The travel industry's fraud issue: Part 1

While mysterious international “millionaires” wanting to share their fortunes with complete strangers – in exchange for a nominal fee, of course – are nothing new, the Internet has allowed such scammers to flourish with an added dimension of online anonymity.

And much like the scam described above, fraud within the travel industry is an old problem which is becoming more prevalent, not only threatening travellers but also businesses, from travel agencies to tour operators to airlines.

Normand Schafer has been working as a travel fraud prevention specialist with Perseuss (a platform for airlines to both share fraud information and combat such activity) since 2008, and in that time, he has seen these divisions learning to work together to cope with a common problem.

Perseuss also takes part in seminars for travel professionals, educating them in the types of fraud which take place as well as the methods of prevention. Two events were held recently through Airline Information (an aviation conference organizer), one in Montreal and the other in Vancouver, drawing travel professionals eager to share their fraud stories and to learn more about how to stop such activity.

While he is reluctant to provide detailed descriptions of the various methods fraudsters use for fear of providing a step-by-step manual, Schafer told PAX that most scammers are using stolen credit cards to book airfares and vacations.

In Canada, the RCMP estimated that by the end of 2009, there were almost 70 million credit cards in circulation; of those, more than 514,000 were compromised. Alarmingly, the RCMP also reported that the amount of fraudulent purchase activity taking place through compromised credit cards rose more than 25 per cent between 2009 and 2010, from $140,443,893 to $176,115,080.

Airlines are particularly hard hit by this form of fraud, Schafer said. Airline Information estimates that 10 per cent of stolen credit card data is used for air travel; according to Perseuss, airlines around the world lose one per cent of revenues to online fraud (working out to approximately $1 billion), while in North America the figure is less than 0.5 per cent.

Robyn Cino, director of operations and agent support for Tripcentral.ca, also heads up the Association of Canadian Travel Agents’ (ACTA) recently-formed Fraud Prevention Committee, which advises agents on the possible dangers lurking on the other end of the phone line or website. It’s a topic she’s all too familiar with working in the travel industry.

“The problem is so widespread and large,” she said, describing it as a billion-dollar annual loss. “And sometimes, we don’t realize it’s happening.”

The issue is of potential concern for travel agents who don’t often have the resources to recoup fraud losses as the problem moves toward the level of agencies, Cino said. Just as bad is the spectre of internal fraud, committed by either current or former agents looking to supplement their income by illegal means.

“It’s important that travel agents become better organized and prepared amongst themselves,” Schafer said. “Fraud is not just going away. As soon as you plug a hole, it just moves onto the next channel, which is now travel agents. They’re looking for the weakest link.”

Fraudsters are often selling travel packages online on behalf of another company or organization, often offering steep discounts like 50 per cent off Business Class fares to unsuspecting buyers. Cino noted that scams involving fraudulent baggage charges are also being reported by airlines.

Earlier this fall, WestJet drew attention to ongoing phone calls from telemarketers purporting to be from WestJet and other Canadian businesses, calling random telephone numbers across the country in an effort to sell potentially questionable holiday packages to Mexico. The callers would spoof the real number they are calling from with a more familiar phone number from local area codes to increase the likelihood that the person will answer the phone, said a WestJet press release. The company names represented on these phone calls include Luxury Getaway Group, Caribbean Sun Trips, Caribbean Sun Group and Global Group Travel – believable "businesses" which an unsuspecting purchaser could be forgiven for falling prey to.

Much of the fraud activity in travel is linked to organized crime activity (including human trafficking), according to Schafer, adding there are geographic “hot spots” within Canada from which such crimes originate. And while fraud involving international travel is still an issue, both Schafer and Cino said that scams involving domestic travel are becoming more prevalent.

“It used to be in the past it was associated with countries like Ghana and Jamaica and while they’re still issues, it’s starting to grow in other places people want to travel,” he said.

Andre Machicao, senior vice-president of CyberSource – which works with travel companies by equipping them with fraud-detection technology through reservation platforms such as Amadeus and Sabre – said that while there has been a rise in the number of phony travel agencies ripping off travellers, technology has also allowed for new fraud avenues and, as the travel industry uses the latest tools to safeguard itself, pushed the activity into areas less protected.

“Fraudsters leverage mobile bookings, loyalty programs, explore screening differences between channels, and between original tickets and exchanges,” Machicao said. "Many times, travel and transportation services which do not require identity verification, such as rail, tend to see higher attempts at fraud.”

While the Internet allows for increased anonymity amongst fraudsters, Schafer said the problem has always persisted in the travel industry; ironically, as travel companies have come to expect fraud to come in an online form, more scammers are moving back to phone-based schemes.

“In the old days of paper airline tickets, they were like cash,” he recalled. “It’s easier to hide your tracks and move to a different website if you’re not successful, and what we’ve found is that as companies reduce the amount of fraud on their websites, fraudsters are picking up the phone and calling in. They’re getting more brazen in the way they do it…. And it’s hitting the bottom line of travel companies to a huge extent.”

“That was 20 years ago – they are so much more efficient now,” added Cino, referring to previous forms of travel fraud. “Every time you put a roadblock up, they find a way around it. There’s no sure-fire way to avoid it entirely – it’s a matter of how much you can catch.”

Tomorrow, Part 2 – Preparation & Prevention