Jetstar has been hit with a class action over travel vouchers issued to hundreds of thousands of customers for flights cancelled at the height of the Covid-19 pandemic.

The lawsuit filed in the Federal Court on Wednesday claims the airline was legally obliged to refund tickets and is pushing for the money to be returned directly to customers with interest.

“The right thing for Jetstar to do when it cancelled all those flights was to return its customers’ money without delay,” Echo Law partner Andrew Paull said.

“Jetstar customers were pushed into holding hundreds of millions of dollars in restricted travel credits, even though this wasn’t what those customers had agreed to as part of the airline’s terms and conditions.”

The lawsuit claims the contract passengers had with Jetstar was “frustrated” under Australian law, meaning the agreements were terminated and customers had an automatic right to recover money paid.

Any passengers who had a Jetstar flight cancelled from 2020 to 2022 can register interest in the class action, even if they used their travel voucher.

Echo Law has also launched a different class action against Qantas, which owns Jetstar, over its use of travel credits based on separate legal grounds.

“Like Qantas, we allege Jetstar breached the law by failing to be transparent and by failing to refund its customers,” Paull said.

He claimed the budget airline enjoyed “significant financial benefits” of holding onto millions of dollars, such as earning interest, while passengers could not travel due to pandemic restrictions.

“Many Jetstar customers ended up paying the airline more than their original booking to use their credits on new fares, as they were led to believe they had little choice but to do that or else lose the value of the flights they paid for,” he said.

The lawsuit comes three months after Qantas agreed to pay $120 million to settle allegations of misleading conduct over ticket sales on so-called “ghost flights”.

Under the agreement between the airline and the Australian Competition and Consumer Commission, Qantas will spend $20 million on a remediation program for more than 86,000 passengers when it sold tickets on flights that had already been cancelled.

In a deal still subject to the approval of the Federal Court of Australia, Qantas will also pay a $100 million civil penalty.

The lawsuit over Jetstar’s Covid vouchers has been funded by Court House Capital, a company that pays for litigation so companies and individuals can launch legal proceedings.

A Jetstar spokesperson said claims in the lawsuit would be reviewed.

“Last year we removed expiry dates for Covid vouchers so they can be used indefinitely,” the company said.

“These vouchers are also multi-use, meaning they can be used across multiple bookings and for multiple people.”

The credits cannot be redeemed for cash.

-with AAP