Argentina-based Despegar, Latin America's leading online travel agency

Founded in 1999, Despegar is another Argentine online giant that conquered Latin America

The travel group Despegar is another online behemoth that Argentina exported to Latin America. The region’s leading online travel agency, Despegar operates in 20 countries across the region and offers a wide range of travel products in its marketplace platform, from air tickets and hotel bookings to car rental and travel packages.

In 2017, the company registered 140 million unique visitors on its platform, with 65% of transactions coming from usual customers in that year.

During the quarter ended in September 2020, in a year when the pandemic hard hit the travel industry, Despegar reached $11.7 million in revenues, according to the company’s financial results. As a matter of comparison, in the third quarter of 2019, Despegar achieved $132 million in revenues.

As for sales, Despegar recorded 600,000 transactions in 2020’s third-quarter, about three times over the second-quarter level, primarily driven by improving Brazil and Mexico trends. On a year-over-year basis, transactions dropped by 78%.

In April last year, Despegar laid off 400 employees in Brazil, Uruguay, and Colombia, reduced costs, and renegotiated the Mexican Best Day acquisition.

“We continue making strong progress on the key initiatives defined as a response to Covid-19 scenario: Adjusting our value proposition targeting profitability and cash generation; focus on strict cost control and increasing operational leverage; balance sheet strengthening and; efficient integration of acquired businesses,” stated Despegar CEO Damian Scoki about the company’s performance in the occasion of third-quarter financial results announcement.

As mentioned by Scoki, Acquisitions was another front of Despegar’s activity in 2020, as the company acquired the Mexican travel agency and rival Best Day and the Brazilian fintech Koin, marking its entry into the financial services market.

In August, Despegar announced that it had raised $200 million in two investments from Waha Capital and L Catterton for corporate expenses and potential acquisitions. With the amount, Despegar closed a deal to buy Koin, a company that offers online installment solutions through the Brazilian payment method boleto bancário.

The acquisition was made with the capitalization of receivables from Decolar, Despegar’s Brazilian subsidiary, in the total amount of BRL 20 million ($3,5 million). Despegar said it has been offering Koin’s installment payment solution in Brazil since early 2019.

As for the acquisition of Mexican OTA Best Day, the deal was first announced in January for $136 million. However, with the pandemic severely affecting Despegar operations, the company started having second thoughts on the acquisition, stating, in April, that it could not “guarantee that it and the sellers will consummate the acquisition of Best Day under existing terms or under other terms.”

Best Day’s acquisition saga came to an official end in October when Despegar announced that it had completed the deal with revised terms: a $56.5 million base consideration, with purchase price subject to adjustments based on net indebtedness and working capital, and payable 36 months following the closing date.

What is Despegar: How it all started

Founded in 1999 by Roberto Souviron, Despegar emerged as an idea to address a pain point that Souviron had personally experienced. Traveling to the US to get his diploma from an MBA degree at Duke University, the founder of Despegar found himself troubled by a common issue back at the time: long lines and time spent to buy a plane ticket in travel agencies. The need was there, and so was the gap: while in the US, online travel agencies were starting to emerge, in Latin America, this was still lacking. Despegar was then born on August 3, 1999, registered in Delaware, in the United States.

Along with Souviron, Ernesto Cadeiras, Mariano Fiori, Martín Rastellino, Alejandro Tamer, and Christian Vilate invested $ 15,000 in Despegar at the beginning. The rest is history: in 2000, the company started operating in Brazil, Colombia, Chile, Mexico, and Uruguay; in 2007, in Peru; and in 2009, in other countries of Latin America: Bolivia, Costa Rica, Dominican Republic, Ecuador, Guatemala, Nicaragua, Paraguay, Panama, and Puerto Rico.

In September 2017, Despegar made its debut on Wall Street. During its IPO in Nasdaq, the company became a Latin American unicorn after raising US$ 332 million. Since Despegar launch over 20 years ago, when it was focused on airline tickets only, the Argentine firm expanded to offer products from more than 300 airlines and 520,000 hotels. Despegar works with over one thousand car rental agencies and more than 240 destination services providers across Latin America.

