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Frontier Airlines 4th Airline to Taxi into Bankruptcy

Blames dispute with its credit-card processor

By Mark Huffman
ConsumerAffairs.com

April 11, 2008

Unlike the previous three -- Aloha, ATA, and Skybus -- Frontier said it would continue to operate.

While skyrocketing jet fuel prices obviously squeezed Frontier's budget, the airline attributed its bankruptcy to what it called "an unexpected attempt by its principal credit card processor to substantially increase a holdback of customer receipts." That, the airline said in a statement, threatened the company's liquidity.

Frontier said it intends to continue normal business operations today and throughout its reorganization process. Specifically, it expects to continue to:

• Operate its full schedule of flights;

• Honor tickets and reservations and provide refunds and exchanges as usual;

• Maintain its EarlyReturns frequent flyer program and other award- winning customer service programs;

• Provide employee wages, healthcare coverage, vacation, sick leave and similar benefits without interruption; and,

• Pay suppliers for goods and services received during the reorganization process.

"Frontier is committed to delivering exceptional customer service and we intend to continue delivering on that promise with normal operations throughout our reorganization process," said Sean Menke, Frontier President and CEO. "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.

Aloha file for bankruptcy April 1 after saying it could not find a buyer or a lender willing to provide the financing it required to keep flying. ATA, based in Indianapolis, and a major partner of Southwest Airlines, folded April 2. Besides fuel costs, it cited the loss of a major military contract.

Skybus, in operation for only a year, apparently got hit with a triple whammy. Not only is it hard to launch a new business past the first year of operation, it had to contend with rising jet fuel costs and a slowing economy. It was a fairly small airline, serving just 15 cities.

Frontier said it would not have been forced into bankruptcy if the conflict with its credit card processor had not arisen.

"Frontier has continued to perform relatively well in this difficult environment, and contrary to the trend, we have not seen a decrease in consumer demand, as demonstrated by our record traffic and revenue in March," he said.

Menke said the airline was informed that beginning April 11, its credit card processor would withholding significant proceeds received from the sale of Frontier tickets. This change in established practices, he said, would have represented a material change to the company's cash forecasts and business plan.

By declaring bankruptcy, Frontier is using the automatic stay provision of the bankruptcy code that prohibits the credit card processor from increasing its holdback. He says Frontier is prepared to litigate this issue if necessary.

"By filing for Chapter 11, we will now have the time and legal protection necessary to obtain additional financing and enhance our liquidity. 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."

Frontier's Chapter 11 cases were filed today in U.S. Bankruptcy Court for the Southern District of New York.

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