Expired Travel Credits Are Not Refunds of TSA Security Fees; Airlines Must Remit Collected § 44940 Fees Unless Actually Returned to Passengers

I. Introduction

In Frontier Airlines, Inc. v. Department of Homeland Security (10th Cir. Apr. 20, 2026), Frontier petitioned for review of a final TSA order holding it liable for unremitted “September 11th security fees” under 49 U.S.C. § 44940. The dispute arose from Frontier’s handling of TSA fees when customers cancelled flights: instead of remitting fees to TSA, Frontier either (i) issued “credit shells” (travel credits) that later expired unused, or (ii) applied amounts (including the TSA fee) against Frontier’s cancellation fee through offsetting accounting entries. TSA concluded these practices resulted in unpaid fees; Frontier argued TSA lacked statutory authority to retain fees for non-travelers, that it had “refunded” the fees, and that TSA lacked fair notice for retroactive liability.

The Tenth Circuit (Kelly, J.) denied the petition. Hartz, J. concurred, emphasizing the statute’s refund structure. Tymkovich, J. dissented, viewing passenger travel as a condition of TSA entitlement.

II. Summary of the Opinion

  • Statutory authority: TSA did not exceed its authority by requiring remittance of security service fees collected on tickets later cancelled. The statutory and regulatory scheme treats airlines as collection agents holding fees in trust for the United States.
  • Refunds: An expired credit shell is not a “refund” under the ATSA framework because it does not return or repay money to the passenger; when the credit expires and Frontier books it as revenue, any supposed refund is effectively reversed.
  • Cancellation-fee offsets: Frontier may not satisfy its own cancellation fees using TSA fees held in trust; contractual arrangements cannot circumvent federal remittance duties.
  • Fair notice: The court rejected Frontier’s fair-notice challenge, reasoning the agency was not imposing a penalty but collecting amounts Frontier was obliged to remit; in any event, the statute, regulations, and TSA’s 2002 guidance sufficiently indicated airlines could not retain fees.

III. Analysis

A. Precedents Cited

1. Jurisdiction, standard of review, and administrative-law frame

  • Arapahoe Cnty. Pub. Airport Auth. v. Fed. Aviation Admin., 242 F.3d 1213 (10th Cir. 2008) and United Airlines, Inc. v. Transp. Sec. Admin., 20 F.4th 57 (D.C. Cir. 2021): cited for applying APA review to agency orders and articulating the “arbitrary and capricious”/“in excess of statutory jurisdiction” framework.
  • Smith v. Bd. of Governors of Fed. Rsrv. Sys., 73 F.4th 815 (10th Cir. 2023): cited for de novo review of statutory interpretation and the court’s role in determining the scope of agency authority.
  • 3484, Inc. v. Nat'l Labor Rels. Bd., 137 F.4th 1093 (10th Cir. 2025) (quoting Loper Bright Enters. v. Raimondo, 603 U.S. 369 (2024)): used to emphasize post-Loper Bright “independent judgment” in interpreting statutes—i.e., no automatic deference to an agency’s reading of its organic statute.

2. Textual interpretation method

  • Food Mktg. Inst. v. Argus Leader Media, 588 U.S. 427 (2019): provided the court’s interpretive starting point—ordinary meaning and statutory structure; if the text yields a clear answer, the inquiry ends.
  • Hooper v. City of Tulsa, 71 F.4th 1270 (10th Cir. 2023): reinforced that undefined terms receive ordinary meaning in context and in light of the broader statutory scheme.
  • King v. Burwell, 576 U.S. 473 (2015): invoked for the principle that courts construe statutes as a whole, not isolated provisions.
  • In re Mallo, 774 F.3d 1313 (10th Cir. 2014): cited for the proposition that courts apply statutes as written; if Congress could have written differently, that is not the judiciary’s role to supply.
  • Voter Reference Found., LLC v. Torrez, 160 F.4th 1068 (10th Cir. 2025): cited for expressio unius est exclusio alterius, supporting the majority’s view that the statute’s enumerated “services” do not imply an individualized “services-to-this-passenger” condition.

3. Mandatory vs. permissive language; administrative “wisdom” not reviewable

  • Lopez v. Davis, 531 U.S. 230 (2001): used to contrast “shall” (mandatory remittance/collection structure) and “may” (discretionary TSA refund authority).
  • River Runners for Wilderness v. Martin, 593 F.3d 1064 (10th Cir. 2010): cited to reject arguments that essentially attacked the wisdom/efficiency of TSA’s procedures rather than their legality.