Its mobile application, launched in 2012, recorded 41 million downloads in March 2018, which placed it as the most downloaded online travel app in Latin America. At that time, Despegar saw its mobile traffic reach 54% of all user visits and nearly 30% of all transactions carried out.

Decolar: Despegar’s Brazilian subsidiary

Despegar biggest and most important market is in Brazil, where its local subsidiary called Decolar operates.

During the third quarter of 2020, Decolar represented 62% of total transactions of the company, which increased 170% quarter-over-quarter, as announced by Despegar in its financial results. In comparison with the same quarter of 2019, however, Decolar reported a 65% decrease.

Gross bookings tripled in the quarter-over-quarter comparison but decreased 82% year-over-year, revealing an important shift to domestic travel and the depreciation of the Brazilian Real, informed Decolar.

Earlier this year, Decolar released a survey of the best-selling national and international destinations over the year 2020. According to data from the company’s sales platforms (website and app), the cities of Rio de Janeiro, in Brazil, and Buenos Aires, in Argentina, lead the ranking of preferred national and international destinations, respectively, with the largest number of check-ins made by Brazilian tourists during the year.

The importance of Decolar for its parent company Despegar gained another pace with the pandemic. From June to July 2020, sales of the Brazilian subsidiary Decolar accounted for 30% of transactions recorded in the same period in 2019, according to Alexandre Moshe, general director at Decolar.

“Since March, it has been an extremely intense and challenging period for everyone. We seek to ensure the sustainability of the business. I believe that with the efforts made, the company will be able to be a protagonist in the tourism industry after the crisis,” said the executive.

Despegar Argentina: local market

Despegar Argentina, the company’s home market, saw transactions and gross bookings declining by 94% and 93% respectively during the third quarter of 2020, both in a year-over-year comparison.

According to Despegar Argentina, such a plunge would be related to the ongoing ban on travel, put in place since mid-March as the pandemic emerged. Despegar also informed that transactions and gross bookings showed a slight improvement when looking quarter after quarter.

Also, Despegar Argentina announced in its quarterly financial results for 2020’s third quarter that as domestic travel was prohibited within the country, about 90% of transactions were international trips scheduled for 2021.

Despegar Mexico: drawing a major contribution across the rest of Latin America

The Mexican market has been the one responsible for contributing the most to Despegar results across the rest of Latin America. Compared to levels from the second quarter of 2020, Despegar saw transactions and gross bookings in the region comprising “Rest of Latin America” (which excludes Brazil and Argentina) both tripled in the third quarter last year, with Despegar Mexico being key to such recovery.

Despegar Mexico informed in its quarterly earnings report that, as in this country, the government had not enacted travel restrictions, this was reflected in the growth of travel packages sold.

Alejandro Calligaris, Country Manager at Despegar Mexico, told the specialized news outlet Reportur that, based on the search behavior seen on the platform, local trips are emerging as the ideal pick for Mexicans in 2021. A trend that, according to Calligaris, will take place across the whole region, helping the resumption of economic activities in these countries.

Despegar Mexico exec stressed that according to an analysis carried out in Despegar, beaches are the most sought destination for travel between January and March.

“In the new normal, emerging or unusual destinations are beginning to figure among the preferences of Mexicans. The places that stand out are those with natural attributes and outdoor activities, such as Ixtapa Zihuatanejo, Huatulco, Manzanillo, Puerto Escondido, and San Miguel de Allende,” Despegar Mexico country manager told the news outlet.

Despegar Colombia: betting on flexible packages

In Colombia, Despegar has been betting on flexibilization. In 2020’s third quarter, when Despegar Colombia released its results, the company said it expects to benefit from demand once such restrictions are lifted.

The Colombian Association of Travel and Tourism, Anato, estimates that this will be the recovery year after the industry’s plunge in 2020. By 2021, Anato revealed, as reported by the Colombia newspaper La República, that more than 70% of the sector companies think that flexible packages will be decisive in stimulating demand.

Dirk Zandee, country manager of the Andean Region at Despegar, assured that travelers are willing to have the greatest possible control of their trips and tourist destinations.

According to Zandee, Despegar offers the possibility of canceling or rescheduling trips at no additional cost. Several airlines, hotels, and tour operators have already implemented this modality, which allowed Despegar the opportunity to offer its Flexible Booking option to modify the travel itinerary when necessary.