Travel on the cheap may not be so cheap

The pitch is seductive and sophisticated.

Qualify for discounted travel. Earn commissions on your own travel expenditures and on those of your friends and family. Build your own travel business with income from others you bring into the fold. Deduct your travel expenditures on your taxes. Do all this for less than $500 up front and $50 per month.

Tens of thousands of people are giving it a whirl. Some do prosper, but many working on these so-called card mills -- companies that issue travel-agent credentials to people who aren’t selling much travel -- 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 website and is used by YTB’s independent representatives.

Whether it’s soap or travel websites being marketed, the goal of multi-level marketing companies is to make commissions selling business opportunities to friends, family, even strangers.

In this case, the ones who prosper earn most of their income from the sale of travel websites to other agents, not from the sale of travel itself. In 2006, YTB made 72% of its revenue from the sale of online travel stores and monthly fees and 15% from travel commissions.

“Plans that pay commissions for recruiting new distributors inevitably collapse when no new distributors can be recruited,” the Federal Trade Commission says on its website ( www.ftc.gov) in talking about multilevel marketing plans. “And when a plan collapses, most people . . . 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 suppliers who want them to become familiar with their cruise line or hotel or destination and sell it to clients.

J. Kim Sorensen, president and chief executive of YTB, said YTB had put into place systems to control its agents’ requests for FAM trips, funneling them through its central office and verifying 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 website, however, a promotional video says those who sign up with the company can get FAM trips. And as recently as Oct. 31, a person whom Sorensen identified as a rep talked on the website 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 commissions 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 about $4.9 million in commissions, or less than $82 per travel agent.

David Hewitt, a retired car salesman from Granbury, Texas, was one of the agents. After being approached by an acquaintance who was a YTB independent marketing representative, he decided to cash in on what he thought would be significant discounts on trips 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 American Airlines’ website, not his own, because “it was cheaper.” Hewitt then traveled to his destination and presented his YTB-issued card to several hotels and requested a travel agent rate.

“They just snickered at me when they saw the ID card,” he said.

After he said this happened on two other trips, he canceled his contract and requested a refund. It took a year, but he got his money back.

The International Airlines Travel Agent Network, or IATAN, an accreditation organization, recently rescinded the membership of YTB and three other agencies. That means those agencies can no longer issue IATAN-approved travel agent cards. (The network is part of the International Air Transport Assn., 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.

--

travel@latimes.com