AGENDA

Current situation

How the idea was born

What is Despegar.com

Strategy / business model

Economic outlook for Latin America

Competitive Environment

Proposed Solution
The Vision
Be the leading provider of on-line
travel services in Latin America.
Current Situation
…we are towards the end of 1999…
…the internet is changing the way business is done…
Five MBA graduates (3 from Fuqua) are developing a business
plan for an on-line travel agency to serve Latin America
Their objective ?
To become one of the first Latin American e-ventures to be
financed by US Venture Capitalists
E-TRAVEL: AN OPPORTUNITY IN LATIN
AMERICA

Successful business models

Expected market growth (Internet, Tourism, LatAm)

Industry structure:






Geographically disperse
Information intensive buying process
No dominant players
Substandard customer service
High transaction costs
Lack of transparency
E-TRAVEL IS THE MOST IMPORTANT ON-LINE
COMMERCE CATEGORY IN THE USA
Insurance/Financial Services
Computer Software/Hardware
ir
pl
an
$1,085
$636
PC
A
CONSUMER COMFORT WITH BUYING ONLINE
so
e
ft
tic
/h
G
ke
ar
if
ts
d
ts
$1,355
ai
nm
Bo
ok
en
s
t
$562
En
t
er
t
$518
G
ro
pp
ce
ar
ri
es
el
$414
$316
Books
Magazines
Music/Videos
Flowers/Gifts
Automobiles
Toys
Office Products
Specialized Sporting Goods
Consumer Electronics/Appliances
Apparel
Groceries/Food
General Sporting Goods
Tools/Home Repair
Home Furnishings
Cigars
$44
A
on
te
nt
Total 98 online
spending: $4,390 MM
Travel
C
Source: NUA Internet Services
0
200
400
600
800
US$ MM
1000
1200
1400
1600
INTERNET BUSINESS OPORTUNITY
Source: Morgan Stanley Dean Witter
Expected on-line travel market
in Latin America
The Online Travel Market in Latin America
Internet Users (MM)
Internet Ticket Sales (MM)
50
$1,500
40
$1,200
30
$900
20
$600
10
$300
-
$-
1999
2000
2001
2002
2003
2004
Expected on-line ticket sales
in Latin America
million)
Internet (in
air $
ticket
sales in Latin America
($MM, Forecasted)
$-
$100
Argentina
Chile
Colombia
Venezuela
Peru
Others
$300
$400
$500
$69
Brazil
Mexico
$200
$405
$21
$294
$9
$145
$13
$144
$9
$124
$3
$85
$20
$10
1999
2004
$89
STRATEGY BASED ON 5 CONCEPTS
REGIONAL
EXPANSION
NEW
SEGMENTS
SERVICE
OFFERING
LOCAL
PRESENCE
BRAND
AWARENESS
REGIONAL EXPANSION ENABLES SCALE AND
OPERATIONAL SYNERGIES…
REGIONAL
EXPANSION
NEW
SEGMENTS
SERVICE
OFFERING
• Access to 120 M
consumers with buying
power similar to
USA/Europe
• Travel market worth over
US$ 16 billion
BRAND
AWARENESS
Synergies
Scale
• 9 M internet users in Latin
America in 1999
LOCAL
PRESENCE
• Development of a brand
with regional presence
REGIONAL
EXPANSION
• Cross selling of products
between countries
• Regional alliances
• Larger base to support
start-up costs
LOCAL PRESENCE PROVIDES
COMPETITIVE ADVANTAGES
REGIONAL
EXPANSION
NEW
SEGMENTS
LOCAL
PRESENCE
SERVICE
OFFERING

Better understanding of the
market

Access to better fares

Customer service

Payment method adjusted to
local regulations

Content adjusted to local
market requirements
BRAND
AWARENESS
DESPEGAR ALLIANCE
MANAGER
DESPEGAR INC.
PRINCIPAL
ADVISOR
COUNTRY
MANAGER
MGT.
TEAM
CALL
CENTER
TRAVEL
AGENCY
ARGENTINA
BRAZIL

