UK: Fraud In The Airline Industry - How To Plug The Gaps

"In this fast-paced and highly competitive environment, it’s not surprising that there are more opportunities for fraud..."

Almost 148 million people passed through British airports last year1 – many booked on e-tickets purchased online with credit cards.

Whilst this growth in self-service electronic bookings is encouraged by the industry which is keen to move to more cost-efficient e-ticketing, it places greater demands on airlines to ensure their IT is up to the challenge; and that internal and external IT systems are sufficiently robust to keep ahead of fraudsters.

Customers who provide numbers, addresses, security codes and other identifying information to companies need to know that their details are safe. However, as a recent global survey2 into airline fraud reveals, credit card crime alone is costing each airline an average of £500,000 a year.

Weak IT security is blamed for a sizeable chunk of the total £1.5 million that the average airline is losing each year to fraud; a five-fold increase over the past six years. Low cost carriers, expanding rapidly in the UK, appear to be the hardest hit.

Even though some of this increase may be due to better detection capabilities, the rise in the level of fraud still makes dramatic headlines.

Whilst these losses of this magnitude may not be significant compared to the overall cost base, in the airline industry where margins are tight, they demand urgent attention. This is not to mention the potential impact upon company culture, employee performance, and customer service, all of which can be contaminated by unchecked fraud.

With the growing importance of protecting customer information and the need to comply with the Payment Card Industry Data Security Standard (PCI DSS) the importance has never been more obvious. The cost implications of a major breach and fraud occurring can result in organisations carrying the cost of remediation, the investigation required by the payment card companies as well as fines from acquiring banks.

At the end of this report, we will suggest three steps that UK airlines would be advised to take, in order to reduce the risk of fraud and to implement a more secure business environment.

Key findings

Fraud-related losses have increased five-fold since 2000, with airlines suffering an average loss of at least £1.5 million in 2006 – £500,000 in credit card fraud. Most participants expect fraud to increase, or at least stay the same in 2007.

Many felt that airlines’ IT systems were not able to keep ahead of fraudsters, who were using constantly-evolving technologies to bypass internal and external controls.

Alarmingly, more than a third of fraud is discovered ‘by accident’; and more than 60% of airlines have neither an anti-fraud programme in place, nor perform regular risk assessments, tracking and recording of instances of fraud. Whilst 60% of airlines rely on internal audit to detect and handle fraud, they tend to have smaller internal audit teams than other comparable industries.

Market dynamics

The dynamics of air travel have changed significantly since the last detailed review of fraud across the industry. Security risks, costs and regulatory requirements have all multiplied, and the market has become more competitive as traditional airlines, low cost carriers and industry newcomers compete to meet the increasing demands of record numbers of travellers.

The number of international passengers a year has passed record highs of 752 million (according to IATA estimates) and new airlines and more low cost carriers are competing to meet the demand.

According to the BAA, 147.7 million people passed through its airports last year, and this insatiable demand for travel is enabling low cost carriers to extend their networks.

Critically, technology has enabled airlines to interact with customers and suppliers in many more ways, as business conducted online has become the norm.

"In this fast-paced and highly-competitive environment, it’s not surprising that there are more opportunities for fraud," says Graham Pickett, Lead Partner – Aviation & Transport Services at Deloitte in the UK." This survey is therefore important in terms of understanding the risks, discovering the causes and identifying key steps that airlines could take to minimise them.

One of the most frequently mentioned reason for the growth in fraud is organised crime which is outside the control of airlines. None of us can do much to influence the way society is changing, but if airlines adopt more rigorous assessment and management of fraud, they can plug many of the gaps that are making them vulnerable today.

The biggest risks

The average airline experienced 446 cases of fraud in 2006, with external fraud accounting for 413 of them. Although these included counterfeit or stolen tickets; cargo theft, false baggage claims, frequent flyer abuse and bouncing cheques, the main culprits were tariff abuse, cross-border ticketing, technology and web-based transactions, and credit card fraud.

More than a third of airlines have detected credit card fraud, which adds up to around 60% of all external fraud-related losses. Airlines based in Europe are among the most affected, which – given the high percentage of Europeans keen to use the Internet to search for and book flights – is not surprising.

Low cost carriers, who are major players in the European travel industry, are the hardest hit: their average losses from this type of fraud amounted to an average of more than £550,000, compared with an average of £450,000 for network airlines.

In recognition of the threats of online credit card abuse, the PCI DSS were introduced in June 2006. These data security standards were introduced following several incidents over the past couple of years where large companies, including some of the world’s leading banks, admitted that customers’ records had been lost or stolen.

All airlines which handle credit card data must adhere to these new security standards, and yet, according to the recent global survey, 24% of internal auditors said they were not aware of the changes or the implications for their business. Of those who were, 21% are already compliant with the new standards, 66% are taking action to become so, but 13% have no plans in progress.

Credit-card misuse is also an internal issue, as 20% of survey participants have experienced internal abuse of passengers’ personal details. According to 7% of internal auditors, there had been cases of employees stealing the identities of their airline’s passengers!

Online bookings

Looking at technology fraud as a whole, respondents have no doubts where the fault lies – IT security that cannot keep up with ingenious fraudsters.

Back in 2000, 44% of internal auditors thought that adopting new technology was putting their airlines at risk. This has grown to 67% and there is now a shared view that advanced technology is enabling abusers to bypass current control mechanisms.

The problem is exacerbated by the extended enterprise, whereby travel agencies and other third parties’ IT systems interface with the airline’s own system.

Far more business is conducted online today than was the case six years ago, particularly in the low cost market where airlines make it financially beneficial for passengers to book online. However, along with the rewards comes the increased risk.

