In a decision with implications for the aviation industry, a federal appeals court ruled that Frontier Airlines cannot pocket millions of dollars in security fees collected from passengers who never actually flew.
The U.S. Court of Appeals for the Tenth Circuit on Monday upheld a government order requiring the Denver-based carrier to hand over $5.37 million to the Transportation Security Administration (TSA).
The legal fight centered on the “September 11th security fee,” a mandatory $5.60 charge added to every one-way flight to fund airport security and air marshals. Under federal law, airlines collect this money from travelers and are supposed to pass it along to the government.
The “Credit Shell” Loophole
The dispute began following a 2020 audit by the TSA. Investigators discovered that between 2016 and 2018, Frontier had a specific way of handling cancellations. When a customer canceled a flight, the airline would often issue a travel credit—which Frontier calls a “credit shell”—for the total amount paid, including the security fee.
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However, many of those credits eventually expired without being used. Instead of sending the unused security fees to the TSA, Frontier kept the cash and recorded it as company revenue.
Frontier argued that if a person never sets foot on a plane, they aren’t technically a “passenger,” and therefore, the TSA isn’t entitled to the fee. The airline also claimed that issuing a credit to a customer should count as a “refund,” even if the credit was never used.
The court didn’t buy those arguments. Writing for the majority, Circuit Judge Paul J. Kelly Jr. noted that the law treats airlines as mere “conduits” for these funds. The ruling clarified that airlines hold the fees in trust for the government and have no legal claim to the money.
The court was particularly skeptical of Frontier’s “refund” claim. By letting the credits expire and then moving that money into its own earnings, Frontier “effectively reverses” any refund it claimed to have given, the court found.
“Frontier’s creation of a credit to the passenger that later expires is not a refund of the fee to the passenger,” the TSA had previously told the airline in 2018—a position the court now says is the law of the land.
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“Semantic Games” and Windfalls
The court also rejected Frontier’s practice of using these security fees to cover its own $99 cancellation fees. The judges agreed with the TSA’s assessment that the airline’s tactics amounted to a “semantic game to generate a windfall.”
One judge, Timothy M. Tymkovich, dissented from the decision, arguing that the TSA shouldn’t be allowed to collect fees from people to whom it never actually provided security services.
However, the majority ruled that the costs funded by these fees—like officer salaries and equipment—exist regardless of whether one specific person shows up for their flight.
The ruling sets a clear precedent for the industry: when it comes to federal security fees, airlines must either give the money back to the traveler in cash or hand it over to the government. They cannot let it sit in a “credit shell” until it becomes company profit.
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