Contact: Andrew McLindon
Wilson Hartnell Public Relations
+353-1-669 00 30

Contact: Claire Quinn
Deloitte
PR Executive
+353 87 6825766

-79% of airlines report experiencing fraud last year -

Airline fraud is costing the industry over 440 million euro (US$600 million) a year according to a new report out today. The airline fraud 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% of airlines participating in the survey have experienced fraud in the last 12 months.

Deloitte found the average airline loses 2.2 million euro (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% of all external fraud-related losses. Credit card fraud alone is costing airlines an average of 735,000 euro (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.

Brian Murphy, Head of the Aviation and Transport Services Group, Deloitte Ireland commented: “Given the success of low cost airlines in Ireland, the report is a good eye-opener for those operators that are present here – the first step in addressing these problems is identifying the prevalent sources of fraud.”

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% of airlines also admitted cases of internal abuse of passengers’ personal details with 7% 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% 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, Gerry Fitzpatrick, 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% 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 Fitzpatrick.

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.    

For more information see our Aviation and transport section

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% were network carriers, 17% were low cost carriers and 7% were charter companies.

Participants covered five continents, and comprised 44% from Europe, 17% from the Americas, 12% Asia, 10% Pacific, 10% Middle East and 7% 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 Ireland is a world-class firm of expert business advisers, serving senior business leaders who are seeking to protect and create value in a complex, dynamic environment. Our objective is to help our clients succeed by anticipating tomorrow’s agenda with focused, insightful and fresh thinking borne out of our multidisciplinary strengths. We draw upon our specialist skills in audit, tax, consulting and financial advisory both within Ireland and across the Deloitte worldwide network.

What’s different about Deloitte is our people, who focus on building long-term relationships and are determined to deliver measurable value for our clients’ business. With almost 900 people in Dublin, Cork and Limerick Deloitte is known as an employer of choice for our innovative human resources programmes and is dedicated to helping our clients and our people excel.

'Deloitte' refers to Deloitte & Touche and any associated partnerships and companies established under the laws of Ireland. Deloitte is the Irish member firm of Deloitte Touche Tohmatsu. For more information, please visit the Irish member firm’s website at www.deloitte.com/ie.

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.