You probably won't see many credit card machines at Despegar's stores or booths in Argentina. But you will see travelers with cash.
Despegar, which describes itself as “the leading online travel company in Latin America,” is busy opening offline physical stores, with the latest rollouts in Argentina and Brazil.
The reasons are that online-offline is split in Latin America around 50-50, depending on the country, inflation-weary Argentina in particular does most of its business in cash, and Despegar believes the stores can help increase its profit margins.
In Brazil, the company plans to have 10 stores opened by the end of the year under its Decolar brand. The first would open in November.
With the same timeframe, Argentina would get five stores, including some booths in shopping malls, under the Despegar brand.
Using an asset-light model, which means Despegar doesn’t own the real estate, each would take a capital expenditure of around $100,000 to open.
Despegar already operates 80-90 stores under its Luca Pfeifer Viajes Falabella brand, including some in Peru, and another 120-130 stores using its Best Day brand.
“Given the size, growth rates and profitability of the off-line segment and considering the seasonable cash economies within these countries, we expect our doors to enhance our omnichannel’s offering and to further strengthens our earnings power,” CEO Damian Scokin told analysts Thursday during the company’s second quarter earnings call. “This strategic initiative is particularly efficient because of the scalability of our technology platform, and it will help further consolidate Despegar’s market leadership in the region.”
If you think that the offline travel segment in Latin America is stagnating in favor of online, you’d be wrong.
Scokin said while the Brazilian and Argentinian online travel markets are expected to notch 13% and 15% compound annual growth rates, respectively, while the offline travel markets in both countries would be growing slightly slower, at a 12% clip.
Despegar is headquartered in Argentina, but Brazil is its largest market.
The Business Is Getting More Diversified
Despegar’s business, which did $1.3 billion in gross bookings in the second quarter, is getting more diverse. Travel packages now account for 33% of gross bookings, up from 20% in 2019. Mexico and Brazil make up 60% of gross bookings compared with 54% pre-pandemic. And, its business-to-business offering — which officials said is showing surprising strength in Brazil — was 15% of gross bookings in the second quarter, while it only generated 6% of gross bookings in 2019.
A Generative AI Trip Planner Is on the Way
The company said it plans on beginning a beta of a generative AI trip planner in the third quarter. Meanwhile, its developers are using generative AI to automate code writing, and the customer care team is finding the new technology useful for creating various efficiencies, officials said.
In the second quarter, Despegar achieved its first positive net income — $28 million — since 2019, as travel demand was strong in the region. Revenue grew 27% to $102 million, and was driven by the increased business diversification, as well as higher travel package and lodging rates.
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Photo credit: Damian Scokin, Despegar CEO, speaking at a company town hall in December 2019. Source: Despegar Despegar