Stow your tray tables and put away your electronics. You’re leaning back in your chair, aircraft engines humming, about to depart. Only, you glance up to find airport security staring down at you and suddenly your trip might be a no-go. Some days before, you thought you scored a fantastic deal, locking up an airline ticket for half the normal price from a travel agent on your favorite social media site. Unfortunately, you find out, the airfare was purchased with a stolen credit card and the ticket has been canceled, potentially putting an end to your vacation.
For airlines, travel agencies and travelers alike, airline fraud has sadly emerged as a common and serious issue. Customers need to learn to watch out for potential scams and cardholders can protect themselves with the right security measures. Airlines, meanwhile, should proactively fight fraud and take steps to reduce the chargebacks these scams generate.
Why? The costs are high, and fraud is rife in the travel industry. Let’s take a quick look at some key stats covering fraud and the airline industry. After that, we’ll take a deeper look at how fraudsters target the travel industry, affecting businesses and customers alike.
Airline and Travel Fraud Stats Everyone Should Know
The International Air Transport Association (IATA), a leading industry organization, reports that:
- Airlines account for 46% of fraudulent transactions, making them the most widely targeted type of company.
- The average ticket value of fraudulent airline transactions, meanwhile, weighed in at a whopping $2,000.
- Fraudulent transactions involving general travel purchases were also quite high, reaching over $700.
- From 2018 to 2019, fraud attacks targeting the airline sector increased by over 60%.
Other sources have reported that fraud alone may cost airlines more than 1% of their revenue per year. Further, in 2022, 70% of travel companies reported an increase in disputes (which can result in chargebacks), growing by more than 30% on a year-over-year basis from 2021.
Fraud in the airline and travel industries is a huge risk. It can be perpetuated by organized criminal groups, small-time crooks, and even legitimate cardholders. We’ll look more closely at how it’s conducted below.
Stalled Plans: How Airline Fraud Works
Airline fraud has emerged as one of the most prevalent and expensive types of fraud. Criminals can target airlines through a variety of means, but perhaps the most common method is simply to use stolen credit cards to purchase airline tickets. Then the fraudsters can turn around and sell the tickets to unsuspecting customers who think they’re buying legitimate tickets at a steep discount.
Fraudsters can use many different methods to obtain either stolen credit cards or credit card data. Some common methods include:
- Physical Theft: Someone might steal a credit card from someone’s wallet.
- Phishing: Fraudsters can pretend to be a legitimate authority, such as the customer service department for a popular online retailer. They then pressure the user to give up sensitive data, like credit card numbers.
- Account Takeover: Using phishing tactics and other methods, fraudsters can gain access to a consumer’s account for a travel or airline website. Then they can use stored payment information to make a purchase.
- Data Breaches: Through a variety of means, cybercriminals can gain access to sensitive information online. They might use a phishing campaign to get a travel agency to hand over their login information, for example, thus granting the criminals access to sensitive databases.
The above list of fraud tactics is not exhaustive, and you can bet that fraudsters will devise new ways to rip off cardholders, airlines, and customers. It’s crucial for every stakeholder to take steps to prevent fraud. Businesses receiving payments via credit cards need to be especially careful, however, as fraud can spur chargebacks, which can result in expensive chargeback fees, lost revenues, and even increased payment processing costs.
Travel Agents Are a Favorite Target for Fraudsters
Many travel agents work hard day in and day out to help travelers reduce travel costs while enjoying safe and fun vacations. Unfortunately, however, travel agencies are a favorite target for fraudsters. Why? Since travel agents act as intermediaries between travelers and airlines, hotels, and other companies, communication is more complex and there’s often a lot of ambiguity.
Unfortunately, that ambiguity can slow down responses and entangle communication channels. This makes it easier for criminals to operate. Travel agents, among other stakeholders, need to take steps to fight airline fraud and the chargebacks that can stem from such fraud. Fortunately, dispute and chargeback management platforms can help prevent some forms of fraud and also make it easier to recoup funds via chargeback disputes.
