With digital sales growth among the fastest in the world, Latin American’s biggest OTA was, perhaps, lucky to escape a recent international acquisition. Sally White reports

Latin America’s leading OTA Despegar is definitely going to debut on NASDAQ in 2016.

Well, so it has been telling the news agencies, though there is as yet no date in the diary! But work has apparently started on the paperwork. What makes this credible is the speed at which the continent’s travel industry and digital’s share of it are growing.

International tourism in Latin America is booming, as indicated by the latest traffic numbers from the International Air Transport Association (IATA).

Latam carriers’ international traffic expanded by 9.3% in 2015! In spite of fears about the economy and concern on the impact of the Zika virus, the upward trend in international traffic has been showing little sign of slowing even now, says IATA.

Massive events, like the Rio 2016 Olympic Games, are expected to keep the market active despite the current stagnation of business, in Brazil especially.

The number of outbound trips made by travellers from South America increased by about 4% between January and August last year, according to preliminary World Travel Monitor results.

This is slightly ahead of the original 3% growth forecast for 2015. Though, domestic traffic numbers did trend down throughout 2015 on the back of challenging conditions in the region’s key economies – most notably Brazil.

The urge for the Despegar’s major financial backers - top-tier private equity firms including Tiger Global (which has 70%), General Atlantic, Sequoia Capital, Insight Venture Partners and Accel Partners - to make some cash on this must be strong. The founding team, however, is said by brokers to be in less of a hurry and progress so far has been limited to going for a quote on the stock market in Brazil (where it uses the name Decolar).

Not that anyone is planning to completely cash in their chips. The figure being circulated for the NASDAQ float is that around 10% of the equity will be offered. It will be interesting to see if giant US OTA Expedia will add to its 20% stake (bought for $270 million a year ago), or if one of its OTA rivals takes the chance to grab a chunk of South American business.

It will be interesting to see if giant US OTA Expedia will add to its 20% stake

Founder and CEO Roberto Souviron (an ex-PwC consultant) does not have to give much away since Despegar is still private, but he did let slip to the news agencies that last year’s sales were around $4 billion. 

Founded 17 years ago and based in Argentina, Despegar’s largest market is Brazil (which is the sixth largest tourism economy in the world).It employs more than 4,000 people across Latin America with websites and call centres operating in Spanish, Portuguese and English and covering 21 countries, including Europe, the US and Asia as well as its own continent.

He explains the constituents of the business in an interview carried by the US magazine The Nation: “We started selling flights, and today (they) are half the income. The rest are hotels, packages, cars, cruises and destination services, such as transfers or trips - something (which we) will expand. The network already has 35,000 hotels, and has now started offering packages with flights.”

It has added car rental and more services will follow.  

 It is aiming to take around 50% of its bookings online in five years time, compared to the current 20% and in line with the US norm.  Thus a major part of its strategy is online development, with almost 900 people working on technology and product innovation. In fact, Despegar sometimes describes itself as a software company rather than a travel agency! App development is also a recipient of R&D spend.

Currency headwinds 

Trading last year was far from easy because of the gyrations of the currencies. Souviron told local news agencies that: "In 2015 we did very well in Argentina and doubled revenues in dollars. And this is exposed because we are a thermometer of the exchange rate. When we sell more it is because the exchange rate begins to slow.”

“It was the opposite of what we saw in Brazil, where global trade fell long after the devaluation of the Real, which resulted in an increase in orders, however a drop in turnover”.

According to Souviron Argentina accounts for about 20% of turnover, Brazil is more than half, and the rest is made up of Mexico, Colombia, Chile and others. 

This year Despegar is ready for more currency headwinds. But Souviron is accustomed to running a complicated business. Software development is in Argentina, yet because of the cost advantages the call centre is in Colombia and the back office in Uruguay.

… the scope for growth in online bookings justifies the strategy of regional concentration

In spite of the US, European and Asian bookings that come from the long partnership with Expedia (an affiliation going back over 10 years), its main focus remains Latin American travellers. Analysts say that the scope for growth in online bookings justifies the strategy of regional concentration.

Latin America’s digital travel sales growth last year is thought by eMarketer to have been the fastest in the world: it has the figures as rising 20.3% to $29.97 billion. And that is still only 5.6% of total digital travel sales globally, although ahead of the market share for the Middle East and Africa (4.5%) and Central and Eastern Europe (1.8%).

Latinos use social media insatiably, it seems. Apparently, according to the Wall Street Journal, Brazilians spend an average of 3.8 hours on social media every day compared to 2.7 hours in the US.

Smartphone use, says eMarketer, has risen in Latin American from 33% to 39% of the market. This year that figure is forecast to rise to 45%, or 182 million users. Moving on to 2019 the forecast numbers are put at 57% and 246 million users. While Latin America comprises over 40 countries, the bulk of its smartphone users are in six of them.

eMarketer estimates a combined 84% of smartphone users in the region came from Argentina, Brazil, Chile, Colombia, Mexico and Peru in 2015. That share will remain more or less unchanged throughout the forecast period, dropping only marginally to 83.1% by 2019, it forecasts.  Hardly surprising since these countries account for around three-quarters of the continent’s population and 85% of its GDP!

So, there seems almost endless scope for Despegar to grow.

Yet Roberto Souviron is not blasé about its prospects, saying to The Nation that much is down to luck.“Inour case in 2004 we almost sold the company to an international player. The due diligence was done, but on the last day the sale fell through. At the time we thought it was bad luck, but now the company that wanted to buy us is worth less than we are!”