Hey Carnival!

Well, it has been just over a year since Lisa Bauer, Dondra Ritzenthaler, and Royal Caribbean took the gutsy move to terminate relationships with companies they deemed to be card mills. It has also been almost a year and Carnival Cruise Lines has been mum on the topic.

The question I have for Micky Arison and Gerry Cahill centers around if that was a good move or not? At what cost did you receive any incremental revenue? Did you receive any?

According to the 3rd Quarter SEC filings, it seems that Royal Caribbean's income is up 4.2% for the quarter and 7.4% for the year; while Carnival is down 3.2% for the quarter and 4.4% for the year. I know it is hard to compare apples to apples when Carnival has so many brands that are really diverse, but the bottom line is telling.

I wish I could find a breakout by brand because I content that continuing to do business with MLM or Card Mill agencies is indeed bad business.Looking at the bottom line, it appears that the expected incremental revenue from Royal Caribbean never materialized for Carnival.

If we look at one of the known agencies that was terminated by Royal Caribbean (YTB) is it obvious from their own SEC numbers that they bulk of their people do not sell much product. The Referring Travel Agents were responsible for a reported (yet unverified) $211 million in sales for 2007. There are claims that 2008 sales are higher, but that remains to be seen since their enrollment has dropped significantly.

So the question to Carnival remains was the $33 million paid in commission really worth the additional sales? The YTB numbers indicate that the vast majority of sales made are for personal travel and not to that of legitimate clients. The California Attorney General has also alleged this in his $25 million lawsuit against YTB. So why is Carnival happy with essentially discounting cruises by 16% that they likely would have captured in any event? Sure, there are a lot of people in YTB that took cruises ONLY because of the discount, but come on--$33 million? And that does not even cover the override agreement in place. So is this really good business?

What about the bad press? Remember the YTB Travel Agent in Tennessee that sold a Carnival Cruise to "Grand Caymen" to hundreds of high school seniors and then vamoosed with the money? What was the cost to the reputation of Carnival and YTB?

What about your additional cost? There are marketing costs to attend their events, costs to facilitate the product update calls, and let's not forget that Carnival flew res center agents to Wood River to handle consumer calls for the recent "Sail-A-Thon". Why doesn't Carnival send res agents to all travel agencies to handle consumer inquiries? I think I know the answer--and I bet Carnival does as well.

Have you noticed a decline in bookings from legitimate agencies that used to support Carnival in years past? Has Royal Caribbean seen an increase?

I contend that accepting Card Mill business is likely bad business. Your bottom line sure seems to support this as well.

2009 looks to be one of the more challenging years facing the travel industry. Who is better positioned to help out Carnival Cruise Lines? Is it the travel professional who knows your product and sells to the public? Or is it the "I just bought my credential" agent that is looking for a 16% discount on his own cruise.

Ouch!

On August 3, 2007, Michael Brent sold 16.650 shares of his YTB stock:

3-Aug-07 16,650 YTBLA.OB Sale at $8.48 - $8.48 per share.
(Proceeds of about $141,000)

On October 1, 2008, Michael Brent sold 16, 667 shares of his YTB stock:

1-Oct-08 16,667 YTBLA.OB Sale at $0.60 per share.
(Proceeds of $10,000)

This is the stock of a company that:

• Claims they are poised to take over the travel world
• Is supposedly ranked #26 according to Travel Weekly
• Is facing a $25M lawsuit from the California Attorney General
• Is undergoing an investigation from the Illinois Attorney General
• Has seen a rapid exodus of RTAs and Reps
• Has lost their IATAN accreditation
• Has been "fired" by several vendors
• Has many complaints from the BBB
• Is mired in all sorts of insider deals
• Paid $6M (or maybe it was $8M, or maybe it was $2M) for a foam statue that no one wants
• Encourages deceptive recruiting, or at least looks the other way--Seligman anyone?
• Pays their average RTA slightly more than $100 a year
• Pays their average Rep less than $100 a year
• Collects 74% of their income from recruiting
• Claims they are not a pyramid scheme
  

Hmm..did I forget anything?

Why MLM instead of Host Agency?

