18 March 2009

Online fraud costs airlines over $1.4 billion a year

Airlines worldwide lost over $1.4 billion to online fraudsters in 2008, according to new research by CyberSource Corporation.

The investigation, which was completed in January, found the amount lost equates to around 1.3% of worldwide airlinesÃ¢â¬â¢ online revenue.

CyberSource said airlines are on the front line of the battle against online fraud because 33% of their revenues derive from eCommerce - three times the proportion of sales transacted online by non-travel companies.

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,Ã¢â¬~ said Christopher Staab, managing partner of Airline Information, which was involved in the study.

Ã¢â¬ÅâœImproving the efficiency of fraud management is one of the quickest cost-cutting moves airlines have at their disposal.Ã¢â¬~

CyberSource head of UK client and technical services Dr. Akif Khan said: Ã¢â¬ÅâœThese findings highlight the need for airlines to adopt a more automated, holistic approach to fraud managementÃ¢â¬'from initial screening through booking review and disposition.

Ã¢â¬ÅâœImproving 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.Ã¢â¬~

By Bev Fearis