Increased control over
operations
MEXICO
BRAND AWARNESS IS CRITICAL TO THE
GENERATION OF TRAFFIC
REGIONAL
EXPANSION
NEW
SEGMENTS
SERVICE
OFFERING
TRAFFIC
Online and
Offline
advertising
campaigns
Brand & Product
• TV
• Radio
• Magazines and
newspapers
• Billboards
• Banners
• Links
Alliances
Public
Relations
• Press coverage
• Special events
• Travel suppliers
• Internet sites
• Co-branding
promotions
LOCAL
PRESENCE
BRAND
AWARENESS
ONE-STOP-SHOPPING LEADS TO INCREASED
SALES AND CUSTOMER RETENTION
REGIONAL
EXPANSION
NEW
SEGMENTS
SERVICE
OFFERING
LOCAL
PRESENCE
BRAND
AWARENESS
Service Offering
Content
• Travel guides
• Professional
reviews
• Weather
• Airport real time
scheduling
• Destination video
clips
• Maps
Community
Convenience
• Chat
• Bulletin
• Travel log
• Customer
reviews
• Photo Album
• Meeting Place
• Self service
• 24 - 7
• Home delivery
• Pick-up
locations
• e-tickets
• Quotes by
request
Customer Service
• Local 800 call
center
• Fare alerts
• Fare finder
• Trained travel
agents
• VOIP
• Chat service
• Loyalty programs
Commerce
• Flight, hotel
and car rental
• Vacation and
cruise
packages
• Travel guides
• Insurance
• Travel mall
• Travelers
checks
REGIONAL
EXPANSION
... FOR THE DIFFERENT MARKET SEGMENTS
NEW
SEGMENTS
SERVICE
OFFERING
LOCAL
PRESENCE
BRAND
AWARENESS
• Potential markets: Spain, Brazil, Argentina, Mexico, Colombia, Chile,
Venezuela and Uruguay;and US Hispanic
B2C
(LEISURE)
• Leading E-travel provider with a recognized brand, consumers’ top of mind
• Additional possible services: solutions for budget/young travelers (Despegar
Joven), thematic solutions for special interest groups (ski, soccer, honeymoon,
etc.), rich editorial content, planning tools, and community features
• Main target: small companies with limited travel sophistication
B2B
(CORPORATE)
• Potential key partnerships: Accor Corporate Services and Carlson WagonLit
Travel
Latin America: Positive outlook for 2000
Forecasted GDP growth: 4%
Positive factors

Sound fiscal & monetary policies
 Low expected inflation (few double digit inflation rates)
Negative factors


US economy growth is expected to slowdown
Uncertainty on stability of economic policies
Economic indicators
Argentinaa
GDP ($ bn)
GDP Growth (%)
Inflation (%)
Population (m)
External Debt ($ bn)
Exch. Rate (avg./$)
Country Ratingc
1995
258.1
-4.0
3.4
34.8
93.9
1.0
38.8
1996
272.1
4.8
0.2
35.2
105.2
1.0
38.9
1997
292.9
8.6
0.5
35.7
123.2
1.0
41.3
1998
298.1
3.9
0.9
36.1
138.9
1.0
41.8
1999b
2000b
2001b
-3.8
-1.9
2.4
-0.3
4.4
0.2
1.0
42.4
1.0
1.0
a: From The Economist Intelligence Unit. Country Report: Fourth Quarter 1999.
b: Estimates, except for Institutional Investor Country Rating
c: Institutional Investor Country Rating. September of each year.
GDP ($ bn)
GDP Growth (%)
Inflation (%)
Population (m)
External Debt ($ bn)
Exch. Rate (avg./$)
Country Ratingc
1995
774.9
2.8
15.8
157.5
179.5
1.0
34.9
1996
801
3
6
159
193
1
38
a: From The Economist Intelligence Un
b: Estimates, except for Institutional In
c: Institutional Investor Country Rating
Chilea
GDP ($ bn)
GDP Growth (%)
Inflation (%)
Population (m)
External Debt ($ bn)
Exch. Rate (avg./$)
Country Ratingc
1995
65.2
10.6
8.7
14.2
25.6
396.8
57.4
1996
68.6
7.4
7.0
14.4
27.4
412.3
61.2
1997
75.8
7.6
6.5
14.6
31.4
419.3
63.5
1998
73.0
3.4
5.3
14.8
37.8
460.3
62.0
1999b
2000b
2001b
-0.7
2.5
4.8
3.9
5.0
3.8
549.1
61.0
549.4
560.0
a: From The Economist Intelligence Unit. Country Report: Fourth Quarter 1999.
b: Estimates, except for Institutional Investor Country Rating
c: Institutional Investor Country Rating. September of each year.
GDP ($ bn)
GDP Growth (%)
Inflation (%)
Population (m)
External Debt ($ bn)
Exch. Rate (avg./$)
Country Ratingc
1995
80.5
5.8
20.9
38.8
25.0
826.5
46.5
1996
86
2
20
39
28
912
46
a: From The Economist Intelligence Un
b: Estimates, except for Institutional In
c: Institutional Investor Country Rating
Mexicoa
GDP ($ bn)
GDP Growth (%)
Inflation (%)
Population (m)
External Debt ($ bn)
1995
286.1
-6.2
35.0
91.2
166.8
1996
329.5
5.2
34.4
92.9
157.8
1997
401.4
6.8
20.6
94.7
149.7
1998
415.0
4.8
15.9
96.5
158.5
1999b
3.4
13.1
2000b
3.9
10.9
2001b
4.4
10.1
GDP ($ bn)
GDP Growth (%)
Inflation (%)
Population (m)
External Debt ($ bn)
1995
77.3
4.0
59.9
21.6
35.8
1996
70
-0
99
22
35
Exch. Rate (avg./$)
Country Ratingc
1.0
38.8
1.0
38.9
1.0
41.3
1.0
41.8
1.0
42.4
1.0
1.0
Economic indicators
a: From The Economist Intelligence Unit. Country Report: Fourth Quarter 1999.
b: Estimates, except for Institutional Investor Country Rating
c: Institutional Investor Country Rating. September of each year.
2000b
2001b
2.4
-0.3
4.4
0.2
1.0
1.0
1998
1998
73.0
518.9
3.4
0.2
5.3
4.9
14.8
163.7
37.8
200.4
460.3
1.8
62.0
38.1
1999bb
1999
2000bb
2000
a: From The Economist I
b: Estimates, except for I
c: Institutional Investor C
2001bb
2001
-0.7
0.2
2.5
9.0
4.8
3.1
3.9
7.9
5.0
3.9
3.8
6.3
549.1
1.9