For the last couple of years, there has been much debate, some of it civil, but much of it not, about the Multi-Level Marketing (MLM) travel businesses. Much of this debate has centered on how professional or not the MLM agents are. This has been due to the lack of knowledge exhibited, behavior at travel trade shows and conferences, and other things. Unfortunately, I have witnessed the same from some traditional travel agents.

So, at least for the purposes of this post, I'd like us all to ignore those aspects of the debate. What I would like to focus on is why do people choose to be part of an MLM travel company rather than become an independent contractor for a host agency. My thesis is that it is all due to the money that can be made for recruiting more and more people to the business. It has very little to do with selling travel, or any other product for that matter. I note that some people call this "selling travel stores" rather than "recruiting".

The typical MLM travel company charges an initial sign-up fee to join as Referring Travel Agent (or some similar name), and then a monthly fee for a travel booking website. In order to comply with laws that regulate MLM companies, they usually have a companion position, available for free, called a Representative (REP or something similar) whose job is to sell those RTA positions. The way the REP makes money is that they get a part of the sign-up fee and possibly part of the mothly fees. In addition, they get bonuses based on the number of RTA positions that they sell, and those of the REPs that are under them sell. The RTA makes money by getting people to book their travel through the website they are renting. In exchange, the company gives them a percentage of the commissions on that travel sale. It is important to note that while there is no requirement for an RTA to also be a REP, generally they are.

What I would like to know is how many people that become RTAs would actually stay with their MLM company if the REP positions and the bonuses were eliminated? Suppose there were a company that would allow you to become a Travel Agent simply by paying a one-time fee of $495 and a fee for a booking website of $49.95 per month. You would earn 60% of all commissions the company earned as a result of travel sales through your website. Since this is MLM, we'll even consider that you would also be paid 10% of all commissions earned by those that you directly recruit to join the company. Would those of you that are RTAs or the equivalent with YTB, Traverus, World Ventures or others want to be part of this company? If so, why? If not, why not?

Suppose there was a Travel Host Agency that would allow you to become a Travel Agent for free. They would give you a travel booking site using the same booking engine as the company above, also for free. You would earn 80% of all commissions the company earned as a result of travel sales that you make through your website. Since this is not MLM, there would be no override for anyone that you recruit. Would you rather work with this company or the MLM? Why?

Remember that for the purposes of these questions, I am assuming that back-office support, training for agents, and all other aspects of the two companies are equal. I am only focusing on the compensation plans. I am not saying that agents shouldn't be trained. I'm just leaving that out of this particular discussion.

Personally, I can't believe that anyone would want to pay an up-front fee of any amount, a monthly fee of any amount, and give up 20% of commissions earned for something they could get for free. Perhaps the lure of the 10% override would do it. But how many people could be recruited that would be willing to pay an up-front fee, a monthly fee, and give up 20% of commissions earned when they could get the same elsewhere for free? I would think the answer is that not many people would choose the MLM described over the host agency described.

So, why do people join the MLM travel companies? Obviously, it is all for the recruiting fees and bonuses. They are exposed to the dream of a large down-line of people doing their work for them, while they collect the recruiting bonuses that get larger and large, the bigger their downline gets. The focus is not on selling travel. If the selling of travel (or some other product) were not there, the whole thing would be an illegal Ponzi scheme. Like any of those schemes, the bulk of the money goes to the founders and those that got in very early. Those that get in late generally do very poorly, unless they can find some new untapped source of new recruits.

The bottom line of all this, is that I would like any MLM "travel agent" to explain to me is why they stay with that company, if all they are really serious about is selling travel? Please explain it only in terms that refer to the compensation you get for selling travel, vs. the expenses you have. Leave the recruiting bonuses and fees out of the equation. If you can't give me an adequate explanation of why you would not do better with another more traditional host agency, then I must assume that the only reason you stay with the MLM company is because of those recruiting bonuses. That would prove my thesis.

It would also prove to the travel suppliers that the MLM travel companies are not really about selling travel. They are really about recruiting, and a little about rebating commissions to themselves and family members for personal travel. Maybe then, they would wake up and stop doing business with those companies.

Note: For those that cannot read, this is another guest post (JF)