Pyramid Scheme Alert (PSA) provides current and historical news items that are of interest to our members and visitors. None of the reports or commentaries is intended to imply that any of the referenced companies have been charged or convicted as illegal pyramid schemes.
Travel Agents Say MLM Travel Scheme, YTB, and Others Like It, Are Corrupting their Profession, Cheating Vendors and Tricking Consumers
Everyone in American can become a travel agent under the YTB plan. This year, YTB reported to the SEC that over 300,000 Americans are signed up. YTB is a publicly traded company. The ticker symbol is YTBLA.OB.
When a consumer joins YTB and pays the $500 plus $50 a month, they get access to a YTB "back office" travel website. If they buy travel services for themselves (self consume) or sell to others, through the website, they can receive up to 60% of the actual commission paid to YTB by vendors. (Most travel commission are between 5-10% of the price of the travel service sold, so a 60-40 split between YTB and its agents would net a maximum of 6% to the YTB rep.)
However, 2,300 actual travel agents the real ones that are trained and have real customers signed a petition to travel vendors to stop honoring the YTB "card." The American Society of Travel Agents (ASTA), the main Trade association of real travel agents, has published a consumer warning about YTB and other similar schemes which it calls "card mills." The protesting agents say that YTB is telling its "agents" that they are automatically entitled to discounts and freebies from hotels and cruise lines because they are now in the travel business.
The real travel agents point out that any discounts or free services offered by vendors are based on expected business the agents would bring the vendors. It is a professional courtesy, not a free ride or "perk." Yet, they claim, YTB is presenting it as a financial benefit, a type of compensation! They say this perverts their profession, misuses the vendors and misleads the consumers.
News reports have confirmed the agents' charges that YTB is using travel vendors' professional practice of offering "familiarization" programs to legitimate travel agents as a YTB "perk," or a form of payment gained by signing up with YTB.
Royal Caribbean Cruise Lines (and their three brands) stopped honoring the YTB card. ASTA, the trade association of agents, has taken a stance against YTB and other similar schemes. It issued a white paper. IATA, representing the airlines industry, rescinded their endorsement, which prohibited YTB from using the IATAN card as a perk for their program.
Yet, with the other industry credentials (mostly for cruise lines), YTB is able to sign up consumers and call them "travel agents" and some vendors do honor the card. YTB says it is now the 35th largest travel agency in the country. Net revenue in '07 was over $140 million and the company has a market cap of $126 million.
The question raised by the legitimate travel agents is whether YTB is really in the travel business at all? Or, is it ripping off the travel industry in order to run an endless chain recruiting scam? In that latter case, the travel services are merely part of a disguise for the real business of pyramid recruiting. Where does YTB's money come from commissions on travel booked by is agents or from fees paid by the agents to join the endless chain? And how much of the money that is sourced from travel services is actually coming just from the travel agents themselves (self-consumption)?
The key issues then are these:
-- If the real business is about recruiting, the travel industry has been invaded by a fake travel business.
-- If the scheme is an endless chain, nearly all consumers who join the scheme will lose money and the public has been misled by a fake "business opportunity."
-- If whatever "travel" revenue the company generates is coming from the agents themselves, then the scheme is merely disguised as a "direct selling" business. It is in reality a pyramid scheme, using travel services, sign-up and website fees as the means for laundering pyramid money transfers.
The answers to most of these questions are clear and verifiable. According to YTB's filings with the SEC, 73% of all its revenue came from the $500 up front and $50 monthly fees. Another 10% came from selling the "agents" marketing materials and courses.
Only 14.5% of YTB's revenue came from commission on travel services that were sold.
Do the agents "sell" travel services to real customers or just buy from themselves? YTB does not disclose this. However, the SEC filings reveal that the mean average commission payment to YTB reps from travel services was only $44 a year. This tiny average payment would make sales to anyone other than themselves or immediate family unprofitable. Much anecdotal evidence also exists that YTB "agents" are in fact just consumers "buying for and from themselves".
Is YTB a viable business opportunity for consumers?
YTB also answers this question with numbers posted on its website, however, as with other MLMs, the data may not be clear to the average consumer. A little analysis reveals the following devastating facts:
When this data is merged with the information that YTB submitted to the SEC in its latest annual report for 2007, it reveals that only 14% of all commissions paid to the reps came from selling travel. All the rest came from enrolling other "agents." The mean average payment to all the sales reps was $310, but only $44 of this came from travel services sales. All the rest came from recruiting. And 96% of all commissions were transferred straight to the tiny group of promoters at the top of the YTB pyramid.
In summary, almost no YTB reps earned any money from selling services and nearly all the commissions that were paid for travel sales were transferred to the top based on YTB's pyramid pay formula - a money trap for consumers.
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