61.0
36.5
549.4
2.0
560.0
1.9
a:
Intelligence Unit.
Unit. Country
Country Report:
Report: Fourth
Fourth Quarter
Quarter 1999.
1999.
a: From
From The
The Economist
Economist Intelligence
b:
Estimates,
except
for
Institutional
Investor
Country
Rating
b: Estimates, except for Institutional Investor Country Rating
c:
Investor Country
Country Rating.
Rating. September
September of
of each
each year.
year.
c: Institutional
Institutional Investor
arter 1999.
2000b
GDP
GDP ($
($ bn)
bn)
GDP
Growth
GDP Growth (%)
(%)
Inflation
Inflation (%)
(%)
Population
Population (m)
(m)
External
($ bn)
bn)
External Debt
Debt ($
Exch.
Exch. Rate
Rate (avg./$)
(avg./$)
c
Country
Rating
Country Ratingc
1995
1995
65.2
774.9
10.6
2.8
8.7
15.8
14.2
157.5
25.6
179.5
396.8
1.0
57.4
34.9
Chileaa
Brazil
1996
1997
1996
1997
68.6
75.8
801.6
775.4
7.4
7.6
3.2
-0.1
7.0
6.5
6.9
3.2
14.4
14.6
159.6
161.8
27.4
31.4
193.7
199.9
412.3
419.3
1.1
1.2
61.2
63.5
38.3
39.5
2001b
4.8
3.9
5.0
3.8
549.4
560.0
GDP
GDP ($
($ bn)
bn)
GDP
GDP Growth
Growth (%)
(%)
Inflation
Inflation (%)
(%)
Population
Population (m)
(m)
External
($ bn)
bn)
External Debt
Debt ($
Exch.
Rate
(avg./$)
Exch. Rate (avg./$)
c
Country
Country Rating
Ratingc
1995
1995
286.1
80.5
-6.2
5.8
35.0
20.9
91.2
38.8
166.8
25.0
6.4
826.5
41.8
46.5
Mexicoa a
Colombia
1999bb
2000bb
2001bb
1996
1997
1998
1999
2000
2001
1996
1997
1998
329.5
401.4
415.0
86.4
96.7
94.0
5.2
6.8
4.8
3.4
3.9
4.4
2.1
3.1
0.6
-5.0
3.0
2.4
34.4
20.6
15.9
13.1
10.9
10.1
20.2
18.9
20.4
9.7
9.1
8.5
92.9
94.7
96.5
39.5
40.2
40.9
157.8
149.7
158.5
28.9
31.8
34.7
7.6 1,036.7
7.9 1,141.0
9.1 1,986.0
10.0 2,115.0
10.9 2,259.0
11.9
912.8
41.6
43.5
45.4
48.2
46.7
47.2
46.2
44.1
2000
3.9
10.9
2001
b
4.4
10.1
GDP ($ bn)
GDP Growth (%)
Inflation (%)
Population (m)
1995
77.3
4.0
59.9
21.6
1996
70.3
-0.2
99.9
22.7
1997
87.5
5.9
50.0
23.2
1998
104.3
-0.7
35.8
23.7
1999b
-6.4
20.4
2000b
5.3
23.1
GDP ($ bn)
GDP Growth (%)
Inflation (%)
Population (m)
External Debt ($ bn)
Exch. Rate (avg./$)
Country Ratingc
a: From The Economist I
b: Estimates, except for I
c: Institutional Investor C
Venezuelaa
b
GDP ($ bn)
GDP Growth (%)
Inflation (%)
Population (m)
External Debt ($ bn)
Exch. Rate (avg./$)
Country Ratingc
a: From The Economist I
b: Estimates, except for I
c: Institutional Investor C
a:
Intelligence Unit.
Unit. Country
Country Report:
Report: Fourth
Fourth Quarter
Quarter 1999.
1999.
a: From
From The
The Economist
Economist Intelligence
b:
Estimates,
except
for
Institutional
Investor
Country
Rating
b: Estimates, except for Institutional Investor Country Rating
c:
Investor Country
Country Rating.
Rating. September
September of
of each
each year.
year.
c: Institutional
Institutional Investor
arter 1999.
Exch. Rate (avg./$)
Country Ratingc
2001b
4.0
21.0
On-line competitors

