With markets still recovering from the pandemic, and the economic outlook being increasingly uncertain, confidence in the travel space is on shaky ground at the moment. Regardless, opportunities for growth are still plentiful.
The American Automobile Association recently reported spring break international travel bookings are up 30% over last year. International bookings, in particular, seem to be leading the pack.
New Opportunities AND New Challenges
US tourists are eager to take advantage of our favorable exchange rates against global currencies like the Euro, the UK Pound, and the Japanese Yen. They’re making up for lost time, as AAA Senior VP of Travel Paula Twidale put it, with top destinations for Americans in 2023 including Paris, London, Amsterdam, and Rome.
Given the incredible turbulence of the last four years, this is much welcome news for the travel industry. Although, merchants need to keep forthcoming economic challenges in mind, too.
Travel businesses need to identify ways to navigate in a fast-changing environment. Many merchants have pinned their hopes on emerging AI technology to steer through the incoming fog. They may be piling too many eggs in one basket, though.
It’s true that AI tools will help protect revenue against fraud and chargebacks. However, if travel companies aim to future-proof their industry, they’re going to need a much-broader strategy for retaining revenue. Now is a good time to start preparing for what may come next.
The Economic Future is Unwritten
Nearly two-thirds of surveyed economists believe an economic downturn is on the horizon in 2023 or 2024. While that is not great news, the upside is that any recession is likely to be a relatively mild affair. A hypothetical downturn should last only a single quarter before activity picks back up.
The issue isn’t necessarily a recession in itself. Rather, it’s that the aftereffects of even minor economic destabilization can produce long-term damage.
One could ostensibly consider inflation over the last three years as a prime example. Due to unprecedented market instabilities during the pandemic, core inflation has averaged 4.1% per year between 2020 and 2023. To illustrate the disparity, this means $50,000 in March 2020 would be equivalent to nearly $57,800 in March 2023.
For travel companies, this means inflation could impact consumer spending. People who booked vacations a year ago, for example, might be peeved to discover that costs have climbed higher than previously agreed. Naturally, unhappy customers will request refunds and, failing that, may file disputes when refunds aren’t readily available.
Fraud Never Takes a Break
Beyond market instabilities and expected recessions, fraud is another factor impacting the travel industry in 2023.
Travel and hospitality companies are among the most targeted by fraudsters globally. This issue predates the pandemic, but was definitely exacerbated by it. In fact, fraud spikes in the travel industry were observed as early as 2021.
TransUnion reported that attacks on the travel sector increased by 47% in Q2 2021, as compared to the same period a year earlier. As a result, global fraud rates for travel and leisure companies rose nearly 156% in 2021.
The International Air Transport Association estimates that the cost of credit card fraud committed against airlines rests somewhere around $1 billion annually. As shocking as that figure is, it’s likely still conservative. Remember, for every dollar you lose to fraud, you’ll actually spend $3.75 due to chargeback fees, wasted overhead, unnecessary admin costs, and bookings that are ultimately never paid for.
So, whichever way the market moves in the next few months, it’s more important than ever for travel companies to get serious about fraud prevention.
Is AI the Solution?
Yes and no.
Fraud detection in eCommerce relies on quick analysis at the point of checkout, and artificial intelligence tools can analyze these data sets in real time. AI can also incorporate data derived from multiple sources and compare these data sets against one another faster than any human is capable. Beyond this, AI can help you develop and manage complex risk profiles on a self-improving basis over time.
Certainly, these are all attractive prospects for merchants in higher-risk industries like travel and leisure. This lends credence to the argument for AI as a fraud solution.
That said, AI alone is not effective fraud prevention on its own. For one thing, the system can only detect and respond to incoming data on a pre-transactional basis. When it comes to post-transnational threats associated with first-party fraud and illegitimate chargebacks, you’re on your own. Therefore, AI is an effective pre-fraud assistant. You’ll need a more blended approach to really make a dent in your respective fraud and chargebacks rates.
Multi-Faceted Strategies Work Best
Risk management in the contemporary travel space demands a comprehensive solution combining conventional and machine-learning tools, along with human expertise. This dynamic approach is the only way to effectively minimize the risks posed by criminal activity. That’s to say nothing of other threats like consumer chargeback abuse, errors, and procedural oversights.
In the travel industry, preparing for economic instabilities is only half the battle. You’ll need to develop a winning strategy that combines emerging technology with customer-facing solutions to achieve best results. If you only focus on front-end fraud detection, you’re missing part of the story. That could cost you in the long term.
