The dispute centers on Spirit's practice of issuing travel credits to customers who cancel flights, then keeping the security fee portion when those credits expire unused after 60 days. The Transportation Security Administration audited Spirit in 2019 and found the airline had 'under-remitted' $2.8 million in security fees by treating expired credits as customer refunds rather than remitting the fees to the government as required by federal law.
Chief Judge Pryor, joined by Circuit Judges Brasher and Abudu, rejected Spirit's argument that it had properly refunded the fees through its credit system. 'Section 44940 makes clear that when an airline collects a fee, it must remit it to the Administration by the end of the following month,' Pryor wrote. The court emphasized that Congress requires airlines to collect security fees from customers and turn them over to the TSA, with limited exceptions for actual refunds to passengers.
The court delivered its sharpest criticism of Spirit's legal theory, writing that 'a credit that Spirit reclaims immediately is no more of a refund than a credit that Spirit reclaims after 60 days.' The panel found that Spirit's interpretation would undermine the statutory scheme requiring collected security fees to flow to the federal government unless genuinely returned to customers.
The case originated from a 2019 audit by U.S. Customs and Border Protection's audit division, which reviewed Spirit's compliance with security fee requirements dating back to post-9/11 aviation reforms. Congress enacted the $5.60 per one-way trip security fee after the September 11, 2001 terrorist attacks as part of sweeping aviation security measures. The TSA had issued guidance in 2002 clarifying that airlines must either refund security fees to customers who don't travel or remit those fees to the government.
Spirit mounted a two-pronged defense, first arguing that the TSA lacked authority to collect fees from customers who never actually flew, since they weren't technically 'passengers' under the statute. The airline also contended that its travel credits constituted proper refunds. Chief Judge Pryor dismissed both arguments, noting that while the security fee applies to actual passengers, 'if an airline chooses to collect the fee earlier—for instance, when it sells a ticket—that amount collected becomes payable to the Administration by the end of the following calendar month regardless of the scheduled travel date.'
The ruling clarifies a significant issue for the airline industry regarding how carriers handle security fees when customers don't travel. The court's interpretation extends beyond Spirit to establish that expired travel credits cannot substitute for actual cash refunds under federal aviation security law. This could affect industry practices during periods of high cancellations, such as during the COVID-19 pandemic when many carriers issued credits rather than cash refunds.
Spirit also claimed it lacked fair notice of the government's interpretation, arguing the TSA had never objected to its practices in previous audits. The court rejected this due process challenge, noting that 'Spirit had fair notice that it could not retain the disputed funds' based on the statute's plain text and the TSA's 2002 guidance. Chief Judge Pryor observed that 'the Administration's past silence does not override the plain text of section 44940,' and noted that 'many airlines managed to comply with the statute.'