Despegar Uses Installment Payments to Prod Demand - Skift

Posted: 08 Aug 2019 09:46 AM PDT

Despegar has been using consumer financing as a crowbar to build its travel agency sales in Latin America, where many shoppers are reluctant to make big purchases online. A majority of its transactions are now done via monthly installment payments. None of its online rivals rely on financing as much.

A recent commercial deal in Chile will turbocharge this trend.

In April, Despegar paid about $25 million in cash to run the retail travel sales at Falabella department stores, one of the largest retailers in Chile. Last year, the stores recorded about $50 million in revenues from sales of travel products, approximately two-thirds of which were vacation packages. Falabella has a popular installment payment program.

The deal size was significant in the context of Despegar's revenues.

On Thursday, Despegar reported its results for the three months ending June 30. It generated $114 million in revenue, which was down 11 percent, year-over-year. However, factoring out a fluctuating exchange rate, revenue was up 5 percent.

"The quarter represented a low point for the company," said chief financial officer Alberto López-Gaffney on a call with analysts. Despegar suffered a loss of $16.5 million, a sharp turnabout from a year earlier when it was modestly profitable.

The financial crisis in Despegar's home market of Argentina dragged down its performance. But the company also faced about $2 million in charges for helping rebook customers Avianca Brasil stranded when the airline ceased operations. Despegar expects to have to write off up to about $8 million due to money owed that it may not get back from the airline, which is bankrupt in all but the official sense.

Despegar's executives said they saw several drivers of growth in place that will deliver a return to profitability.

Consumer Financing a Key Driver

Last year, Despegar's shoppers paid for 57 percent of the company's transactions via installment payments. Consumers used most of the financing to buy flight-and-hotel packages, which are more lucrative for Despegar than mere plane tickets.

Despegar has used consumer financing to stand apart from its online rivals. Booking.com and Trivago have yet to adopt the solution broadly.

The travel tech company manages the risk of consumer loans well. Most of the time, financing banks like Santander, Galicia, and BBVA pay the online travel agency the money upfront regardless of whether the banks collect money from travelers.

The online travel agency keeps its fees to the banks down to less than a third of its overall revenue. During the second quarter, it drove a year-on-year decline of a few percentage points in these undisclosed costs thanks to greater efficiency, it said.

Competition is coming, of course. Expedia, which owns about 13 percent of Despegar, has similarly adopted installment payments in most Latin American countries. Airbnb has been tip-toeing into the offering, market-by-market.

The financing helped Despegar remain the leader in Brazil and Argentina by stimulating demand among lower- and middle-class buyers despite struggling economies in several countries.

In the U.S., online travel companies have only recently cottoned on to the idea of installment payments, thanks to the rise of several third-party services that have popularized it and made it a billion-dollar business, including Affirm and Uplift.

Acquisition in Chile

During the second quarter, Despegar underlined its fondness for installment payments with a deal with an important Chilean bank, Falabella Financiero.

The online travel agency entered a decade-long deal with the banking arm of Falabella, a Chilean multinational. Falabella Financiero runs a sophisticated installment plan program at the Falabella stores. The bank also runs a popular CMR Points loyalty program at the stores, where shoppers earn points redeemable for rewards.

Thanks to the deal, Falabella customers will now be able to earn points in Falabella's loyalty program for redemption on travel purchases via Despegar.

What's more, in July Despegar completed its acquisition of Viajes Falabella, a retail travel agency with operations inside the Falabella chain of stores, which makes a majority of its income in Chile — one of the fastest-growing economies in Latin America.

Before the deal, Despegar was approximately 99 percent an online company, revenue-wise. This deal gets Despegar into running a handful of travel kiosks in Falabella's bricks-and-mortar stores, mainly in Chile but also in Argentina, Peru, and Colombia.

Hinting at Another Acquisition

During an earnings call Thursday, Despegar executives said that travel business in Latin America might be entering a consolidation phase. Argentina has entered its fifth consecutive quarter of economic contraction, they noted. Brazil's economy has struggled. Peru's and Mexico's economies have slowed their paces of growth.

The pressures are starting to show on some weaker travel agencies, prompting the first stirrings of merger talks.

"The one market that is on the top of that trend is Argentina," López-Gaffney said. "These forces will continue [to boost] our ability to gain market share."

But this appears like it's just the start of a long, costly fight for the Latin America's collective travel wallet — with plenty of red ink still to be spilled.

"It takes time for owners to come to terms with the new valuation paradigm," said López-Gaffney. "On the M&A front, we're already seeing that accelerate."

Despegar faces less-capitalized online travel agency and metasearch competitors in some markets, such as BestDay and Reservamos mainly in Mexico, Tiquetes Baratos and Viajala primarily in Colombia, and Almundo primarily in Argentina. Brazil's largest travel agency company is CVC, which offers some consumer financing at its retail shops.

Rebranding Campaign

In April, Despegar rebranded itself, spending $8.6 million on a new logo, new marketing message, and new advertising campaign. It paid for it by moving money out of its online marketing budget. That move decreased its online sales in the short-term.

During an earnings call, CEO Damián Scokin said the rebranding would drive an increase in longer-term growth.

