DENVER -- In a surprising move, Frontier Airlines announced Friday it sought bankruptcy protection, the fourth carrier to do so in the past two weeks as exorbitant fuel prices eat into earnings and a weak U.S. economy keeps more people grounded.

Frontier said it will continue normal operations as it reorganizes.

The low-fare Denver-based carrier said it was forced into bankruptcy after its principal credit card processor said it would begin withholding a greater share of proceeds from ticket sales.

The Chapter 11 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. 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," 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."

Frontier said it will continue to operate a full schedule of flights, pay suppliers and employees as it reorganizes.

"I don't think it's going to shut down the company," said bankruptcy attorney Christian Onsager. "It's sort of like having your paycheck cut in half and you've got the mortgage payment due tomorrow."

ATA Airlines, Skybus and Aloha Airgroup all have filed for bankruptcy in the past two weeks, but Menke said Frontier's reasons for doing so were different.

"Unfortunately, our principal credit card processor very recently and unexpectedly informed us that, beginning on April 11, it intended to start withholding significant proceeds received from the sale of Frontier tickets," he said. "This change in established practices would have represented a material change to our cash forecasts and business plan. Unchecked, it would have put severe restraints on Frontier's liquidity and would have made it impossible for us to continue normal operations."

He said Frontier Holdings Inc. was prepared to litigate, if necessary. In a letter to employees, Menke named the credit card processor as First Data, which is based in Greenwood Village.

Michael Boyd, president of the Boyd Group, an aviation consultant and research firm in Evergreen, said, Frontier is "one of the best managed airlines in the country."

"It was a self-fulfilling prophecy that had nothing to do with the viability of Frontier airlines which is very strong," he said.

Airline's Dispute With First Data Led To Filing

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.

By filing for bankruptcy, Frontier can fend off First Data until a judge issues a decision or the reorganization is completed. Frontier expects the reorganization to take nine to 18 months.

John Stemmler, who heads the Frontier Airline Pilots Association, said the processor's decision was a shock.

"Had it not been for First Data, we really had our act together," Stemmler said.

Stemmler said he believes the airline's 700 pilots will continue to support management.

"We regret that the current economic conditions have led to today's bankruptcy filing by Frontier Airlines. First Data, with our bank partners, processes transactions for a variety of businesses around the world. We continually monitor and manage the credit risks associated with processing transactions in industries where we provide services," First Data said in a news release.

"The terms of our agreement with Frontier Airlines are not unique; they are considered standard industry practice and terms originally agreed upon by Frontier. We have been in ongoing dialogue with Frontier Airlines for several months and will continue to work with them in as constructive a manner as possible," First Data said.

Impact On Creditors? Customers?

The creditor listed in bankruptcy court documents as having the largest general unsecured claim against Frontier by far was Wells Fargo, with $93.5 million. Frontier said it had fewer than 50 creditors.

Hodas told 7NEWS that customers should not have any concern during the reorganization process. Tickets can still be bought and honored, flights will take off as scheduled and all frequent flier miles will continue to be honored.

"It will not affect (the customer). It's business as usual. Frequent flier miles -- same value they've always had. Customer service levels will be the same. If you've got a flight today, tomorrow or in the future, it's going to be there for them," Hodas said.

Hodas said filing for Chapter 11 bankruptcy is very different from Chapter 7 bankruptcy.

"Chapter 11 allows us to reorganize. We can reorganize under the protection of the bankruptcy courts, get our finances in stronger order and continue to move with our operations and all of the strategic initiatives we've got in place. So it's a better option for us because we want to come out the other side and be a successful carrier for the long term," Hodas said.

He said the airline industry was the toughest industry to be in right now.

"Between fuel, customer issues, maintenance issues, it's a difficult business," he said.

Employee wages and benefits will continue uninterrupted, the airline said.

Denver International Airport said in 2007, Frontier accounted for approximately 22.7 percent of all of its passenger boarding, approximately 16.3 percent of the airline rentals, fees and charges, and 7.8 percent of airport system gross revenues. The airline leases about 20 gates, dominating one of the airport's three concourses.

However, DIA and the city of Denver are not worried about the bankruptcy filing.

"Based on conversations I've had with Frontier, I anticipate no immediate impact to the airport's revenues or financial position," said airport manager Kim Day.

"Frontier Airlines is our hometown carrier, and it has been a valued partner at DIA since the airport opened. We have full confidence in Frontier's leadership, and we believe it will emerge from this restructuring process in a strong financial position and will remain one of Denver's premier businesses," Day said.

Financial Picture

Frontier has struggled amid rising fuel prices and aggressive competition at DIA from both United and Southwest airlines. It blamed a 16.3 percent jump in fuel costs a third-quarter loss that more than doubled from the previous year.

At the end of last year, Frontier had assets of $98.3 million and debts of $92.2 million.

The carrier has adjusted routes, put four jets up for sale, laid off 100 employees and conducted an extensive review of its schedule in an effort to rein in costs.

Last week, Calyon Securities analyst Ray Neidl voiced concerns about some budget airlines, including Frontier. He said Frontier's cash holdings were likely to fall well below 10 percent of expected revenue by the end of the year and estimated it would have less than 5 percent of revenue in cash at the end of 2009.

In a research note to clients Friday, Neidl said the bankruptcy "happened more quickly than we expected."

"We do not see a future for Frontier as it faces tough competition in Denver from United on the network side and Southwest on the low cost side," Neidl wrote.

Hodas said earlier this week the airline had "no concerns about bankruptcy" but added that it was working on strengthening its cash position.

Industry analyst Mike Boyd said it appears the bankruptcy was triggered by Wall Street speculation about Frontier, which likely raised concern at First Data.

"When rumors start, it can kill an airline," Boyd said.

Last month, Frontier said it had agreed to sell four planes to counter rising fuel costs.

Frontier opened in 1994 with less than 200 employees and two planes that flew between its home base of Denver and three cities in North Dakota. The airline now has about 350 flights to dozens of cities and employs about 6,000 people.

Menke took over Frontier last year and said the airline, like other struggling in the rough economic climate, would seek to boost revenues in new ways.

Menke said earlier this year that he would look into a la carte pricing, charging more for specific services.

Frontier competes with Delta Air Lines, Northwest Airlines, American Airlines, United Airlines and Southwest Airlines. Almost all of the carriers have sought new revenue sources, such as additional fees for checking a second bag.

Frontier shares lost most of their value in trading Friday, tumbling $1.12 to 45 cents each.

Customers Surprised, But Unfazed

Frontier passenger Preston Tucker, 19, a University of Colorado student, said he didn't expect the filing to affect his plans.

"As long as they keep flying, it is not going to cause problems," he said.