A federal appeals court expressed sharp skepticism Thursday over the Transportation Security Administration’s effort to penalize Southwest Airlines nearly $48 million for allegedly failing to refund security fees to passengers who canceled flights.
During oral arguments before the Fifth Circuit, judges openly questioned why Southwest should be held responsible for refunds when the TSA itself says it lacks the ability to return the fees directly to travelers.
U.S. Circuit Judge Stephen Higginson challenged the agency’s position, asking why the TSA does not simply return the security fees to customers whose flights are canceled. At one point, the panel reacted with audible disbelief when a government attorney said the agency lacks the administrative capacity to process millions of refunds.
The dispute stems from two TSA audits covering the years 2015 through 2019. The agency concluded that Southwest improperly retained security service fees paid by customers who canceled their flights and failed to use airline-issued residual travel credits within one year.
Under federal law, airlines collect the security fee on behalf of the TSA. The agency argues that if a passenger cancels a flight, the fee must ultimately be returned to the customer.
Southwest issues residual travel funds to certain passengers who cancel flights, depending on the fare type. These credits can be used to rebook travel within a year. In cases where the credits expired unused, the TSA determined that Southwest should have refunded the associated security fees instead.
After an administrative review, the agency calculated that Southwest owed approximately $48 million in refunds and penalties. Southwest petitioned the Fifth Circuit for review, arguing that the statute does not require the airline to issue cash refunds when customers fail to use their travel credits.
During the hearing, judges questioned how the TSA’s proposed refund process would function in practice. The government argued that airlines should refund the fee directly to passengers and later offset that amount against future payments to the TSA.
Judges appeared unconvinced, pressing the agency to explain how airlines recover money already remitted to the government and why the burden falls entirely on carriers.
Southwest’s attorney countered that residual travel credits already constitute a refund and that federal law does not impose an additional obligation to reimburse passengers who let those credits expire.
The Fifth Circuit panel took the case under advisement following the hearing. A decision could have broader implications for how airlines handle government-imposed fees tied to canceled travel and whether federal agencies can penalize carriers for unclaimed customer credits.
