Contact: Alison Agmen-Smith
Deloitte
Public Relations
+44 (20) 73030514

London, 23 April 2007—Airline fraud is costing the industry over US$600 million a year according to a new report out today. The survey, undertaken by Deloitte and the IAAIA (International Association of Airline Internal Auditors), shows that fraud has increased five-fold since the last in-depth study of the industry six years ago. 79 percent of airlines participating in the survey have experienced fraud in the last 12 months.

Deloitte found the average airline loses US$3 million a year to fraud, with low cost carriers being the hardest hit. The average number of fraud cases for the low cost carriers was over 1,000 a year, compared with around 300 for the network carriers. Charter airlines, who have few direct sales dealings with the mass market, have the least to worry about.

The types of fraud identified in the survey are varied and include counterfeit or stolen tickets, cargo theft, false baggage claims, frequent flyer abuse and bouncing cheques. However, the biggest losses come from credit card fraud.

More than a third of airlines have been hit by credit card fraud, which accounts for around 60 percent of all external fraud-related losses. Credit card fraud alone is costing airlines an average of US$1 million a year. Low cost carriers were found to have the highest credit card fraud losses, due in part to the high number of airline tickets they sell online.

However, not all the fraud was external. The study found a rise in the level of frequent flyer abuse, with increasing numbers of employees diverting points to friends and family. Worryingly for customers, 20 percent of airlines also admitted cases of internal abuse of passengers’ personal details with 7 percent saying employees had stolen the identities of the airline’s passengers.

While some of this increase may be due to better detection capabilities, the survey showed that around 60 percent of airlines have no anti-fraud programme in place, do not perform frequent fraud risk assessments and have no process to track or record fraud. Over a third of airlines discover fraud "by accident."

Commenting on the findings, Jean-Pierre Garitte, the survey sponsor and European Enterprise Risk Services Partner at Deloitte said: "Our survey shows that current IT systems are not robust enough to keep up with fraudsters who use evolving technologies to continually by-pass controls. As airlines seek to encourage more and more passengers to book online rather than via the phone or in person, they will need to ensure their websites meet data security standards."

"The fact that 90 percent of survey participants expect fraud levels to increase or, at least stay the same, during 2007 demands attention, particularly when many airlines are having to deal with tight profit margins. In some cases, with margins already thin, the incidence of fraud could be the difference between making a profit or a loss" said Garitte.

The survey findings, covered in detail in the  "Airline Fraud Survey 2006," a report published this week, enable airlines to benchmark themselves against their peers and understand the key steps they need to take to create a more secure and controlled business environment.    

Notes to editor:
The survey, undertaken at the end of 2006, was sent to the heads of Internal Audit, or in the case of smaller airlines, the Finance Directors, of almost 180 airlines. Of those who responded, 76  percent were network carriers, 17 percent were low cost carriers and 7 percent were charter companies.

Participants covered five continents, and comprised 44 percent from Europe, 17 percent from the Americas, 12 percent Asia, 10 percent Pacific, 10 percent Middle East and 7 percent Africa. The airlines had an average of 127 aircraft and 13,700 employees. Average gross revenues for the participants were US$4.4 billion. Responses have been summarised on an aggregate, no-name basis.

About Deloitte:
Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, its member firms, and their respective subsidiaries and affiliates. Deloitte Touche Tohmatsu is an organization of member firms around the world devoted to excellence in providing professional services and advice, focused on client service through a global strategy executed locally in nearly 140 countries. With access to the deep intellectual capital of approximately 135,000 people worldwide, Deloitte delivers services in four professional areas—audit, tax, consulting, and financial advisory services—and serves more than 80 percent of the world’s largest companies, as well as large national enterprises, public institutions, locally important clients, and successful, fast-growing global growth companies. Services are not provided by the Deloitte Touche Tohmatsu Verein, and, for regulatory and other reasons, certain member firms do not provide services in all four professional areas.

About the IAAIA:
The International Association of Airline Internal Auditors (IAAIA) began in 1991 with several airline internal auditors gathering in London to exchange information on challenges and best practices experienced within their Internal Audit departments. As of 2006, the organization has grown to over 70 member airlines and continues to meet annually across the world to network, exchange ideas and solutions.