Tigerair Australia has been given a four-day reprieve to get stranded passengers out of Bali after Indonesian authorities imposed what critics say is a "totally unreasonable" flight ban on the carrier.
Tigerair on Wednesday cancelled flights between Bali and Perth, Adelaide and Melbourne when the Indonesian government imposed what the airline called "new administrative requirements".
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In a statement on their website, Tigerair flights to and from Bali have been suspended until further notice, Tigerair have advised customers booked on services not to go to the airport.
Tigerair Bali flights cancelled
Tigerair is forced to cancel all of its flights to Bali leaving holiday plans of hundreds of passengers in disarray.
Late on Thursday, the Indonesian government agreed to let Tiger operate scheduled flights out of Denpasar on Friday, Saturday, Sunday and Monday to get about 2000 stranded passengers back to Australia.
Flights from Australia to Indonesia from Friday to January 20 have been cancelled and all other services are under a cloud as the airline continues to negotiate with authorities.
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Indonesian Transport Ministry spokesman Bambang Ervan told Fairfax Media that Tigerair was suspended because it was flying under a chartered plane licence but selling tickets as if it were a scheduled airline.
Tigerair has been flying to Bali since March 2016, but the airline - which is entirely owned by Virgin Australia - has not yet been granted the necessary licence to fly its own aircraft on the routes.
The budget airline has instead operated aircraft owned by Virgin and flown by Virgin pilots but painted with Tigerair livery and manned by Tigerair cabin crew under a charter arrangement.
"Chartered flights cannot sell tickets," Mr Bambang said.
Mr Bambang said an evaluation was conducted between December and early January after Tigerair requested flight clearance.
He said Tigerair could resume flying only once it determined whether it wanted a chartered or scheduled licence.
"If they choose a scheduled licence they have to get AOC 129 [air operator certificate]," Mr Bambang said. "AOC 129 is a procedure applied worldwide for scheduled flights."
In a statement, the Indonesian embassy in Canberra said the suspension was not because of new administrative requirements as claimed by Tigerair, but because the carrier had failed to meet existing requirements by selling tickets in Indonesia.
"The suspension of in flight clearance for Tiger Airways is a commercial matter and will be imposed temporarily until Tiger Airways complies with regulations stipulated by the Government of Indonesia," the statement said.
Tigerair chief executive Rob Sharp said the airline had been given approval by the Director General Air Communication and Director Air Transport to use the charter arrangement until March 25.
"We are not proposing any changes to the agreement – we are operating under the same approval we have been for the last eight months," Mr Sharp said.
"We are working constructively with the Indonesian government to commence flying to Bali again as soon as possible and to work through the new requirements they have given us this week."
Mr Sharp said if the the Indonesian government decided not to honour the current agreement, it should give Tigerair a grace period to continue to fly while working through the "new requirements".
It is understood oversight of Tigerair's agreement to fly under a chartered licence recently passed to a different department within the Indonesian government, sparking the grounding.
Peter Harbison, executive chairman of aviation market intelligence group CAPA Centre for Aviation, said it appeared Tigerair was a victim of Indonesia's bureaucracy.
"You could argue that this is an airline that has a different [aircraft operator certificate] from Virgin and should therefore be treated independently, and therefore it can only fly charters," he said.
"But to suddenly switch from accepting it to giving in no days' notice to terminate is ludicrous. It's totally unreasonable."
By late Thursday, Virgin had flown 500 Tigerair passengers back to Australia on its own or other airlines' planes. Another 350 who had been due to return home by Thursday remained stranded.
Qantas shares have risen 5 per cent since Tigerair was grounded.