Why Airline Fraud Is Unique – and What Airlines Can Do About It

The way we book our airline travel tickets is changing – but that means the nature of fraud in the travel industry is changing, too. Will airlines be able to keep up with the fraudsters?

Thanks to smart investments in technology, airlines have tremendously improved the digital customer experience. Better data analytics have enabled airlines to create more personalized product offerings, such as different price points and ticketing options, while a stronger emphasis on user experience design principles have created a simpler, cleaner purchasing interface. And the growth of user-friendly mobile apps has led to a double-digit share of travelers globally who have one or more airline apps on their smartphones.

Those efforts are finally paying off. By the year 2021, consumers booking their air travel tickets directly with an airline will account for more than half of all online tickets sold. With travel agents playing a smaller role in bookings, this means airlines get to keep a bigger share of the profits – but a bigger share of the risks as well.

Unique Patterns With Airline Fraud

E-commerce fraud is challenging enough for any industry to keep up with. But unfortunately for airlines, online air travel purchases present several unique, additional challenges that airlines must now figure out how to address.

1. Ticket purchase data is exceptionally complex.

The “average” online ticket purchase includes a mind-numbing array of variables and product configurations. Although most e-commerce fraud management systems rely on spotting mismatches of standard data points to identify potential cases of fraud, in the world of air travel, there are no standard data points! Address verification service (AVS) doesn’t work, since tickets are either printed at home or downloaded directly to a smart phone. IP address mismatches don’t work either, since tickets are often purchased by consumers while travelling.

To further complicate matters, add-ons (such as travel insurance or travel bag check-ins) are often treated as separate purchases – meaning every individual reservation may in fact comprise multiple transactions that must each be evaluated and vetted for fraud.

2. Travel agents often control the purchase approval.

Although airlines are selling more tickets direct to consumers, today more than half of all purchases are booked through travel agents. In these cases, the travel agent controls the order approval process – but the airline is the “merchant of record” and therefore responsible for chargebacks in the event the transaction is fraudulent.

3. Frequent flyer programs are a hot target for fraudsters.

As many as 72% of airline loyalty programs have an issue with fraud. In fact, loyalty fraud is such a concern in the airline industry that in 2016, key industry players got together to form the Loyalty Fraud Prevention Association to help combat the problem.

With airline loyalty fraud, fraudsters purchase miles and points using stolen credit cards – or they may entirely take over frequent flyer accounts. Fraudsters also frequently pose as travel agents, using either stolen or illegally obtained miles to turn in tickets where are then sold to unsuspecting customers.

4. Airline appetite for risk often varies by route.

When airlines are faced with flying routes with low occupancy rates, they may feel that aggressively fighting fraud on these routes may not be worth the time and resources.

And yet, what airlines forget is that fraudsters talk. And once a fraudster figures out that purchases of tickets on certain routes may be subject to less scrutiny, you can bet the news will spread quickly on the dark web.

5. False declines can be disastrous.

Despite recent tremendous improvements in the customer experience, many years of neglecting this experience means that many consumers go into the online purchase with somewhat of a chip on their shoulders. Choosing from the bewildering array of travel options is often challenging enough for the consumer, but when the airline then requires the consumer to produce a cop of a photo ID or to verify their identity via two-way text message authentication, that can often be the last straw.

The alternative is a high risk of false declines, where an order from a legitimate customer is incorrectly flagged as fraudulent and declined. Few things aggravate consumers more – and aggravated consumers are likely to go directly to two places: first, the airline’s biggest competitor where they’ll successfully purchase their ticket, and second, to social media where they’ll complain loudly to chorus of sympathetic responses.

Unique Solutions for Airline Fraud

Fortunately, airlines aren’t powerless to address these challenges.

First and foremost, just as airlines have invested heavily in improving the user experience on their websites and mobile apps, it’s incumbent upon airlines to also invest in the latest fraud prevention tools and technologies available in the market today.

Of course, all of these tools and technologies are not created equal.

For instance, given the enormous damage that false declines can create, airlines may want to avoid fraud prevention approaches that rely too heavily on artificial intelligence. AI-based platforms typically automatically decline orders that are flagged as fraudulent, and this can be risky for airlines. Given the complexity and nonconformity of most air travel purchase data, AI-based tools may struggle to accurately identify fraudulent and legitimate transactions. Without a strong manual review component, the platform may inadvertently auto-decline good transactions – which will create a wake of unhappy customers flocking to the competition.

Airlines should also make sure they are accurately measuring the right fraud KPIs, so they can be sure they understand their true fraud picture. Important KPIs to measure include:

  • Order approval rates
  • Order decline rates
  • Chargeback rates
  • Manual review rates
  • Automatic decline rates
  • False decline rates
  • Cost per analysis

Indeed, data is often key to winning the e-commerce fraud game.

Take the case of Avianca’s partnership with ClearSale. Avianca, the oldest airline in the western hemisphere, was struggling with high chargeback rates – until it partnered with ClearSale. ClearSale created a proprietary statistical model for the airline industry, which calculates the risk associated with each possible airport connection and continuously monitors and updates the data underlying the model.

This model enables ClearSale to automatically approve 95% of orders. ClearSale also conducts additional analyses on any ticket that has undergone a relevant change, such as a date change, which is a common trick employed by fraudsters. ClearSale even suggests changes to the check-in process to prevent fraudsters from using tickets that have been illegally purchased. 

By developing this merchant-customized fraud score and implementing ClearSale’s proprietary expert fraud analysis review process, in as quickly as the first week of this partnership ClearSale was able to cut Avianca’s chargeback rate in half while maintaining approval rates to as high as 98% for cross-border transactions.

Clearly, the unique e-commerce fraud risks in the air travel industry require unique, tailored approaches if airlines hope to find a sustainable solution. But with the right fraud platform and the right approach to data, airlines can finally take advantage of the full potential that online purchasing has to offer.

To learn more about ClearSale’s approach to fraud prevention and to understand whether a similar approach would work for your business, download our ebook: Is a Fraud Managed Services Solution Right for Your Business?

Is a Fraud Managed Services Solution Right for Your Business?