4. Frontier’s analogies and how the court treated them

  • Southwest Airlines Co. v. United States, 777 F. Supp. 3d 1318 (Ct. Int'l Trade 2025): Frontier relied on this customs-fee case to argue agencies are entitled to fees only when a passenger actually travels and the agency provides the associated service. The Tenth Circuit distinguished it because (i) the customs statute expressly tied the fee to “the arrival of each passenger,” unlike § 44940, and (ii) the TSA fee funds broad security infrastructure not inherently keyed to a particular traveler’s completed trip.
  • United Airlines, Inc. v. United States, 111 F.3d 551 (7th Cir. 1997): Frontier invoked this airline-tax case to support its “two transaction” theory (refund then cancellation fee). The court found it of limited value: different statute, deferential review posture, and critically it addressed refunds of amounts already remitted, unlike Frontier’s failure to remit TSA fees at all.

5. Chenery and record-based review

  • SEC v. Chenery Corp., 318 U.S. 80 (1943): Frontier argued TSA could not defend on appeal using reasoning not clearly used in the final order (particularly regarding § 44940(g)). The court rejected this as applied: statutory interpretation is reviewed de novo and the court could consider the statutory context “as a whole.”
  • Stewart v. U.S. Dep't of Interior, 554 F.3d 1236 (10th Cir. 2009): cited to decline consideration of ticket-specific factual examples not included in the administrative record.

6. Fair notice / due process authorities

  • Blanca Tel. Co. v. Fed. Commc'ns Comm'n, 991 F.3d 1097 (10th Cir. 2021) and FCC v. Fox Television Stations, Inc., 567 U.S. 239 (2012): framed the fair-notice principle: regulated entities must have fair notice of what is required/prohibited, especially when penalties are imposed via novel interpretations.
  • United States v. Magnesium Corp. of Am., 616 F.3d 1129 (10th Cir. 2010) and Grayned v. City of Rockford, 408 U.S. 104 (1972): supplied the “person of ordinary intelligence” standard.
  • BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (1996) and United States v. 51 Pieces of Real Prop. Roswell, N.M., 17 F.3d 1306 (10th Cir. 1994): used to emphasize that fair-notice concerns are most acute in punitive/penalty contexts or where the government deprives an entity of its own property—conditions the majority said were absent.
  • Fabrizius v. Dep't of Agric., 129 F.4th 1226 (10th Cir. 2025): cited for greater tolerance of imprecision in civil regimes relative to criminal penalties.

7. Authorities highlighted in the dissent (and the majority’s implicit response)

  • Citizens for Const. Integrity v. United States, 57 F.4th 750 (10th Cir. 2023) (quoting La. Pub. Serv. Comm'n v. FCC, 476 U.S. 355 (1986)): the dissent emphasized the foundational principle that agencies may act only within authority conferred by Congress.
  • Feliciano v. Dep't of Transp., 605 U.S. 38 (2025): cited by the dissent for using common meaning where terms are undefined.
  • FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000): relied on by the dissent to resolve ambiguity through context.
  • Mabry v. State Bd. of Cmty. Colls. & Occupational Educ., 813 F.2d 311 (10th Cir. 1987): cited by the dissent for the principle that regulations cannot override statutes (used in arguing TSA’s refund-by-carrier practice cannot coexist with mandatory remittance if remittance truly applies at sale).

B. Legal Reasoning

1. “Passenger” and the role of completed travel

Frontier’s core statutory argument hinged on reading “passengers … in air transportation” to require physical travel before TSA can be entitled to the fee. The majority held this was a strained reading when the statute is viewed as a whole. Rather than hinging fee entitlement on completed conveyance, the statutory scheme directs that the fee “shall be collected by the air carrier … that sells a ticket for transportation,” and that “all fees imposed and amounts collected … are payable” to TSA. The majority also noted practical inconsistencies in Frontier’s position (e.g., “no-show” passengers who never travel but also never cancel).

2. The “conduit/trust” structure: airlines cannot treat TSA fees as their revenue

The majority treated the statutory and regulatory system as creating a fiduciary-like conduit: airlines collect from customers but must hold amounts “in trust … for the beneficial interest of the United States,” have “neither legal nor equitable interest” in the fees, must separately account for them, and generally may not use them to offset costs. This structure drove the court’s central conclusion: once collected, Frontier must either remit the fee to TSA or actually refund it to the passenger; it cannot convert TSA fees into Frontier revenue via an expiring credit mechanism or by netting against its cancellation fee.