As Graham Pickett comments: "Technology has done so much to help airlines cut their operating costs through customer self-service and online bookings, and it gives travellers easier access to information. The interactive approach can do a lot to improve customer relationships, but if new technology is not properly implemented and robust enough to deal with the risk of fraud, then airlines are losing control of their online business."

Carrying the costs

Low cost carriers bear the brunt of external fraud, as the average number of fraud cases for the low cost companies was over 1,000, compared to around 300 for the network carriers. Charter airlines, whose business model gives them the least contact with the mass market – have the least to worry about.

Trends follow the same pattern for internal fraud too, with low cost carriers impacted most and charter airlines the least. Inventory theft and frequent flyer abuse are the most common threats here, as well as employees’ misuse of passengers’ personal details.

Airline staff have easy access to personal and financial details of passengers, which are all presented during telephone bookings and when using the airline’s website. This presents fraudulent employees with more opportunities for theft, particularly where there is no anti-fraud programme in place – as is the case with many airlines.

Under attack

The fact that 72% of airlines who completed the survey have no policy on fraud, 65% have no anti-fraud programme, 63% have no whistle blowing mechanism that would allow staff to report fraud, and 61% have no formal system to track fraud provide useful benchmarking figures for all airline executives.

Less than half of the airlines surveyed perform a frequent risk assessment. Of those that do, 39% carry out an annual check, but many internal auditors felt they did so with little support from the locations and across management as a whole.

When fraud is uncovered, only 21% of airlines have stringent procedures to follow that are consistent across the enterprise.

"The current assessment programmes are not comprehensive enough," says Graham Pickett. "Nor are the processes that should detect, report and track fraud. And when we asked who was responsible for the prevention, detection and investigation of fraud, IT security is not even in the picture. Clearly, with weak IT security being cited so often as one of the reasons for escalating fraud, there is an urgent need for the IT function to be brought into the team."

Currently, the survey suggests that the size of the internal audit department – which is relied upon by 60% of airlines to hold the front line when it comes to fraud – is a matter of concern. Across all businesses, airlines appear to have among the smallest number of people in their internal audit teams4. 64% of airlines have an internal audit department of between one and ten people.

Not every business issue can be solved with more people, but the level of staffing in this critical area and the inclusion of IT specialists does need further attention by most airline Chief Executives.

Fighting back

Internal auditors, according to the survey, have plans in place to tackle fraud. They intend to improve internal controls, by introducing whistle blowing processes and hotlines for example, and want to encourage a more open culture, supported by an Ethics Policy. They also propose tougher security checks on new employees.

However, this strategy does not really go far enough, nor does it tackle the big issues of technology, web-based fraud and credit card crime. It also needs the full support of all management before it can be effective – not just the lone internal auditor!

Deloitte has therefore defined three critical steps forward that will help airlines fight back against fraud.

First, involve IT security

  • With credit card and Internet payment fraud escalating, IT security is on the front line.
  • Internal controls must adapt to keep up with new technologies. The pace of technological innovation, while generally good for customer-focused businesses, has to be matched by robust controls across the enterprise IT systems.
  • Compliance with the new PCI standards is vital. Customers will need to be reassured that this is in place, and IT security will need to facilitate it.

Second, implement an anti-fraud programme

  • Fraud risks must be assessed regularly, in the same way that any successful company will assess all the risks that could impact its profits and sustainability. Fraud risks need to be linked to controls, so management can be assured the right barriers are in place.
  • Define a fraud policy and ensure all employees understand it, and their role in making it happen.
  • Involve all relevant stakeholders – third party suppliers for instance, and increase the focus from senior management.

Third, improve your detective capability

  • Expand the internal audit team to ensure it has the capabilities and resources to match the risks. Ensure the team is fully-trained in fraud and that its scope and reach encompasses every aspect of the business. Make sure that internal audit reports to the right level of management which should be at the highest level.
  • Put in place a whistle blowing, speak-up mechanism, so that anyone who suspects fraud knows where to go to report it.
  • Create a central repository so that cases of fraud are recorded and monitored and can be escalated if necessary.

A more secure future

Lower oil prices have made many operators optimistic about future profitability, UK regional airports are expanding with the government’s blessing; and the country’s low cost carriers are particularly ebullient about the year ahead.

However, no company can afford to ignore an average loss of £1.5 million especially as the expected slowing of the UK economy and increasing household expenditure could put a dampener on people’s desire to travel.

There is a pressing financial need, then, to tackle the issue of airline fraud, which hits not only the balance sheets, but also raises the question of good corporate governance.

Legislative requirements and governance guidelines – as set out in the Combined Code, the Companies Act 2006 and Sarbanes-Oxley for instance – place the responsibilities for quality management firmly on the shoulders of company executives, and anti-fraud programmes are core to good governance.

Unchecked fraud, as we pointed out at the beginning of this report, can also have a knockon impact on employees’ behaviour and customer services, all of which can tarnish a company’s image.

With e-tickets costing airlines around a tenth of the paper version, operators are obviously keen to push more people onto their web sites, but they must ensure their IT infrastructure and business controls can cope.

Airlines need to comply with the new data security standards and should consider bringing the expertise of their IT security specialists into the anti-fraud team. These changes will not only cut losses through fraud, they will enable airlines to operate in a more secure business environment.

The figures

The airlines surveyed by Deloitte and the International Association of Airlines’ Internal Auditors (IAAIA) comprised network carriers, low cost airlines and charter firms worldwide. 44% of them were based in Europe.


1 BAA.

2 Airline Fraud Survey, a report published by Deloitte and the International Association of Airline Internal Auditors.

3 International Air Transport Association (IATA) figures.

4 According to the Institute of Internal Auditors’ Global Auditing Information Network.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions