Frontier Airlines seeks help

Carrier files for bankruptcy protection after credit card processor holds cash

First Data Corp., which would be on the hook for refunds if Frontier stops flying, is withholding a larger chunk of ticket revenue. (Joe Raedle/Getty Images)

NEW YORK - Frontier Airlines, the latest airline to file for bankruptcy, was pushed over the brink by a problem that could spread to other carriers: credit card troubles.

The carrier yesterday blamed its filing for Chapter 11 bankruptcy protection on a cash squeeze caused by its credit card processing company, which has decided to keep a larger chunk of the Denver airline's ticket revenue.

The move ends a policy under which the processor, First Data Corp., passed on most money from ticket sales to Frontier. The change is intended to protect First Data, which would be on the hook for ticket refunds if Frontier stops flying. Frontier plans to continue operating while in bankruptcy.

First Data's decision represents a new threat to an industry facing jet fuel prices that have soared 74 percent in one year, a new government focus on safety that has grounded thousands of flights in recent days, and tight competition and falling demand that, combined, have limited carriers' ability to raise prices.

"It's just a god-awful time for this industry," said Bob Mann, an independent airline consultant based in Port Washington, N.Y. "This illustrates the uncertainty of capital markets to a T."

ATA Airlines, Skybus Airlines, and Aloha Airlines all have filed for bankruptcy in recent weeks. Champion Air plans to shut down and MAXjet Airways went bankrupt in December. All cited some combination of high fuel prices and falling demand, among other factors.

In a regulatory filing Thursday, Southwest Airlines Co. said its 2008 fuel bill will rise more than $500 million - nearly equal to its entire profit last year - to more than $3 billion.

Southwest has hedged 70 percent of its 2008 fuel needs at the equivalent of $51 per barrel for crude oil - less than half the current price of oil.

American Airlines, a unit of Fort Worth-based AMR Corp., said recently it expects to spend $9.3 billion for fuel this year, up from $6.7 billion last year.

Houston-based Continental Airlines Inc. said last month it expects its fuel bill to rise $1.5 billion in 2008. United Airlines said it faced a $1.2 billion increase for fuel this year, and Delta Air Lines Inc. said it expected to pay $900 million more. Northwest was budgeting for $800 million more.

In the case of Frontier, while it's not uncommon that banks processing airline credit card transactions hold a certain amount of a carrier's proceeds in their own accounts until a passenger completes his or her travel, it is unusual for a processor to suddenly change its cash withholding policy, analysts say.

For Frontier, the new requirement - known in industry speak as a holdback - was the proverbial straw that broke the camel's back.