By James Gilden | Special to the Tribune
The pitch is seductive and sophisticated.
Qualify for deeply discounted travel. Earn commissions on your own travel expenditures and on that of your friends and family. Build your own travel business with income from others you bring into the fold. Deduct your travel spending from your taxes. Do all of this for less than $500 up front and $50 per month.
Tens of thousands of people are giving it a whirl by buying travel agent credentials. Some do prosper, but many who got their credentials through these "card mills" will be out of the business in less than a year, according to documents from one company filed with the Securities and Exchange Commission.
The pitch is from a Wood River, Ill.-based company called YourTravelBiz.com, or YTB. The proposition, known as a multilevel marketing plan, is on the company's Web site and is used by the company's independent marketing representatives.
Whether it's soap or travel Web sites that are being marketed, the goal of multi-level marketing companies is to make commissions selling business opportunities to friends, family, even strangers.
In a video on its Web site, YTB urges prospective customers to get involved in the "$7 trillion" travel industry. For comparison, the total U.S. GDP in 2006 was about $13 trillion.
"It's a number that has been published," said J. Kim Sorensen, president and CEO of YTB Travel Network, when asked about the $7 trillion figure. He wasn't certain of its origin but believed it was from Forrester Research, the Cambridge, Mass-based travel research company.
"We didn't make that statement," said Henry Harteveldt, principal analyst for Forrester.
Ninety-four billion dollars is the number that PhocusWright, a Sherman, Conn.-based travel research firm last month estimated to be the total 2007 U.S. online market for leisure and unmanaged business travel, a bit more than one third of the total U.S. travel market, it said.
The YTB representatives who prosper earn most of their income from the sale of travel Web sites to other agents, not from the sale of travel itself. In 2006, YTB made 72 percent of its revenue from the sale of online travel stores and monthly fees and 15 percent from travel commissions. Another 11 percent comes from the sale of training programs and marketing materials and the rest (less than 2 percent) comes from franchise fees and "other."
"Plans that pay commissions for recruiting new distributors inevitably collapse when no new distributors can be recruited," the Federal Trade Commission says on its Web site (www.ftc.gov) in talking about multilevel marketing plans. "And when a plan collapses, most people -- except perhaps those at the very top of the pyramid -- lose their money."
The companies are under increased scrutiny from travel providers and travel agent organizations concerned about card mills. Having such a card is said to open the door to all sorts of travel perks and discounts, including free trips.
Travel agents, for instance, are routinely offered familiarization, or "FAM" trips, by travel suppliers who want agents to become familiar with their cruise line or hotel or destination and sell it to their clients.
Royal Caribbean Cruise Line last month severed its relationships with YTB, a similar organization called Joystar and another company Royal Caribbean would not identify. None of the agents affiliated with these companies can now book cruises on Royal Caribbean's brands, including Celebrity and Azamara.
"We don't sell RCCL [cruises] any more," said Sorensen. "It didn't have anything to do with FAM trips."
Sorensen said that YTB had put into place systems to control its agents' requests for FAM trips, funneling them through its central office and verifying that the agents were producing travel sales. He said he could not control what individual agents did on their own and blamed the industry for allowing travel agents to request FAM discounts.
On YTB's Web site, however, a promotional video says those who sign up with YTB can get FAM trips. The video cites a $2,635 11-day cruise that YTB members can get for $798.
As recently as Oct. 31, a person whom Sorensen identified as a rep talked on the YTB Web site about getting a $500 a night hotel in Prague, Czech Republic, for $150 using YTB travel agent credentials.
Most YTB agents had little or no commission on sales of travel in 2006, according to company documents filed with the SEC. At the end of 2006, YTB reported it had nearly 60,000 registered travel agents. For the year, it paid those agents about $4.9 million in travel commissions, or less than $82 per travel agent.
The turnover at YTB is significant. At the end of 2005, it had about 21,000 registered travel agents. In 2006, it added about 59,000 new ones, but at the end of 2006 it still had only about 60,000, a net gain of about 750 registered travel agents for the year. Nearly 97 percent of its travel agents lasted on average less than one year.
David Hewitt, a retired car salesman from Granbury, Texas, was one of them. After being approached by an acquaintance who was a YTB independent marketing representative, he decided to sign up to cash in on what he thought would be significant discounts on travel using his travel agent identification.
He paid his $500 and the $50 monthly fee for about three months.
"They pitch you can save your friends a lot of money ... and you can travel cheap yourself," Hewitt said. "It did not happen like that."
Hewitt made a plane reservation on the American Airlines Web site, not his own Web site because AA.com "was cheaper." Hewitt then traveled to his destination and presented his YTB-issued travel agent card to several hotels and requested a travel agent rate.
"They just snickered at me when they saw the ID card," he said.
After this happened on two other trips, he canceled his contract and requested a refund.
When it didn't come, he filed a complaint with the Better Business Bureau for eastern Missouri and southern Illinois, where the company is located (www.stlouis.bbb.org).
His was one of 31 complaints against YTB in the last 36 months, according to the BBB, 19 of which were related to refund or exchange issues.
He received his money a year later.
The International Airlines Travel Agent Association, a travel agent accreditation organization, recently rescinded the membership of YTB and three other travel agencies. That means those agencies can no longer issue IATAN-approved travel agent cards. (IATAN is part of the International Air Transport Association, or IATA.)
"We ... are working with IATA and our legal counsel to guarantee that we meet or exceed both IATA's regulations and our own high standards," Sorensen said in a statement. |
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