Further, airlines and travel agents won’t have to fight fraud on their own. Legal authorities are cracking down on criminals as well, and while fraud remains a major risk, authorities have successfully taken down large criminal operations.
Taking to the Skies to Fight Airline Fraud
While airline fraud is a growing threat, it’s not all bad news. Cybersecurity companies, airlines, legal authorities, and other stakeholders are taking the fight to fraudsters. In August 2023, authorities in India shut down a call center that was selling fake airline tickets via social media. In 2018, Europol arrested over 140 people for purchasing airline tickets with stolen or fake credit cards. These fraudsters were even stealing frequent flier miles!
Since airline fraud often crosses multiple international borders, jurisdiction issues and coordination are tough even during the best of times. Sometimes, the busts are part of Global Airline Action Days (GAAD), during which airlines, legal authorities, and other stakeholders make coordinated strikes the world over against fraudsters targeting airlines.
Besides governments, cybersecurity and fraud prevention companies offer increasingly powerful tools for fighting airline fraud and chargebacks. That said, criminals continue to evolve their tactics and invent new methods for defrauding people and organizations.
Fortunately, fraud detection tools, dispute management platforms, and chargeback alerts, among other tools, make it easier to spot and mitigate fraud, reducing chargebacks and other issues. It’s crucial for airliners, travel agencies, and other relevant stakeholders to address security issues and potential sources of chargebacks.
How Airline Fraud Results in Chargebacks
Airline and travel fraud can result in chargebacks in a few different ways. If a cardholder notices that their credit card was used to make an unauthorized airline ticket purchase, they can dispute it with their bank, which in turn can pursue a chargeback. Sometimes, the airline ticket is canceled before travelers can embark on their journeys.
The legitimate cardholder will get their money back, but the airline that sold the tickets will lose revenue and also be hit with chargeback fees and other penalties. Meanwhile, the customer who bought the fraudulent tickets may be quite upset over the canceled tickets and could direct their anger at the airline. That said, sometimes the fraudster is actually the legitimate cardholder.
First-Party Fraud is an Especially Major Risk
Travel agencies, airlines, and other companies that sell airline tickets need to be especially wary of first-party fraud. Once commonly called “friendly fraud,” this fraud occurs when the legitimate cardholder abuses the chargeback process to try to get their money back on a purchase they made and consumed.
Airline tickets and other travel purchases, such as hotel reservations, often have strict refund policies. In some cases, the purchase may simply not be refundable at all. If a cardholder can get approved for a chargeback, however, they can essentially secure an unauthorized refund. In this case, the cardholder uses the chargeback process to get around the non-refundable terms of the sale. As a result, first-party fraud can be an increased risk for travel companies owing to the complex return and refund processes.
The companies targeted with first-party fraud lose revenue from a sale, and get hit with chargeback fees and a rising chargeback ratio. If the company’s chargeback-to-sales ratio gets too high, they may have to pay increased processing costs on all their credit card payments. Fortunately, airlines, travel agencies, hotels, and other companies can use dispute management platforms to combat first-party fraud.
How Airlines and Other Travel Companies Can Fight Chargebacks and Fraud
Fortunately, travel companies can use a variety of methods to reduce fraud. Pre-authorization tools can be used to flag and filter suspicious transactions. Training employees and customers to watch out for phishing attacks will also reduce account takeovers and unauthorized access to sensitive data, like credit card numbers.
Dispute management platforms also make it easier to prevent and manage chargeback disputes. First, chargeback alerts can give a travel company a heads-up of a dispute before it becomes a chargeback. By providing data to the bank, such as copies of receipts and payment details, airlines may be able to clear the kinds of misunderstandings that generate first-party fraud, preventing disputes entirely. If a cardholder has a legitimate reason to file a dispute, chargeback alerts can provide travel companies with a chance to settle the matter, say by providing a refund, before the chargeback is filed.
Chargebacks and fraud will remain a risk for airlines and other stakeholders in the travel industry. However, a proactive approach to combating fraud can protect your company, employees, and customers.