The rebranding aims to persuade shoppers that Despegar is more than just a place for cheap plane tickets. New ads tout the company's skill at booking full trips.

New tools in the company's mobile app include complete weekend getaway packages, which display full pricing upfront, unlike what some competitors do. The package product aims to appeal to people with a millennial mindset who need help with inspiration and want to keep the researching homework to a minimum.

The company also launched tourism guides, boarding gate notifications, luggage belt number messages, and a click-to-call-an-agent customer service feature in case of problems. A training program for the company's 700 customer-facing employees has tried to instill best practices in customer services. During the second quarter, the program drove gains of 380 basis points, year-over-year, in the company's net promoter score, a measure of customer satisfaction.

Looking ahead, Despegar is developing a loyalty program in partnership with Mastercard and other third-parties that aims to encourage more repeat purchases.

Photo Credit: In 2019, Despegar launched a rebranded logo and marketing campaign that included tote bags with a theme of the online travel agency helping people plan all parts of their trip. The logo was done by brand consultant Saffron. Despegar

4 Places You Can Travel in August for $1,000 - Fodor's Travel

Posted: 08 Aug 2019 02:00 AM PDT

PHOTO: johzio/shutterstock

Sneak in a last-minute summer vacation without totally blowing your budget.

Labor Day is fast approaching, which means that if you haven't taken a summer vacation yet, it's now or never. If you're looking to get away in August, we've picked out four destinations to visit, whether you're interested in exploring the great outdoors, chowing down on lobster rolls, or sightseeing in one of the world's best capital cities. Best of all, each of these trips costs about $1,000 for airfare and hotels, meaning you can take any one of them without totally demolishing your bank account.

Travelers have long raved about living the "pura vida" in Costa Rica, catching the surf, hiking the volcanoes, or sipping cocktails poolside at eco-chic lodges. The Central American country is known for being particularly budget-friendly, and you can find great deals year-round.

While it's easy to book your own adventures independently, you can find great organized trips through sites like Groupon: this August, there are deals for Costa Rica organized by Travel By Jen, a discount travel agency. Depending on your departure city, you can spend anywhere from $899 (Houston) to $1,029 (San Francisco) for flights, seven nights at a variety of hotels, and a week-long car rental—manual transmission only—plus breakfast each morning.

On your self-guided trip, you'll stay in the shadow of Arenal Volcano, hit the swim-up bar at a Caribbean beach resort, and experience the culture of the capital city, San José.

August is a beautiful month to visit Maine, as the days are just the right amount of hot without the stifling humidity found elsewhere in the country—it's perfect weather to enjoy a refreshing dip in the Atlantic. Head up to Acadia National Park, where you can hike to the summit of Cadillac Mountain, go swimming at Sand Beach, or visit the Scenic Bass Head Lighthouse. After working up an appetite, grab a lobster roll in nearby Bar Harbor.

To get there this August, fly into Portland, Maine—at the time of writing, tickets cost about $300 from San Francisco, $140 from New York, and $260 from Dallas—and rent a car for about $200 for four days. Drive three hours up to Acadia and Bar Harbor, where a staying at a B&B will run you about $200 a night in the high season. So for a four-day, three-night trip, you can expect to spend anywhere from $740 to $1,100.

Though August is prime travel time for many tourists around the world, many Parisians will have left the city for their annual summer holiday, which means the streets might be a little quieter than usual—and that isn't a bad thing.

There's never a bad time to go to Paris, and this month isn't an exception. Though August is prime travel time for many tourists around the world, many Parisians will have left the city for their annual summer holiday, which means the streets might be a little quieter than usual—and that isn't a bad thing. Unfortunately, Paris is by no means a ghost town, so you'll still find lines at all the top attractions like the Eiffel Tower and the Louvre, so make sure to book tickets in advance if you can.

For last-minute deals on trips to Paris, check out sites like Travelzoo, which aggregates packages offered by all manner of tour operators and travel agencies. In August, you can spend $959 for three nights in Paris, followed by three nights in Nice, with all hotels and flights included (even the one between the two cities). The deal is offered by Tripmasters and is available from a number of departure cities, including Atlanta, Denver, and Fort Lauderdale. If you're leaving from New York, the price is slightly higher: $1,059.

Forget the tourist hotspots—if you want to go to a fantastic under-the-radar destination this August, pick Saskatoon, Canada, the largest municipality in Saskatchewan. Set in the middle of the sprawling prairie, Saskatoon (which is the birthplace of Joni Mitchell) has a small-town vibe with a big-city punch, namely the Remai Modern, a major art museum that collects everyone from Picasso to Nancy Spero. Of course, there are plenty of other activities in town, from numerous distilleries to the Wanuskewin Heritage Park, an archaeological site that gives insight into the region's First Nations history.

Flights to Saskatoon range from $275 from Los Angeles to $312 from Chicago, and a four-day rental car costs about $80. The fanciest boutique hotel in town, the James, will only run you about $165 a night. All in, you can easily keep to your budget with a total spend of anywhere from $1,015 to $1,052 for four nights, depending on where you're coming from.

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