Airlines Hit Hard By Online Fraud

According to figures released by CyberSource Corporation, the airline industry has experienced significant online fraud. In fact, the airline survey commissioned by CyberSource reveals that airlines worldwide lost more than $1.4 billion to fraudsters in 2008. That figure is roughly equivalent to 1.3% of worldwide airline revenue.

Online fraud can occur in several ways. Generally speaking, fraudsters use stolen credit cards to buy a ticket for themselves or they act as a travel agent to purchase a ticket for someone else. By the time the true card holder recognizes the fraudulent charges, the flight has been taken and the airlines have lost out on 100% of the revenue.

U.S. airlines generally use automated solutions to identify fraud, but overseas airlines typically do not. In fact, overseas airlines generally review their bookings manually. CyberSource claims for Middle East-based airlines, 81% of bookings are manually reviewed compared to just 3% of North American-based airlines.

The ways in which airlines manage fraud also varies by airline category. In 2008, business-class airlines typically embraced profit protection measures whereas low-cost carriers tended to focus more on revenue capture. On average, business-class airlines used 6.5 fraud detection tools per airline and rejected 3.6% of bookings due to suspicion of fraud. By comparison, low-cost carriers typically used 4.9 fraud detection tools per carrier and rejected just 2% of bookings due to suspicion of fraud.

Considering 33% of the industry’s revenues come from ecommerce, the airlines definitely have an incentive to manage and curb this fraud. The fraud detection tools and rejection of suspicious bookings is paying off for business-class carriers, though only by a small margin: In 2008, business airlines lost 1.1% of their revenue to fraud, while low-cost carriers lost 1.6%.