(April 28, 2009) Airlines lost more than $1.4 billion to online fraudsters in 2008, representing about 1.3% of their Web-generated revenues. Those are two key findings from a first-of-its-kind survey about air carriers’ Internet-related fraud.

Mountain View, Calif.-based CyberSource Corp. commissioned the survey with Airline Information LLC, which produces conferences and publications about commercial aviation. Results are based on online surveys of airline executives with fraud-control responsibilities and follow-up phone interviews conducted between Dec. 1 and Jan. 16 that produced 99 qualified responses. A spokesperson for CyberSource, which conducts a major annual survey of overall online fraud, tells Digital Transactions News via e-mail that airlines asked for a study specifically focused on their industry. “As a segment, the airline industry conducts 33% of its business online, about three times that of non-travel merchants, so online fraud management is a significant issue for them,” the spokesperson says.

Some people attempt online airline fraud to get free travel, often by booking multileg flights but getting off on an early leg to avoid detection. “We also know that fraudsters sell illegally obtained tickets to others for cash,” the spokesperson says. One variation on such a scheme is when a fraudster agrees with an accomplice to buy a ticket in that person’s name, presumably at a significant discount. The fraudster uses stolen card information to purchase the ticket, and then sells it to the accomplice. According to the survey report, airline fraud often involves the cardholder not traveling, and also international, single-passenger and one-way travel. Carriers participating in the survey ranged from large to small, were based around the world, and had combined online sales of $40 billion last year, about 25% of the industry’s online total.

While the average revenue loss rate on airline Web sites was 1.3%, the range was wide. Carriers based in North America had the lowest Web-site revenue loss rates, 0.6%, while those based in the Middle East and Africa had the highest rates, 2.6% and 1.9%, respectively. The survey did not ask the executives to break down their fraud originating on general-purpose credit and debit cards versus other means. In overall e-commerce, credit cards still account for the majority of payment volume, though alternative systems are rapidly gaining share.

Carriers with the least experience in selling tickets online tended to have higher fraud rates, as did carriers catering more to low-fare leisure travelers than to full-fare and business travelers. The survey report says 30% of online bookings require additional manual review and verification. North American carriers use more fraud-detection tools than carriers based elsewhere, an average of 7.5 compared to a low of 4.7 for those based in Africa. The average was 5.8. Tools include card-based services familiar to online merchants such as the networks’ card-verification numbers, the Verified by Visa and MasterCard SecureCode services, and address verifications. Some 87% of respondents also used at least one of several proprietary or in-house fraud-control systems based on purchase histories, including negative lists, company-specific scoring models, and order-velocity models. Fewer respondents used some other tools, including multiairline purchase histories.

Airlines reject an average of 2.8% of their online bookings. “In general, airlines have a lower reject rate than the overall population of e-commerce merchants,” the spokesperson says. “The airline average is driven up by very high rates in the Middle East and Africa.” He notes that the rejection rate is only 0.8% for North American carriers but 8.4% for African airlines and 4.9% for Middle Eastern carriers.

In other findings, the survey estimated that airlines on average challenge 45% of their fraudulent chargebacks, win 47% of the time, and actually recover 32% of the chargebacks.