How to prevent fraud in the airline industry

Each industry has certain nuances in transaction patterns, technology adoption, customer behavior and other factors that should be taken into consideration.

Airlines are one such industry, with digitization changing every aspect of the customer experience, from booking and check-in to security, boarding, and even in-flight entertainment. In the 2018 Global Airline Online Fraud Management Report, we put 112 airline companies under the magnifying glass.

These airlines represent full-fare and low-cost carriers from around the world, and provide a glimpse into nuances of the airline industry, as well as nuances between different carrier types and across different geographic regions.

To explore how trends have played out over time, we kept the underlying methodology consistent with the 2014 study wherever possible.

What we discovered about airline fraud

Among the findings in this report:

• Credit and debit cards are the most common payment method accepted through direct sales channels, but they also exhibit far and away the highest “above average” fraud incidence for all airlines, at  27 percent
• Mobile phone payments are taking off, with mobile revenue quadrupling since the 2014 study
• Bookings rejected or canceled due to suspected fraud have increased slightly, from 3.4 percent in the 2014 study to 3.8 percent. North American-based airlines have the highest rejection rate, at 7 percent, while Asia Pacific carriers only reject 1.7 percent of bookings
• Revenue lost to payment-related fraud is also up slightly, from 1 percent in the 2014 study to 1.2 percent
• Manual review rates fell from 27 percent in the 2014 study to 18 percent in the current report

Booking direct

While full-fare carriers (FFCs) remain buoyed by a high travel agency booking volume (31 percent of revenues) largely fueled by corporate travel, the overall trend is clearly toward increased direct bookings, whether on an airline’s website, via mobile payment, or through call centers, airport kiosks and ticket counters. Taken together, direct booking accounts for 55 percent of overall passenger revenue.

As more bookings flow through direct channels, airlines must take on increasing responsibility for payment acceptance and fraud management. This includes not only credit and debit card payments, but new payment methods, as well.

Mobile revenues have quadrupled since 2014, and show no sign of slowing down, particularly in the Middle East and Asia Pacific regions.¹ Online wallets such as PayPal also are finding increasing acceptance, and both payment methods have “above average” fraud incidence rates that are a fraction of traditional credit and debit cards.

The future of airline fraud management

When we asked airlines about the challenges they face in managing payment fraud, their answers revealed a bias toward the future. The top three challenges cited were²:

• Lack of resources
• Keeping up with new fraud management technologies
• Identifying and responding to emerging fraud attacks

Each one of these challenges is related to readiness for the next iteration of the digital economy, and signs indicate that airlines are already taking steps to address them. For example, airlines seem to be embracing new fraud management technologies.

Manual review rates are down to 18 percent, compared to 27 percent in the 2014 study, a sign that investments in automated screening are paying off. Still, there is room for improvement. At present, only 12 percent of manually reviewed bookings are canceled.

Advice for airline fraud prevention

Moving forward, increasingly sophisticated machine learning solutions should be considered to further optimize the screening process and free up time and resources that could be better used elsewhere.

Airlines also should be advised to take steps to accommodate the rise in mobile payments, from embracing tokenization, to more readily adopting new payment methods and exploring new validation tools, including biometric indicators. Fingerprint readers and facial recognition are already making inroads in other aspects of air travel, and are increasingly available features in mid- and high-end smartphones, making them a natural fit for mobile payments.

Overall, airlines appear to be doing a good job keeping fraud rates and costs in check. But they should seek solutions that allow them to optimize their resources, respond more rapidly to new technologies, and automatically detect and get in front of novel new fraud techniques.

¹ Mobile channel revenues reported by respondents was less than 2 percent in 2014 and this year it is 7 percent. Q. Please estimate the percentage of passenger revenue booked through the following sales channels for the full year 2016. Base: Airline companies N=110

² Which of the following have been your biggest challenges related to eCommerce fraud? Please select up to three. Base: Airline companies N= 110