YTB International, whose practices as a
multilevel marketer of travel products came under fire from Royal
Caribbean Cruises earlier this month, last week mounted an
aggressive defense of its business model and its recruitment of
novice agents.
The company's
cofounder and president, Kim Sorensen, told Travel Weekly that he
and cofounder Lloyd Tomer were attempting to meet with Royal
Caribbean and resolve any conflicts or misunderstandings about
their business model.
Whatever the
outcome, both men said they were also working to correct
misconceptions about YTB.
"There is a lot of
misconception about who we are and what we do," Sorensen
said.
Some of the
misconceptions might have been a result of the company's achieving
the No. 35 spot on the 2007 Travel Weekly Power List. The ranking was
based on YTB's response to the Power List survey, where the company
reported about $226 million a year in "verified sales."
Sorensen said that
figure reflected the total value of bookings that had resulted from
referrals by its agents, not YTB's actual net revenue.
Sorensen added that
the Power List figure had not been an attempt to mislead anyone,
and he pointed out that the publicly traded company's financials
are routinely reported in its Securities and Exchange Commission
filings.
According to SEC
filings, about 72% of YTB's revenue comes from licensing fees and
the Web site fees that it charges the more than 60,000 referring
agents who use its systems to book travel.
The remainder of
the company's revenue comes from sales commissions that it retains
and from fees it collects for training seminars for its "referring
travel agents," or RTAs.
According to its
most recent annual report, the company had a net loss of
approximately $6 million on total net revenues of $50.8 million, up
from $21.6 million in 2005. The company currently has a market
capitalization of more than $169 million.
Of its revenue
sources, the second largest was $7.3 million in commissions,
Sorensen said, which is about 30% of the commissions earned by its
RTAs.
Sorensen said that
the $226 million sales figure it offered to Travel Weekly describes
the volume of revenue it generates for cruise, vacation and other
travel suppliers, rather than YTB's own net revenue.
"Our reps tend to
beat us out of a lot because they tend to sometimes go around our
systems, to go out and get net rates, so that all the sales [for
which RTAs are responsible] don't show through our accounting
system," Sorensen said. "What we reported for the Power List was
gleaned from numbers that we got from suppliers: how many
passengers were booked through us, or their figure for dollar sales
at the end of the year. We didn't reconcile that with reports from
our representatives. We just pulled in information on our sales
from many reports and many sources for that."
He said Carnival
Cruise Lines, for example, reported sales volume in terms of 58,739
booked passengers to date, while Royal Caribbean reported $9.5
million in cruises through YTB and another $4 million through a YTB
sister company.
"At the end of the
year we will try to translate that all into dollars," he said, "and
that is where our [$226 million] sales number came from" for the
Power List.
YTB's referring
travel agents pay $500 up front, then $49.95 a month for a
company-linked Web site through which they can book travel for
family, friends or unrelated clients and receive commissions on
those sales. Sorensen said the company was now generating about
$1.5 million a month in sales commissions for its
agents.
Sorensen and Tomer
also stressed that they run one of the largest and most thorough
agent training programs, bringing more than 20,000 of their
referring agents to training seminars and other programs since the
company was founded.
He said the company
had also started offering free health care benefits to referring
agents who produce at least $25,000 in annual commissions.
YTB International
acknowledged that it was one of three entities branded as "card
mills" by Royal Caribbean, but Sorensen said no other travel
supplier had contacted the company with any concerns about its
practices.
'Working to mature'
Sorensen said a
letter to its agents re-emphasized its own prohibitions on
practices that the travel agent community dislikes.
"We are guilty as
charged in some areas," Sorensen said of complaints that some RTAs
were using their status as agents to receive discounted travel or
other perks.
"We are working to
grow up and mature," Sorensen said. "But I submit it is a very
small percentage of people who have given YTB a bad name here. We
have people who are way too aggressive and promote things that YTB
has not promoted for years. You won't hear anything in our training
or see anything in our recruiting materials about
discounts."
The company's
business model -- recruiting agents who pay a monthly fee to
operate a YTB-linked Web site for selling travel, and in turn share
in commissions generated by those they recruit to the business --
has been controversial among traditional travel agents, Sorensen
said.
But the model is no
different than those of multilevel marketing organizations in the
cosmetic and household products industries, where marketing agents
get paid to build a network of sales agents, he noted.
Tomer said he
believed the company was being made a scapegoat as the travel
selling environment continued to erode as a result of online
competition.
"I think we are
getting the flack basically from the brick-and-mortar agencies,"
Tomer said. "Some 75% of them have closed their doors, and the
other 25% are struggling. It's hard for them to blame it on
Travelocity and other online agencies like that, but they finally
found someone they could pick on, and it came down to
us."
He said traditional
travel agencies had been closing their doors because of outmoded
travel-booking systems that he said "are not going to make it
through this decade. They are going to continue to have trouble
competing with the Internet."
Tomer said critics
failed to see YTB for what it really is.
"If they really
looked, they would see that in relationship to almost any other
agency, we probably provide better training than any of them,"
Tomer said.
"We have gotten a
lot of people coming in excited to make a million dollars," Tomer
said. "You can't control what everyone says. But years from now,
we'll see this as the finest travel agency with the best training
[and] the best professional people booking more travel. I think
we'll be booking more travel than all the brick-and-mortar agencies
together."
Whatever problems
exist, he said, "we'll fix them."
To
contact reporter Dan Luzadder, send e-mail to [email protected].