World airlines spend as much as $1.6 billion a year on mishandled baggage, a company that provides computer-tracking technology to the industry said Tuesday.

The main factors causing a bag to fail to arrive with its owner at the intended destination are growing passenger numbers and tighter security, said SITA Inc. (search) , a Geneva-based company owned by the air transport industry.

"Keeping track of the billions of pieces of baggage transported around the world annually has become a major challenge," the company said.

SITA estimates that it costs the industry an average of $87.50 when a bag fails to show up on time. Even though the percentage of mishandled bags is only 0.7 percent, the total cost mounts quickly.

"Disgruntled passengers, important security concerns and the high cost of inefficient baggage handling are critical issues," said Catherine Mayer, SITA's vice president of airport services.

The company said widely used luggage labels that are imprinted with bar codes have done much to improve baggage management, but "statistics show that stricter security screening procedures in many countries are prompting a new rise in the number of mishandled bags."

Tighter security means bags go through airports slower and can be diverted more easily. SITA offers a system that tracks a bag through an airport's security screening area and issues an alert if it moves too slowly.

It can connect to explosive detection and smart X-ray systems to allow bag-room and security staff to locate it instantly. Handling agents can react more quickly if they know immediately whether a bag has cleared, has been escalated to a higher security level or has been halted.

SITA said in North America, the number of mishandled bags increased by 20 percent in 2004 over the total number of mishandled bags in 2003.

The company is promoting use of a tiny computer-style chip on luggage tags that it said will reduce the number of misdirected bags. The luggage labels, known as RFID (search) for radio frequency identification tags, allow for tracking of luggage at all times over wireless networks.

The RFID chips also allow for quick removal of baggage from airplanes when the passenger who checked them fails to show up for the flight, SITA said.

It said the chips are in use at a limited number of airports so far, but it expects the system eventually to replace bar-coded labels.