Viajo.com




Regional portals


Main on-line competitor in Latin America
Offers tickets, complete tourism packages, language
translation, extensive travel content
Operates both on-line and off-line stores
Terra and Star Media have entered alliances with agencies
US on-line travel agencies

Expedia and Travelocity have launched sites for markets
outside the US
The Threat & The Opportunity
THREAT
OPPORTUNITY
• Similar portals in development
• “Despegar Network” in place
• Viajo.com @ Mexico
• Simultaneous deployment in LatAm
• First-mover advantage
The Timing is NOW
The Venture Capital
Despegar.com needs
8 M$ to accomplish a Regional Roll-out
Despegar.com will be financed by 100% Equity (all VCs)
Management team is presenting its Business Plan
to the 1st Round of US Institutional VC Investors
Questions ...
Case Key Learnings




Identify Project’s Risks
 Affect Cash Flows
 Affect the Cost of Capital
Set up Cash flows
Sensitivity Analysis
Real Options

Project’s Risks
Cash Flow Implications
Pre-Completion
Resource Availability
Technology
Timing
Completion
Post-Completion
Market
Supply/Input
Throughput
Operating Costs
RISK
CAUSE
ADJUSTMENT
NO
NO
HIGH
NO
Strategic Advantage
-
Reduce Marketshare
HIGH
MEDIUM
MEDIUM
MEDIUM
Adoption rate & Commissions
Marketing & Brand Issues
Technology Problems
Lack of Experience
Reduce Web Adoption & Comm.
Reduce Marketshare
Reduce Penetration Speed
Increase Expected Oper. Costs

Project’s Risks
Cost of Capital Implications
Calculator
• Brazil
• Argentina
• Mexico
• Venezuela
• Colombia
• Chile
Adjustments
• Macroeconomics
• Political/Legal
• Force Majeure
• Financial Risks
Cost of Capital
Averaged
Weighted
Per country
Gross booking

Project’s Risks
Cost of Capital Implications
Argentina
Brazil
Chile
Colombia
Mexico
Venezuela
22.80%
25.45%
16.4%
22.10%
20.53%
26.81%
+ 0.41%
+ 0.41%
+ 0.41%
+ 0.41%
+ 0.41%
+ 0.41%
Macroeconomics
+ 1.67%
+ 0.00%
+ 0.00%
+ 2.23%
- 2.78%
+ 2.78%
Political/Legal
+ 0.63%
+ 0.42%
+ 0.00%
+ 0.84%
+ 0.00%
+ 1.04%
Force Majeure
+ 0.00%
+ 0.00%
+ 0.00%
+ 0.49%
+ 0.00%
+ 0.35%
Financial Risks
- 0.70%
- 0.70%
- 0.70%
- 0.70%
- 0.70%
- 0.70%
Adj. Project Cost of Equity:
24.81%
25.58%
16.07%
25.36%
17.46%
30.70%
Cost of Equity Capital
(“calculator’)
Industry beta adjustment
*
Operational - Sovereign Risks
(*) Industry Beta adjustment corresponds to Travel and
Tourism, Internet effect is considered in Cash Flows.

Project’s Risks
Cost of Capital Implications
Re = 23.47%
Despegar’s Capital Structure: 100% Equity, no Debt

Cash flow Setup
%
Internet
users
POPULATION
%
Online
buyers
Spending
p/person
Share
Of
Travel
COUNTRY
E-TICKETS
BOOKINGS
Share
Of
eMarket
Untapped
Mkt
COMPANY
E-TICKETS
BOOKINGS

Cash flow Setup
REVENUES
Ticket Bookings Commissions
Others: Rental Car + Hotels
Advertising
Operating
Countries Expenses
Marketing Costs
Corporate Expenses
IT
Personnel
Operations
NPV = $ 50 M

Sensitivity Analysis
SensIt - Sensitivity Analysis - Tornado
Spending per person ($)
67%
Internet users (k)
67%
% online ticket buyers
125%
105%
80%
Share of e-market
110%
85%
% commission (paid to travel agents)
105%
60%
Media advertising
100%
120%
80%
% growth (terminal value)
2.0%
3.0%
Personnel
120%
80%
IT / website
120%
80%
Operative
80%
120%
Untapped market potential
50%
125%
-20,00 -10,00
0
0
0
Monte Carlo: Mean NPV = $ 25 M
10,00 20,00 30,00 40,00 50,00 60,00 70,00 80,00
0
0 present
0 value
0
0
0
0
0
Net

Real Options

Delay Option

Abandonment Option

Expansion Option

Brand or Knowledge Building Option
Thank you !!