Airlines getting scammed online, fighting back

by Tom Johansmeyer on

Airlines lose a boatload of cash – tens of millions of dollars a year – because of online fraud. Think about it: you pay for your pillow and to check a bag because some degenerate can’t bother to work for a living. The airlines are keeping their customers in mind (shockingly), though, and they’re fighting back. Better protection systems, increased staff and a higher priority for prevention are now on the agenda as carriers seek to protect their coffers.

The stakes are high, and airlines are exposed. A Deloitte UK survey conducted in 2009, with 50 U.S. and global airlines responding, report that 48 percent have seen increases in fraud year-over-year, with average losses of $2.4 million a year. Yet, it could be far, far worse. CyberSource and Airline Information conducted a poll and came to an estimated loss amount of $1.4 billion in 2008.

According to USA Today:

“The general feedback from everybody … is that they see it getting worse,” says Graham Pickett, partner in charge of aviation services for Deloitte UK, which conducted its survey for the International Association of Airline Internal Auditors. “The main driver has been … the Internet, and in particular credit card type bookings.”

Airlines have invested in protecting their profits over the past two years, especially the larger companies. Of course, they aren’t all that willing to talk about specific measures:

“Common sense on this issue limits a discussion of what we do to track, prevent and seek prosecution of such occurrences,” says Tim Smith, a spokesman for American Airlines. “We’re just not interested in providing a ‘how to’ lesson on the subject.”

The cyber-attack on airlines comes after online travel agencies, such as Orbitz, steeled their systems. For a while, they were the primary targets, with Orbitz, for example, getting spanked for millions of dollars a month by fraudsters.

The anti-fraud measures appear to be working. AirTran‘s team has reduced fraud losses to less than 1 percent of revenue, and Southwest says it has cut fraud by 73 percent.

How much does this matter? Think about all the small cuts you’ve had to deal with as a passenger. Every dollar matters to the airlines. Cutting fraud losses is just putting cash back in your pocket.

[photo by jepoirrier via Flickr]

Department of Transportation mulls expanded passenger delay rule

by Tom Johansmeyer on

The Department of Transportation is thinking about getting even stricter with the airlines. After implementing a rule last spring that involves heavy fines for carriers that keep passengers on a plane on the ground for at least three hours, the DOT is already considering expanding the scope to small airports and international flights.

MSNBC reports:

“The situation is much worse than the [official] statistics indicate,” said George Hobica of AirfareWatchdog.com. “We have to include every airport, every type of plane and every type of flight.”

Unsurprisingly, the International Air Transport Association isn’t crazy about Hobica’s approach, with spokesman Steve Lott saying, “If DOT goes ahead with this, they’re going to cause a much larger problem than the one they think they’re trying to solve.”

The final rule won’t come down until the spring, so there’s plenty of time for both sides to fight this out.

For the airline sector, this measure seems to be seen as a signal of something much worse – the prospect of broad regulation and constraints on its ability to operate effectively in the manner to which it has become accustomed.

For its part, DOT won’t announce a final rule until next spring, but you can expect a lot of others to weigh in before then. Hundreds of last-minute ideas were lobbed over to the DOT, according to MSNBC, addressing all kinds of passenger and watchdog hot buttons, such as: advertising, fee disclosure and compensation for those denied boarding. The big one, of course, was the issue of delays on the tarmac.

International carriers oppose the expanded rules – shocking, right?! Lott, taking the standard industry stance, raises the issue of cancellation instead of risking a $27,500 per passenger customer fine, telling MSNBC, “I don’t think getting stranded in a U.S. city for a day or more is necessarily helping passengers.”

This may be a risk, but the data tells the only reliable story:

Meanwhile, as the airline industry and consumer advocates press their points of view, two truths regarding tarmac delays remain. Delays of three hours or more for domestic flights are down substantially since the original rule went into effect – there were only three in July, says DOT, compared to 161 during the same period last year – and international flights do present a much more challenging scenario.

[photo by williamcho via Flickr]

China Airlines fined for price fixing

by Sean McLachlan on

China Airlines is the latest carrier to get fined for price-fixing air cargo rates. The Taiwan-based airline plead guilty and now faces a $40 million fine. Northwest Airlines has also plead guilty.

A total of 18 airlines have been snared by the Department of Justice in an ongoing investigation. Eight airline executives have also been charged. The Department of Justice has imposed a total of $1.6 billion in fines and given four executives jail time for a conspiracy that reaches back to early 2000. China Airlines was conspiring with other airlines to fix cargo rates to and from the United States, a violation of antitrust laws. Rates are supposed to be subject to the free market, but the airlines secretly agreed to set a rate in order to maximize profits.

For a complete list of the airlines and executives involved, click here.

British Airways, American Airlines, and Iberia in transatlantic tie-up

by Sean McLachlan on

British Airways has signed a “tie-up” deal with American Airlines to share passengers and costs between the European Union and North America. Two non-EU nations, Switzerland and Norway, are also covered in the agreement.

BA says the deal will be worth $7 billion a year and will give passengers greater access to discounted fares. They’ll also get better connections and access to the airlines’ global network.

The deal, which has been in the works since 2008, only received regulatory approval this summer after rival carriers complained that it would create a near-monopoly. BA and Iberia merged last year. The current tie-in deal with AA is not a merger, but instead a close cooperation agreement to integrate ground operations and other aspects of the airlines. This will reduce costs by getting rid of overlapping services, and if these savings are passed on to the customers then there could indeed be a reduction in fares. With competition as fierce as ever, BA, Iberia, and AA will want to make this deal as marketable as possible.

The joint venture will being in October. Stay tuned to see how it turns out.

[Photo courtesy Fly For Fun via Gadling’s flickr pool]

Southwest uses AirTran for access to business travelers

by Tom Johansmeyer on

The key to success in the airline industry is the business traveler. This category flies often, has less flexibility in pricing and spends more on flights than a leisure traveler could possibly imagine. So, it’s hardly surprising that Southwest‘s acquisition of AirTran – a $1.42 billion transaction – could help deliver greater share of the white collar travel crowd to the low-cost carrier.

According to MSNBC:

Southwest – which currently serves key cities such as Dallas, Chicago, Denver, Phoenix and Baltimore – has long been considered a vacationer’s airline. But it has lured corporate road warriors with offers like Business Select fares that cost more but promise priority boarding, extra frequent-flier credit and a free drink.

So, we’re looking at an expansion of Southwest’s strategy into a more lucrative market. Southwest has already proved that it can thrive in the volatile leisure market, ostensibly more challenging than catering to the business crowd. It seems as though this strategic shift is as close to a “sure thing” as one can imagine in the airline industry.

The acquisition also provides Southwest with international routes, as it picks up AirTran’s access to Mexico and the Caribbean.
[photo by AGeekMom via Flickr]