3. “Refund” means return/repayment; expiring credits fail that test

On the refund question, the majority grounded its analysis in ordinary meaning: “refund” requires return/repayment of funds. A credit that can expire unused is not the return of funds; once expired and recognized as revenue, it is the opposite. The court took care to limit its holding: it decided only that expired credit shells are not refunds “under the ATSA,” not whether all credit shells are invalid as refunds.

4. Contractual cancellation fees cannot be satisfied using TSA-held-in-trust fees

Frontier’s “two transactions” accounting (issue full credit, then apply a cancellation fee) did not change the legal character of the TSA fee once collected. Because Frontier holds TSA fees in trust for the United States, it cannot apply that money to satisfy its private contractual charges. The court treated Frontier’s argument as a “semantic game” producing an improper windfall.

5. Fair notice: no “penalty,” and the scheme already signaled non-retention

The majority rejected fair notice on a threshold framing: TSA sought remittance of government-beneficial funds, not a retroactive civil or criminal penalty, and Frontier lacked a legal/equitable interest in the fees. Even assuming fair notice were relevant, the court found that the statute, regulations, and TSA’s 2002 guidance already made clear that if the carrier does not refund the fee to the passenger, the fee “must be remitted to or remain with TSA.” TSA’s later clarifications (2018, 2020) were treated as reinforcing, not inventing, the central rule.

6. The concurrence and dissent reveal the decisive interpretive fault line

  • Hartz, J. (concurring): accepted that Congress assumed collection at sale, but emphasized that the refund power in § 44940(g) sits with TSA, implying airlines may pass refunds through only when money is actually destined for the customer.
  • Tymkovich, J. (dissenting): treated passenger travel and “services rendered” as conditions of fee authorization; argued remittance duties apply only to fees properly “imposed” under § 44940(a), and that money collected before travel is merely held in anticipation and becomes non-statutory upon cancellation (analogizing to Southwest Airlines Co. v. United States).

C. Impact

  • Airline refund products and breakage revenue: Airlines that issue travel credits for cancelled tickets must ensure the TSA fee is actually returned (or remains returnable without being converted to airline revenue), or else remit the fee to TSA when “breakage” occurs (unused credits expiring).
  • Limits on netting and setoff: The decision rejects the notion that TSA fees can be netted against airline-imposed cancellation fees—even if accounting entries characterize the fee as “refunded” first.
  • Audit and compliance posture: Because the court emphasizes the “trust” character of the fees and separate accounting duties, TSA audits may more aggressively examine credit expiration, breakage recognition, and internal bookkeeping classifications (“refund” coding) as potential under-remittance.
  • Post-Loper Bright statutory interpretation: The opinion illustrates a post-Chevron environment where courts assert “independent judgment” while still frequently reaching outcomes compatible with agency compliance frameworks when the statutory structure is read holistically.
  • Circuit influence and ongoing litigation: The opinion acknowledges similar challenges elsewhere; as a published Tenth Circuit decision, it may influence other circuits confronting whether travel credits (especially expiring credits) satisfy refund obligations for government-imposed per-ticket charges.

IV. Complex Concepts Simplified

  • “Held in trust for the beneficial interest of the United States” (49 C.F.R. § 1510.11(b)): The airline is not the owner of the TSA fee money. It is more like a custodian required to safeguard and pass along funds that ultimately belong to the government unless properly returned to the customer.
  • “Refund” in this context: A “refund” is not merely an internal accounting label or a promise of future purchasing power. The court treated it as requiring that money be returned/repayed to the passenger (or at least made truly available to the passenger in a way that is not later clawed back into airline revenue through expiration).
  • “Remit”: Send the collected fee to TSA by the required deadline. Remittance is mandatory once the airline has collected the fee and has not made an actual refund to the passenger.
  • APA “arbitrary and capricious” review: Courts do not redo the agency’s work from scratch; they ensure the agency stayed within statutory bounds and acted reasonably. Here, the pivotal questions were legal (statutory authority and meaning of “refund”).
  • Fair-notice doctrine: A due-process principle most commonly invoked when agencies impose penalties based on unclear or newly announced interpretations. The majority viewed TSA’s action as collection of funds Frontier never owned, not a punitive sanction.

V. Conclusion

Frontier Airlines establishes, for the Tenth Circuit, that airlines collecting TSA security service fees under 49 U.S.C. § 44940 may not retain those fees when travel is cancelled unless the fee is actually refunded to the passenger. An expiring travel credit that lapses into airline revenue is not a “refund”, and airlines may not use TSA fees to satisfy their own cancellation fees through setoff. The decision strengthens TSA’s ability to enforce the “trust/conduit” model of airline fee collection and signals that “breakage” practices involving government-imposed ticket fees carry remittance risk.