplier refused to fill up an Air Australia bound for Melbourne.

"Late last night, the airline was unable to have an aircraft in Phuket refuelled ... but they owed the supplier of fuel money, and needed to buy fuel, so the supplier would not supply fuel," KordaMentha said.