Latin America’s Despegar Opens Travel Agencies to Get Travelers to Book Online

Why pay Google even more to acquire customers when your company can open travel agency storefronts, and counsel customers to book trips online?

It’s not intuitive, but that’s a customer acquisition strategy for Argentina-based Despegar, one of the largest travel brands in Latin America.

Skift interviewed Despegar CEO Damian Scokin about the company’s online-offline strategy, its relationships with Expedia Group (Expedia has a 16% stake in the company) and Hopper, and efforts to expand internationally. Scokin, who’s been CEO since 2017, also discussed the company’s M&A strategy, and early generative AI products.

Following are some of the highlights:

Despegar Opens Physical Stores to Bring Customers Online

Damian Scokin: One of the big opportunities is that half of the market is still offline in Latin America. That’s the largest portion of offline in a market anywhere in the world. It’s because of the means of payments, it is because of financing, a lot of things. Since we bought Viajes Falabella in 2019, and that was further enhanced when we bought Best Day in 2020. We have developed an operating model and a specific technology platform for operating very light offline stores that make that channel extremely profitable.

So, as you know, as of last quarter, we opened the first Despegar stores in Argentina, we’ll open five, and in Brazil [where Despegar operates under the Decolar brand], we’ll open 10. Those offline sales, both offline stores and call centers, represent 13% of Despegar’s bookings.

It’s still very minor and we don’t expect that to grow significantly. But because we are using those stores to capture consumers, and transform them into digital consumers, once we capture the data, once they become familiar with the way Despegar operates, it’s very easy to obtain their loyalty in the digital space.

Despegar and its various brands have more than 500 physical points of sale in Latin America.

Dennis Schaal: The goal is to grow your online share as a percentage of your business and for the offline to diminish?

Scokin: I wouldn’t say diminish. In the long term, certainly the growth of the online is much larger. But in the next couple of years, we will perhaps open a few more stores as a way not to become an offline company, but rather as a means of acquiring customers.

Schaal: It’s ironic. You are opening physical stores as a means of capturing online customers.

Scokin: You’re right. This is a contradiction in terms. But let’s look at it this way. It’s a different way of acquiring consumers rather than paying Google. And these are customers who don’t necessarily feel comfortable in transacting online.

A spokesperson for Despegar: Physical branches give us the possibility of reaching a segment of customers who have a preference for offline. Through the advice provided in the stores, we can encourage their next contact to be online and push the flow of our sales service towards there. This commitment to omnichannel allows us to strengthen the loyalty of our travelers, because they know that they have several ways to contact us and obtain a complete and personalized trip.

Why Hasn’t Expedia Acquired Despegar?

Expedia took a 16% stake in Despegar in 2015, an equity position it retains today.

Scokin: The relationship has several dimensions. They are an equity investor, they have a member of the board, and we have a sourcing agreement with them. And we collaborate on some technological developments. We are very happy with how it has evolved. Expedia has gone through a series of management changes, and the spirit of the arrangement and the strength of the relationship, has only increased.

Schaal: When I saw that investment in 2015, I said, Expedia is going to acquire Despegar eventually. Is that still going to happen?

Scokin: Oh, you have to ask Peter [outgoing Expedia CEO Peter Kern] about that. Not me. [Ariane Gorin, president of Expedia for Business, is slated to become Expedia Group CEO May 13.]

Expedia Group declined to comment on the prospect.

Despegar’s Hopper Partnership

Scokin: What we are seeing is what everybody’s seen — that there are a growing number of B2B businesses that provide some features like the Hoppers of this world as they apply insurance and connectivity.

And that, for us, is a very promising avenue as a way to partner with some of them. We’re doing a lot of things with Hopper — including insurance and cancellation products — and with other providers as a way to avoid having to develop everything.

Despegar’s Plan to Expand Outside Latin America

Like Expedia Group and others, Despegar sees big opportunities in partnering with banks and other retailers in the B2B side of its business.

Scokin: We are partners in Latin America through our white label efforts with many multinationals. So for example, with a large multinational bank, we provide them all their travel. A bank or a retailer says, “We are really happy with what we were building in Latin America. Why don’t you help us in Spanish operation, or our Italian operation.” That’s the type of conversations we’re having. We believe there’s big potential there.

Basically, we are using our B2B2C, our white label platform, as an initial spearhead to talk to potential partners about using our technology platform, our content, our means of payments. And without having to establish a brand and invest in marketing and invest in traffic acquisition, to come to some of the attractive markets in the U.S. and Europe. That’s what we’re trying to do.

Despegar’s Acquisition Strategy

Schaal: You said in a recent earnings call that you have a long list of potential acquisition targets. So what are you looking for?

Scokin: We’re looking to increase our scale and our relevance within Latin America. So scale is the main driver. We are particularly focused in Brazil, Mexico and Colombia. And within that, we also evaluate whether potential acquisitions bring any distinctive capabilities.

In the case of Viajes Falabella, it was the first time we were going to operate offline. Then with Best Day they brought along B2B. So there are a lot of different dimensions and capabilities that we value when we acquire a company that we are looking for in different sectors, but the main driver is scale.

Consolidating the Latin America Travel Market

Scokin: If you look at the Latin America travel market, it is estimated very vaguely at around $100 or $150 billion a year. We are the largest travel agency in the region. And if you look at our numbers, we’re a small fraction of that totality, which research shows how fragmented the market is.

If you compare that to Europe or the U.S., the concentration of the larger base is much bigger. So we have a significant opportunity to consolidate the market either organically or an inorganically.

The Generative AI Opportunity

Scokin: The development of generative AI in different parts of our business [is one of our opportunities]. We are launching the second version of our booking assistant in the next couple of months. We’ve already tested it within our own employees.

We’re very excited about that. AI at the planning and booking phase of the trip is going to be a complete revolution. And we’re also launching a lot of generative AI-powered initiatives in customer service. So ahead of us in 2024, we have very ambitious features and functionalities that we have coming out of generative AI in different parts of our value chain.

Global and Regional Competitors

Scokin: Among the biggest challenges is if you don’t keep up with the development of what our competitors are doing. Every year, leading players are making their sites better, and we need to increase our capabilities even more. So that’s a recurrent challenge. Other than that, I don’t see any big clouds on the horizon.

Schaal: So you face both regional competitors and international competitors? How are you view that mix?

Scokin: We look at both market by market. The dynamic is very different market by market. So in Brazil, local competitors are larger and more relevant. In Mexico, it is more global competitors. And from global competitors, we obviously learned a lot about their digital product developments and the features.

From the local ones, we learn about how they are tailoring their offerings and the payment methods. And we are trying to take the best of both and put our own imprint into the offering.