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Latin American economies frequently seem to be in shambles, but there are positive developments on the inflation front as far as Despegar is concerned.

Series: Dennis' Online Travel Briefing

Dennis' Online Travel Briefing

Editor’s Note: Every Wednesday, Executive Editor and online travel rockstar Dennis Schaal will bring readers exclusive reporting and insight into the business of online travel and digital booking, and how this sector has an impact across the travel industry.

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While U.S. and European-based online travel agencies fret about the impact of inflation and potentially softer travel demand, Argentina-based Despegar sees a more stable economic climate on its Latin America home turf.

That’s particularly true in terms of inflation in its two largest markets, Brazil, which accounted for 37 percent of its transactions in the third quarter, and Mexico, which generated 19 percent.

“As we’ve been pointing out over the last few months, we see the macro situation in Latin America slightly different as the one in the U.S. or Europe, although inflation has picked up in the early stages of the year,” CEO Damian Scokin told financial analysts last week as he reviewed the company’s third quarter financials. “If you see Brazil, there’s been deflation in the last couple of months and Mexico remains more stable. So our view is more optimistic on the macro in the region in general when compared to what we see for the U.S. and Europe.”

He added that “Latin America has been used to dealing with inflationary situations very effectively.”

Despegar in the quarter that ended September 30 saw its fourth consecutive quarter of positive results on an adjusted earnings before interest, taxes, depreciation and amortization basis. By that measure, the company earned $12 million in the third quarter of 2022 compared with a loss of $10.3 million a year earlier.

The company said strong travel demand, including the opening of international markets, as well as an increase in its take rate, or commissions, spearheaded the improvements.

On a standard net income basis, Despegar narrowed its losses to $9.3 million in the third quarter from a $23.9 million net loss a year earlier.

Revenue reached $145.6 million, 10 percent higher than pre-pandemic 2019.

Despegar seems in recent years to be successfully growing, in part, through acquisitions, including of loan originator and buy now pay later company Koin in Brazil in 2020, travel agency Best Day in Mexico in 2020, and travel agency Viajanet in Brazil in 2022. Despegar also secured a 51 percent stake in channel manager Stays in 2022, and in the third quarter Despegar reported it had 21,600 vacation rentals on its Stays brand. It is expanding Stays beyond Brazil, its home market.

Despegar said it has increased its market share in Brazil, where gross bookings in the third quarter jumped 9 percent with the opening of international markets, compared to the previous quarter. Gross bookings in Mexico fell 9 percent sequentially, largely tied to seasonality.

Not many major online travel agencies break out their fintech offerings, but Despegar provides some visibility. Its financial services business, including Koin, saw its total portfolio value increase 136 percent to $17.8 million year over year in the third quarter. Koin, which was acquired to expand Despegar’s total addressable market beyond travel, accounts for a minuscule portion of Despegar’s transactions, around 1 percent in the third quarter.

Chief Financial Officer Alberto Lopez Gaffney said during the earnings call last week that Despegar has been slowing the number of loans that Koin originates — there was a 25 percent drop in purchase volume — and is more effectively calculating and pricing the credit risk. Koin’s loans average five months in duration, the company said.

“For the quarter, Koin produced an EBITDA loss of $5.2 million,” Lopez Gaffney said. “For those of you on this call who are new to Despegar’s growth strategy. Let me remind you that we acquired Koin as it expands our addressable market and increases conversion rates, take rates as well as average tickets among other distinct advantages.”

In other developments, as larger peers such as Expedia Group and Booking Holdings seek to grow their loyalty programs in strategic initiatives, Despegar is expanding its own.

The company reported that its loyalty program membership in the third quarter increased 63 percent to 9.3 million compared with the second quarter. Around 5 percent of Despegar’s transactions involve points redemptions, the company said.

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