Airline industry lost $1.4 bn to online frauds in 2008

New survey findings released today show airlines worldwide lost over $1.4 billion to online fraudsters in 2008, about 1.3% of airlines’ online revenue worldwide.

The data comes from a new independent Airline Online Fraud Survey commissioned by CyberSource Corporation in association with Airline Information LLC and completed January, 2009.
 
Airlines are on the front line of the battle against online fraud—33% of the industry’s revenues derive from eCommerce, thrice the proportion of sales transacted online by non-travel companies—so efficient management of the problem is of critical concern to the airlines. 
 
According to survey data, the ways airlines manage fraud vary significantly by airline category.  In 2008, business-class airlines, with higher-priced tickets to protect, typically embraced profit protection measures, whereas low-cost carriers tended to focus on revenue capture.

On average, business airlines used the most fraud detection tools (6.5 tools per business-class airline), had the highest rate of manual review (47%), and rejected more bookings due to suspicion of fraud (3.6%).

Conversely, low-cost carriers used the least number of automated screening tools (4.9 tools per low-cost carrier), were less likely to manually review bookings (13%), and rejected fewer bookings due to suspicion of fraud (2%).

The result of these differing strategies is that in 2008 business airlines lost 1.1% of their revenues to fraud and low-cost carriers, by contrast, lost 1.6%.
 
“The good news is that solutions exist,” said Christopher Staab, Managing Partner of Airline Information, an airline industry organisation. “Improving the efficiency of fraud management is one of the quickest cost-cutting moves airlines have at their disposal.”

Fraud management tactics vary widely by region. North American-based companies relied far more heavily on detection tools, employing an average of 7.5 tools versus a European average of 5.4—the overall world average is 5.8.

North American airlines manually reviewed only 3% of their bookings whereas Middle Eastern-based airlines manually reviewed 81%.

European and Asia Pacific-based airlines manually reviewed 22% and 49% of their bookings respectively.  
 
According to Akif Khan, CyberSource Head of Client and Technical Services in the UK, “These findings highlight the need for airlines to adopt a more automated, holistic approach to fraud management—from initial screening through booking review and disposition. Improving the accuracy of automated screening is key. In doing so, they can reduce overhead costs associated with manual review, as well as improve revenue capture and lower fraud loss. With the right tools, airlines can realise these benefits in a matter of weeks--not years.”