Online travel agency Despegar — whose name comes from the Spanish verb that means “to take off” — has filed for an initial public offering on the New York Stock Exchange.

Despegar said it hopes to raise $100 million. But Renaissance Capital, an IPO research firm, estimates the company will raise $300 million. This range of estimates suggests that the market will place a $1 billion or greater valuation on Despegar, making it Latin America’s first online travel unicorn.

The company, which claims to be the largest homegrown online travel agency in Latin America, has not set an initial share price or a date for the IPO.

Hedge fund Tiger Global owns 57.3 percent of the company as of Thursday, before the offering. General Atlantic Partners owns 5.4 percent. Expedia is another key holder of equity. The company’s five founders and a few other investors also own shares.

In February Roberto Souviron left his 18-year job as the top boss. He is no longer on the board of directors, either.

Tiger Global has installed a new CEO, Damián Scokin, an executive who worked for 11 years at the consulting firm McKinsey. From 2012 to 2015, Scokin served as CEO for LATAM’s international business unit, where he was in charge of leading the merger and integration process of LAN Airlines, LATAM Airlines Group’s predecessor and the biggest airline in Chile, and TAM Linhas Aereas, one of Brazil leading airlines.

As majority owner, Tiger Global chose to remove the startup’s founding CEO from day-to-day operations. The firm was not happy with the delayed process of ramping up to an IPO, says Argentinan news publication Reportur.

Expedia’s Interest

Despegar has a well-known U.S. investor, Expedia, with a 16.4 percent stake in the business prior to the IPO. The stake represents the online travel giant’s one-time $270 million equity investment in the business in March 2015.

As part of the relationship, Despegar relies exclusively on Expedia for the hotel and other lodging products that it offers for all countries outside of Latin America through at least March 2022.

In the six months ended June 30, 2017, Expedia and its affiliates provided 9.5 percent of Despegar’s gross bookings.

Interestingly, the agreement requires Despegar to reach a threshold of marketing fees — meaning, a percent of gross profit received by Expedia from travel bookings made through the platform — equal to $5 million in any rolling six-month period, or else Expedia may require the company to pay a $125 million termination fee.

The IPO filing reveals that Expedia has agreed not to acquire more than a third of the voting power of Despegar’s outstanding shares within three years post-IPO unless it makes a bid to buy more than three-quarters of the shares.

In brief, the Bellevue-based giant is keeping its options open but shows no signs of being in a rush to acquire the company.

Bumpy Road

Despegar was founded 18 years ago by five entrepreneurs who met at Duke’s Fuqua business school in the U.S. The company had to survive the post-2001 financial crisis, the current recession in Brazil that is almost becoming a depression, and the Argentine financial crisis of 2001-02 and recession of 2016.

Today it has considerable market share. Amadeus, the travel e-commerce vendor, says that approximately 15 percent of all airline tickets purchased through its system in the region during 2016 went through Despegar and sister brand Decolar.

Despite the regional economic turmoil, the company has been recently profitable. In the first half of 2017, it had 2.5 million customers generate $248.5 million in revenue on $2.1 billion in gross bookings.

Looked at another way, in the full year of 2016, the company booked $411 million in revenue and $18 million in net income on $3.3 billion of consumer transactions.

It has more than 2,700 employees —  including more than 800 developers — in offices in 21 countries. But it is having “voluntary” reductions that will eliminate between 60 and 100 positions this year in the run-up to the IPO.

One key to the startup’s success was its decision to move early to offer more flexible payment options. Today half of its transactions are paid on installment plans. This year it will also expand its installment payments plans and add other payment options, such as debit cards and acceptance of multiple credit cards in a single transaction, to attract more customers.

Despegar’s top markets are Argentina, Brazil, and Uruguay. The company holds the top ranking of all online travel agencies in Latin America by desktop traffic, according to SimilarWeb.

Achilles Heel

Despegar’s seeming weakness is its dependence on air. About 60 percent of its revenue comes from selling airline tickets, including the 2.6 million tickets it sold in the first half of 2017.

Its revenue sources include commissions from airlines, incentive payments from reservation tech middlemen like Amadeus, and service fees charged to consumers.

Trends in the U.S. and Europe have seen airline commissions and incentive payments from the tech middlemen decline over time, and that drop may also happen in Latin America. As noted in the company’s IPO filing, Despegar’s contracts with airlines often limit how high of a fee it can charge consumers.

In short, the company’s revenue model may be vulnerable to shocks.

A sign of that vulnerability is revealed in the IPO filing. American Airlines discontinued its access to the airline’s inventory from July 2013 to March 2016 as a hardball negotiation tactic. Since then, American has resumed supplying it with tickets.

There’s a strategic issue here, too. Hotel commissions are more substantial, on average, than airline commissions are. Despegar needs to rebalance to depend more on hotels if it wants to maintain steady growth.

A rebalancing won’t be easy, though. The Latin American hotel market is more fragmented and less eager for online distribution than some other markets. In Latin America, the top ten hotel chains had an estimated 15 percent market share in 2015, compared to 51.8 percent in the U.S. during the same period, according to Euromonitor International.

To encourage more hotels to participate, Despegar plans to invest in its software that offers suppliers tools to manage their inventory better. As of June 30, approximately 23,000 of its hotel suppliers in Latin America were directly connected to its booking system via its extranet or via more than 35 third-party channel managers.

Despegar needs to dramatically boost participation and engagement from tens of thousands of other property owners.

Growth Plans

After the IPO, the company says it may use some of the funds raised to pursue opportunistic acquisitions that enable it to enhance its offerings, build its marketplace, enter new geographies, or enhance its operational infrastructure.

The company also plans to replicate in new markets what it describes as its successful introduction in 2016 of new products, such as bus ticket sales and a local concierge service, in test markets.

Despegar says that its 120-person marketing team will get better at marketing. It plans to expand initiatives like offering exclusive discounts on related products upon a consumer checking out and post-sale emails and personalized in-destination mobile marketing with offers for additional travel products that may be relevant to customers’ initial purchase.

Overall, the move to an IPO suggests the company succeeded in its initiative, begun more than a year ago, to eliminate phone bookings in favor of online bookings only and to rejig its online and offline marketing. (See Skift’s interview with Despegar’s CMO.)

But some criticize the company’s executives for not having led the business to achieve its full potential, especially when compared to how quickly some other online travel companies have grown elsewhere during the same period

While it claims to be online travel’s largest Latin American player, Despegar only takes a slice of the total spent on online travel in Latin America overall. A variety of other small, national players, and global conglomerates like Priceline Group, also take slices of the pie.

Despegar better stay hungry if it wants to live up to its destiny of “taking off.”

Photo Credit: Damián Scokin, an executive who worked for 11 years at the consulting firm McKinsey, became the new CEO of Despegar in February. He replaces the founding leader of the company, Roberto Souviron, who left the CEO role as the company prepares for an IPO. Despegar