Fortune 500 Causes Chapter 11 Bankruptcy

Saturday, April 12, 2008

So by the 4 o'clock news, it was being said that First Data was the merchant account processor that caused the cash flow problems at Frontier Airlines.  We thought it first might have been through one of the partner channels like (Wells Fargo or Chase Paymentech) since we did not remember seeing anything on the LinkPoint / YourPay / Integrated Internet Payments (IIP) side.

But now that it is First Data, a few things come to mind.  The first being just the fact that the airline industry is one of the very few that actually get their money before the service is provided.  Most of the merchants know that you should not charge the card until the product ships.  The airline industry has been doing the exact opposite for years and even the card associations (Visa / MasterCard) have not done anything about it. 

First Data did though.  Remember, they were sued once even by Visa for cutting Visa out of the pie on the charges that are incurred during a transaction.  Fortunately, that was finally settled. 

Now I know I said a few things come to mind.  The other is were people cancelling flights because of the "recession" and not wanting to go on any extra trips?  Instead of calling the airline to get their money back (because they probably would not get all their money back), they called the issuing bank to make sure they got all of their money back?  So this would mean for the airlines to reconsider their cancellation policies and favor more on the consumer side.

The last thing though - the biggie!  Is First Data being strapped for cash and they are wanting to hold on to a little bit more of that money.  Companies need to have XX amount of days, weeks, months of working capital and First Data might not have wanted to rely on their own and use other monies.  Or they needed / wanted more capital to earn more money on the interest.  Of course, this also makes you see how cash strapped Frontier Airlines was.  They probably only had three to six months capital left to operate.

This does however help to prove my point about merchants and their merchant accounts.  In the United States, you have a number of options available to you.  Relying on an Internet Payment Service Provider (IPSP) to process your transactions, unfortunately affect even if you are able to put food on your table at night.  Yes, I think we are there.  If you had a merchant account, that money will be deposited into your checking account possibly a week before an IPSP could. 

So which is it?  I doubt we will ever know.  Hopefully a few high risk merchants like this have learned a lesson from this (I doubt it).  Just in case though - if any of the high risk merchants are reading (like hotels and airlines  who get their money weeks / months before the service is happening), you might want to rethink your business structure before joining Frontier Airlines.

I guess we are lucky though - Frontier Airlines declared Chapter 11 Bankruptcy which still is allowing them to fly and right now, I still have a flight to Seattle tomorrow morning and the flight back a week from Sunday. 

Just in case, I am taking a couple of extra days of medications and I urge all of you to do the same if you are travelling with any airline in the months to come until it looks like everything has settled down.

Posted by Corey at 8:38:45 AM in Miscellaneous (137) | Comments (0)