Frontier Airlines sought bankruptcy protection yesterday, the fourth carrier to do so over the past several weeks as exorbitant fuel prices eat into earnings and a weak U.S. economy keeps more people grounded.
Frontier Airlines Holdings Inc., the low-fare carrier’s parent, said it was forced into bankruptcy after its principal credit card processor, First Data Corp., said it would begin withholding a greater share of proceeds from ticket sales.
Denver-based Frontier said it would continue to operate a full schedule of flights, pay suppliers and employees as it reorganizes. The filing in U.S. Bankruptcy Court in New York prevents the credit card processor from increasing its “holdback,” Frontier CEO Sean Menke said.
“By filing for Chapter 11, we will now have the time and legal protection necessary to obtain additional financing and enhance our liquidity,” Mr. Menke said in a statement. “Fortunately, we believe that we currently have adequate cash on hand to meet our operating needs while we take steps to further strengthen our company.”
ATA Airlines, Skybus and Aloha Airgroup also have filed for bankruptcy in the past three weeks, but Mr. Menke said Frontier’s reasons for doing so were different.
Frontier’s agreement with First Data allowed the processor to hold 45 percent of the amount a passenger charges for a ticket until travel is completed.
Frontier spokesman Joe Hodas said First Data notified the airline this week that it would boost the holdback to 50 percent immediately and to 100 percent by May 1.
“This change in established practices would have represented a material change to our cash forecasts and business plan,” Mr. Menke said. “Unchecked, it would have put severe restraints on Frontier’s liquidity and would have made it impossible for us to continue normal operations.”
By filing for bankruptcy, Frontier can fend off First Data until a judge issues a decision or the reorganization is completed. First Data did not immediately comment.
Frontier expects the reorganization to take nine to 18 months.
In other airline news yesterday, American Airlines canceled 595 more flights on the fourth day of travel disruptions caused by grounding its Boeing Co. MD-80 jets to inspect and repair wiring.
The scrubbed flights pushed this week’s total to 3,082 at the world’s largest carrier. More than 273,000 passengers had been stranded through yesterday, and the latest cancellations may add about 65,450 to that count.
While more flights may be dropped today, American said yesterday that it expected to return to a full flight schedule by tomorrow. Compensating travelers and fixing planes will cost “tens of millions of dollars,” American said.
“When you cancel 45 percent of your flights, you’re going to lose passengers to your competitors, and your costs are going to go up,” James M. Higgins, a Soleil Securities Corp. analyst, said. “I don’t think it has any long-term effect. There’s this flurry of activity, and then it will pass.”
Of 300 MD-80s in the airline’s fleet, 226 are back in service, American said.
“There is no sugarcoating the fact that we are going to have to earn back the trust of the customers we disappointed in recent days,” Chief Executive Officer Gerard Arpey said in a message to employees.
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