Niki Lauda established the airline in April 1979, commencing flight operations the following month with two Fokker F27s. Following a period of hiatus that began in 1983, large-scale charter flights resumed in 1985 after ITAS Austria acquired a 49% share in the company. The airline transitioned to scheduled services in May 1988. In 1991, the fleet consisted of two Boeing 737-300s, two Boeing 767-300ERs and a Learjet 36.
The carrier's long-haul network launched in May 1988 with flights from Vienna to Sydney and Melbourne via Bangkok. During the 1990s, these Australian routes were rerouted through Kuala Lumpur and Bali. Expansion continued in August 1990 with daily flights to Dubai, Cuba, and Miami via Munich.
To expand its presence on the continent, accelerated market penetration within Europe was made by the signing of a strategic alliance with Lufthansa in 1992, consolidated in the following year. This era saw the introduction of Bombardier CRJ-100s for connections to Scandinavia and other European destinations. In 1992, the airline also established Lauda Asia Airways to manage the legal requirements for service to Taiwan.
Lauda Air became a wholly owned subsidiary of Austrian Airlines in December 2000. By 2005, flight operations were merged with the parent company, with the Lauda Air brand dedicated to charter flights within the Austrian Airlines Group.
At an AAG board meeting in November 2006, plans were approved to retire the Airbus wide-bodied fleet by mid-2007 and to operate with just a Boeing 767 and Boeing 777 fleet. These fleet reductions led the airline to withdraw from the long-haul charter market and refocus on short and medium-haul routes, primarily utilizing Boeing 737-800 aircraft. During this transition, the airline's Italian subsidiary, Lauda Air S.p.A., ceased operations in 2007.
The airline was officially merged into Austrian Airlines on 1 July 2012, at which point all aircraft were transferred to the parent company's structure. The brand was retired on 31 March 2013 and replaced by "Austrian myHoliday," a brand name used for leisure offers and flights provided by Austrian Airlines.
Beyond its commercial jet fleet, the airline maintained a private charter division known as Lauda Air Executive. This division operated three small jets available for private hire:
Cessna Citation II (9 seats)
Bombardier Lear 60 (7 seats)
Dassault Falcon 20 (12 seats)
The airline recorded one fatal accident during its history. On 26 May 1991, Lauda Air Flight 004 crashed in Thailand shortly after departing Don Mueang International Airport in Bangkok. The aircraft, a Boeing 767-300ER named Wolfgang Amadeus Mozart (registration OE-LAV), suffered an uncommanded deployment of a thrust reverser. The accident resulted in the deaths of all 223 passengers and crew on board.