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YTB Comes Under Fire, Again!August 3, 2009 By: George Dooley
YTB’s annual conference ended with an announcement that YTB expected to report a profit for its second quarter and detailed a host of changes on how YTB member agents would be compensated. The changes in YTB’s program— and the August 10 release of YTB’s financials as required by the Securities and Exchange Commission— will be closely watched both by YTB members and the travel industry. This includes John Frenaye, a travel agent, blogger and a responsible critic of YTB.
Frenaye's blog, http://notravelmlms.blogspot.com, offers detailed, authoritative coverage of YTB’s program and its often-troubled history. Responding to Travel Agent’s recent interview with Doug Bauknight, and to offer a counterpoint and perspective to Bauknight’s viewpoint, Travel Agent asked Frenaye to offered his take on YTB and its future
“Since YTB has been such a divisive force in the travel industry for several years now, I thought you might be interested in another view from an admitted opponent of multilevel arketing (MLM) in travel, including YTB,” he wrote.
Frenaye has won industry-wide recognition for his tough-minded opposition to multilevel marketing companies and his opposition to YTB. He sees more “traditional” host agencies with deep industry roots offering greater income building opportunities for independent agents than YTB offers its travel agents as well as greater training opportunities and professional recognition. Frenaye questions in detail the effectiveness of YTB as a travel marketing organization and if talented YTB members interested in selling travel will not find greater rewards elsewhere.
Details of YTB’s new program can be found at www.yourtravelbiz.com/natconrecap/announcements.html while SEC reports are online at www.ytb.com.
“While I am sure that Mr. Bauknight is successful in his YTB business, I do have to question how he defines growth," Frenaye said. "According to your article, Bauknight said, 'But YTB is still standing with $425 million in sales and a loyal cadre of travel selling agents. Worse for our critics, YTB is growing despite the economy and despite its critics.'
“This time last year, YTB professed to have 138,000 TSOs, as of March 30, 2009, that number was down to 74,000," Frenaye continued. "When you compare 2008/2009 first quarter results, the losses YTB is experiencing are even more profound. While the rest of the industry is being battered by the economy and seeing business being off anywhere from 10 percent to 20 percent, YTB’s numbers are off 52 percent (travel commissions earned 08/09).
“This does not even begin to address any of the other issues surrounding the company such as the $340 million dollar suit filed by the State of Illinois against the firm, the lack of access to additional funding and loans, the million dollar settlement (which YTB likes to claim is a win) payable to California, and the fact that their own accounting firm does not have faith in their fiscal practices and have issued going concern notices," Frenaye said. "When you toss in that two years ago their public stock was traded at $8.50 cents a share and now it is struggling to stay above a dime, it seems that the investing community and the public do not have much faith as well. I am flummoxed how Mr. Bauknight sees this as 'growth.' At best, I see it as a grave concern.
“As the financial filings indicate, the vast majority of YTB’s income comes from recruiting and very little comes from travel," Frenaye continued. "In 1Q 2008, recruiting accounted for 79.4 percent of their revenues while travel was only 12.5 percent. And 2009 was even worse with recruiting at 85.4 percent and travel at 11.6 percent. This company obviously has a major focus on the recruiting aspect and very little on travel. Their own recent disclosure (required by the settlement in California) indicates that the average annual income for a TSO was $111 and the median was $41. On the recruiting side, the average income was $2,700 per year.
“It does not take a rocket scientist to figure it out," Frenaye said. "Their entire income is based on the sign up fees and the continuing monthly access fees to the cloned privately labeled Travelocity booking engine. For a stark look at the numbers, the TSOs have paid (sign-ups and monthly fees) a total of $283,513,046, or over a quarter billion dollars since 2006 and during that time have earned a total in travel commissions of $39,999,552. Not the greatest return on investment if you ask me.”
Analyzing YTB's website for investors and annual reports information, Frenaye said that "fees paid by RTAs for membership/monthly fees to own a "travel store" vs. travel commissions received by RTAs for their sales are: 2006; $38,887,611 vs. $4,893,012; 2007; $103,656,435 vs. $13,426,540; 2008; $122,361,000 vs. $19,972,000 and 1st Qtr 2009: $ 18,608,000 vs. $1,708,000. Now granted, some people (very few) will and have done well with this program. But this proves that it is flawed and a loser for the vast majority.
“While Mr. Bauknight maintains that under a franchise model, YTB will compete favorably with other franchise operations, I have my doubts," Frenaye continued. "While it is true that some suppliers will seek out revenue from any possible corner (and they are not to be faulted for that) many (Royal Caribbean, NCL, Celebrity, Asmara, Perillo, and more) have determined that YTB’s business is simply not worth it to them. How can a travel professional effectively compete with other franchises when you are unable to sell half of the mass market cruise lines?
“In terms of cost, I am having a difficult time of picturing it being a good deal," Frenaye said. "There are many host agencies operating that have no cost to enter, no cost for a website, and offer an 80 percent commission split and are able to sell all products most likely at a higher commission level. I personally know at least a dozen former TSOs who are now aligned with a traditional host and are making far more money and actually advancing their travel career. One announcement at the (YTB) convention offered a TSO a 80 percent commission split when they earn $25,000 in compensation from YTB. Last year, one person (remember they claimed 138,000 TSOs at that point) would have qualified. And to be honest, achieving that would be a heck of a lot easier when you can sell Royal Caribbean and NCL.
“It does not matter which side of their business you view, the vast, vast majority of people earn next to nothing," Frenaye said. "Granted, the financial investment is not significant, but when 50 percent of the TSOs earn nothing it speaks volumes.
“I do agree with Bauknight when he says, 'YTB has struck a nerve in the travel industry,' " Frenaye concluded. "The industry in the last few years has taken on a new life. You only need to look to the successful (thus far) fight against United’s move to pass along credit card fees to agencies for some proof. The Better Business Bureau has issued warnings about YTB (as recently as July 30, 2009) stating that the complaints are rising. Local news media is covering the convention and warning about YTB. Legitimate travel agents are fighting against the MLM companies like YTB. Governmental agencies have and are suing them, while others are still investigating. But in the world of someone who “drinks the kool aid” all is well and everything is on an upswing. Me? I just don’t get it.”