Frontier Files.... still operating

As anticipated, Frontier Airlines filed for bankruptcy late on Thursday, and said it planned to keep operating its schedule.

The reason cited?

Credit card holdbacks.

Credit cards make up the majority of ticket purchases, and banks decide how much of the funds for advance ticket sales (also called float) get sent to the airline based on their credit-worthiness. Stable airlines get the benefit of low holdbacks and higher float from those sales. They then use that cash for operations, or hoard it and get the interest....

What happened with Frontier is the banks decided they were a risky proposition, so they increased their holdbacks. That way, if Frontier did go under, the banks would still have the funds with which to be able to refund credit card holders. If holdbacks were left alone and they shut down like other carriers did, they'd be an unsecured creditor for the funds already advanced to the airline which they'd then have to refund to cardholders.

Holdbacks are what pushed ATA into their 2004 filing, and I was commenting to some friends the other night that it wouldn't surprise me if some of the more questionable carriers are seeing some increases in their holdbacks all of the sudden...

That seems to have happened. And I don't think Frontier will be the only one impacted. This could be a triggering event for Virgin America, Midwest Express, Airtran or even Jetblue. Since regional carriers don't typically issue tickets, it's less of an issue for Mesa, but definitely a concern for ExpressJet's private label operation.

Based on the track record so far of airlines who have filed for bankruptcy this year, it doesn't look good for Frontier right now. They could beat the odds and be the first to survive and actually restructure, or they could shut down and liquidate.