The tourism sector in Argentina might be facing its busiest year on record as passenger numbers are predicted to surpass pre-pandemic levels. Passenger rates to the country are up 101% in the first month compared to January 2019 as tourists are attracted to the country’s favorable exchange rate. Argentina’s tourism unicorn Despegar – Spanish for ‘to take off’ – is benefitting from the rise of tourism as it is Latin America’s largest online travel agency (OTA). The company disrupted the travel industry in the continent through its online offering, which adopts the newest technologies and innovations to gain an edge over competitors. Emerging market economies are digitalizing rapidly with Despegar being one of the players benefitting from this trend. This article will further deep dive into the efforts of Despegar to better position itself as one of Latin America’s top technology companies.
Travelled road to become Latin America’s largest ATO
Despegar was founded in 1999, the same year as fellow Argentine tech giant, MercadoLibre. Although the latter is internationally better known, the former has established a strong regional presence with operations in 20 Latin American countries. It has become the one-stop shop for anything travel-related, such as airline tickets, travel packages, hotels, and vacation rentals, among other travel-related services, which enables consumers to seamlessly find, compare, plan, purchase and finance travel products.
Local expertise gives them an advantage over global players such as Airbnb, VRBO, and Booking.com, which lack familiarity with the region’s complex and fragmented travel market. Its business portfolio now comprises approximately 238 airlines, 660,000 hotels and vacation rentals, 1,260 car rental agencies, and an additional 800 destination service providers offering more than 12,000 leisure activities.
Emerging market on the brink of a digital consumer revolution
The company targets the increasing amount of the Latin population, which has started gaining access to the Internet as mobile penetration is on the rise across the region. The global digitalization trend is revolutionizing emerging markets where billions of people enter the consuming class with more affordable smartphones catalyzing an unprecedented digital consumer revolution.
Despegar manages to tap into this emerging consumer class through its Award Winning mobile app, which has over 60 million cumulative downloads making it the most downloaded travel app in the region. Its mobile services account for roughly 71% of user visits and almost half of its transactions.
Opportune acquisitions realized due to depreciated prices during the pandemic
During the pandemic, Despegar was heavily hit by the lockdown restrictions as travel came to a screeching hold. Despite COVID difficulties, it used the COVID pandemic to its advantage as it explored the market for acquisition opportunities as companies in the travel sector were trading at a discount.
The company expanded its brand in the Mexican market by acquiring Best Day Travel Group (incl. BDexperience and HotelDo). Through multiple acquisitions, the company increased its market share in Brazil – BNPL pioneer Koin, channel manager for vacation rentals Stays, and Brazil’s leading online travel agency Viajanet – leading to a more diverse product offering. The company is targeting one to two additional acquisitions for the year 2023.
Needs of Despegar customers are met with technological solutions
Marketing costs increased in 2022 as Despegar seems to be investing more to reinforce its brand name and increase engagement with its target audience. Mid-2022, Despegar started a Youtube channel with travel vlogs concerning Latin American travel destinations. Through its social media channels – especially Instagram is immensely popular in the Latin community – it manages to engage with millions of followers across different countries.
To further fulfil the needs of its clients, the company teamed up with Binance Pay to accept cryptocurrency payments in its home country of Argentina. Despegar is the first OTA to accept crypto payments in Latin America. The company accepts payments in over 70 types of cryptocurrencies (e.g., Bitcoin, Ether, and Litecoin) and partners with Inswitch, which will use its API-based platform to convert crypto into fiat. Currently, the crypto service is for now solely provided in Argentina. Expectations are that the service will become available in other countries as well.
Despegar’s efforts seem to be recognized by its clients as it achieved a Net Promoter Score (NPS) of 65,1% in 2022, close to 2019 levels. The NPS is a measurement to calculate the likelihood of a customer recommending the services of a company to another person. The Loyalty Program increased 338% YoY in 2022, amounting to 12.1 million members, nearing half of the total 29 million clients served by the company.
Investor sentiment remains cautious despite achievements
Its recent accomplishments have yet to impress investors. The company’s stock has fallen by 80 percent since going public. The company had its IPO in 2017, raising $332 million U.S. Dollars by listing on the New York Stock Exchange. It sold 12,8 million shares at a share price of $26, instantly giving the company unicorn status as it surpassed the 1$ billion mark with an approximate market value of $1,8 billion. The stock currently trades at $5,50. High-growth stocks in the consumer services industry have fallen out of favour as financial markets seem to be preparing for an impending crisis.
An affordability crisis due to inflation pressures causes some headwinds leading to declining volumes of transactions in 2022. It managed to offset this with higher prices as ASPs (Average Selling Prices) increased by 29% and improved the profitability of package deals. Despegar achieved pre-pandemic revenues of $145,5 in 2022Q4, even though the tourism market only recovered to 80% of 2019 levels.
The company is maturing into its market leader position in the continent, benefitting from economies of scale as the large customer base helps attract additional travel suppliers, an expanding network of suppliers helps to provide an enhanced product offering, and scalability enables to offer more competitive pricing. Although it continues to grow and develop, the company is yet to become profitable.
Future prospects for Despegar seem to be bright
Despegar seems to be taking steps in the right direction as it reinvests capital into the company for geographical expansion, technological innovation, and marketing purposes. It faces stiff competition from global powers but gained an advantage due to its local expertise. The tourism industry is increasing in Latin America after reaching bottom lows during the pandemic. Incentivized by the pandemic, Latin American purchases are increasingly more online also for the travel industry.
Despegar’s online offering seems to meet growing demand in a rising market, although some grey clouds are on the horizon due to the consequences of higher inflation rates. Investor sentiment has yet to turn positive as share prices remain on the low spectrum. The future of the company’s business continuity seems to be covered in the short term by stable cash reserves. Investors will look for an attractive entry point as it is still uncertain whether the stock will drop any further in price. Investors question: Will the company’s stock price live up to its name and ‘take off’ in the (near) future?
