Frontier Airlines blames credit card processor

Analysts think most airlines have enough cash to weather the current crisis.

NEW YORK (AP) — 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 on Friday blamed its 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.

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.

Analysts believe most larger airlines have sufficient cash to weather the current economic downturn and spike in fuel prices. The six largest airlines — AMR Corp.’s American Airlines, Delta, UAL Corp.’s United Airlines, Northwest Airlines Corp., US Airways Group Inc. and Continental Airlines Inc. — have a combined $20 billion in cash on their balance sheets, Mann said. Their credit card processors won’t likely change withholding requirements unless there is a significant change in operating conditions.

It’s the smaller companies with less cash that are more at risk of facing new cash withholding rules, analysts say.

Larger carriers canceled thousands of flights affecting more than a quarter of a million passengers this week to check electrical wiring in MD-80 aircraft. The inspections were required to comply with Federal Aviation Administration safety regulations.

American Airlines was the hardest hit with nearly 3,100 cancellations, including almost 600 on Friday. The airline said it will cancel an undetermined number of flights today, but expected to resume normal operations by tonight. The cancellations will cost American tens of millions of dollars, but Chief Executive Gerard Arpey said the carrier can withstand the losses.