A report on baggage management of the world's airlines has found six out of every 1000 bags handled were lost in 2016 as a direct result of mishandling.

Air transport communications specialists SITA said last year's lost luggage rate was the best ever recorded, down 12.25 per cent from 2015.

Despite a significant decline, mishandled bags still cost the air travel industry $3.6 billion last year.

So what happens to bags when they're missing?

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47 per cent of the time, luggage is incorectly transferred between connecting flights.

Just over 15 per cent of delays could be blamed on ticketing and security errors, while 16 per cent were due to bags not being loaded on to the correct plane.

Travellers in Europe were the most at risk of losing their luggage, with eight of every 1000 bags going missing.

Three in every 1000 bags went missing in the USA, while the number was as low as two in 1000 in the Asia-Pacific region.

The report stated: "In Europe, data reveals that the mishandling rate in 2016 was higher than the global average, at 8.06 mishandled bags per thousand passengers.

"Baggage performance in Europe has declined in 2015, when the mishandling rate was 7.82 bags per thousand passengers, [and] the longer-term trend is one of robust improvement.

"Europe has achieved a 51 per cent reduction in its mishandling rate since 2007, when it stood at 16.60 bags per thousand passengers."