Frontier files for bankruptcy

photo by Drewski2112

Denver-based Frontier Airlines filed for Chapter 11 bankruptcy protection earlier today, citing a move made by its credit card processor, First Data Corporation, which has started withholding a larger percentage of proceeds from ticket sales.

"To be clear, we filed for very different reasons than those of other recent carriers, and our customers and employees can be confident that we intend to keep on flying and providing outstanding service and products," said Sean Menke, Frontier president and CEO. "Given the recent progress we have made towards strengthening our balance sheet and obtining additional financing, it is truly unfortunate that we have had to take this action."

Frontier's bankruptcy filing stems from what are known in the industry as "holdbacks". A bank that processes an airline's credit card purchases holds onto a certain percentage of the proceeds until the passenger actually flies. As of now, that percentage for Frontier is locked at 45%. But First Data was going to increase that to 50% immediately and to 100% by May 1. By filing for bankruptcy, Frontier can avoid the increase.

Frontier isn't in dire straits like Aloha and Skybus were, but right now, a lot depends on public opinion. Travelers have been hearing about a lot of airline bankruptcies recently, and even if Frontier isn't on the brink of collapse, a bankruptcy filing might scare away customers.