current situation how the idea was born what is despegar.com strategy / business model economic...
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Current situationCurrent situation
How the idea was bornHow the idea was born
What is Despegar.comWhat is Despegar.com
Strategy / business modelStrategy / business model
Economic outlook for Latin AmericaEconomic outlook for Latin America
Competitive EnvironmentCompetitive Environment
Proposed SolutionProposed Solution
AGENDAAGENDA
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The VisionThe Vision
Be the leading provider of on-line travel services in Latin America.
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Current SituationCurrent 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 Five MBA graduates (3 from Fuqua) are developing a business plan for an plan for an on-line travel agency on-line travel agency to serve Latin Americato serve Latin America
Their objective ? Their objective ? To become one of the first Latin American e-ventures to be To become one of the first Latin American e-ventures to be
financed by US Venture Capitalistsfinanced by US Venture Capitalists
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E-TRAVEL: AN OPPORTUNITY IN LATIN E-TRAVEL: AN OPPORTUNITY IN LATIN AMERICAAMERICA
Successful business modelsSuccessful business models
Expected market growth (Expected market growth (Internet, Tourism, LatAmInternet, Tourism, LatAm))
Industry structure: Industry structure: Geographically disperseGeographically disperse Information intensive buying processInformation intensive buying process No dominant playersNo dominant players Substandard customer serviceSubstandard customer service High transaction costsHigh transaction costs Lack of transparencyLack of transparency
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E-TRAVEL IS THE MOST IMPORTANT ON-LINE E-TRAVEL IS THE MOST IMPORTANT ON-LINE COMMERCE CATEGORY IN THE USACOMMERCE CATEGORY IN THE USA
$44
$414
$518
$562
$636
$1,085
$1,355
$316
0 200 400 600 800 1000 1200 1400 1600
US$ MM
Source: NUA Internet Services
Total 98 online spending: $4,390
MM
Insurance/Financial ServicesComputer Software/Hardware
Travel 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
INTERNET BUSINESS OPORTUNITY
CO
NSU
ME
R C
OM
FOR
T W
ITH
BU
YIN
G O
NL
INE
Source: Morgan Stanley Dean Witter
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Expected on-line travel market Expected on-line travel market in Latin Americain Latin America
The Online Travel Market in Latin America
-
10
20
30
40
50
1999 2000 2001 2002 2003 2004
$-
$300
$600
$900
$1,200
$1,500
Internet Users (MM) Internet Ticket Sales (MM)
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Expected on-line ticket salesExpected on-line ticket salesin Latin America (in $ million)in Latin America (in $ million)
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STRATEGY BASED ON 5 CONCEPTSSTRATEGY BASED ON 5 CONCEPTS
NEW SEGMENTS
REGIONALEXPANSION
LOCAL PRESENCE
BRAND AWARENESS
SERVICE OFFERING
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REGIONAL EXPANSION ENABLES SCALE AND REGIONAL EXPANSION ENABLES SCALE AND OPERATIONAL SYNERGIES…OPERATIONAL SYNERGIES…
SynergiesScale
• Development of a brand with regional presence
• Cross selling of products between countries
• Regional alliances
• Larger base to support start-up costs
• Access to 120 M consumers with buying power similar to USA/Europe
• 9 M internet users in Latin America in 1999
• Travel market worth over US$ 16 billion
REGIONALEXPANSION
NEWSEGMENTS
REGIONALEXPANSION
LOCALPRESENCE
BRANDAWARENESS
SERVICEOFFERING
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LOCAL PRESENCE PROVIDES LOCAL PRESENCE PROVIDES COMPETITIVE ADVANTAGESCOMPETITIVE ADVANTAGES
Better understanding of the market
Access to better fares
Customer service
Payment method adjusted to local regulations
Content adjusted to local market requirements
Increased control over operations
NEWSEGMENTS
REGIONALEXPANSION
LOCALPRESENCE
BRANDAWARENESS
SERVICEOFFERING
DESPEGAR ALLIANCEMANAGER
DESPEGAR INC.
COUNTRY MANAGER
PRINCIPAL ADVISOR
TRAVELAGENCY
CALL CENTER
MGT. TEAM
ARGENTINA
BRAZIL
MEXICO
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BRAND AWARNESS IS CRITICAL TO THE BRAND AWARNESS IS CRITICAL TO THE GENERATION OF TRAFFICGENERATION OF TRAFFIC
Brand & Product• TV• Radio• Magazines and
newspapers• Billboards• Banners• Links
• Press coverage• Special events
• Travel suppliers• Internet sites• Co-branding
promotions
TRAFFIC
NEWSEGMENTS
REGIONALEXPANSION
LOCALPRESENCE
BRANDAWARENESS
SERVICEOFFERING
Online and Offline
advertising campaigns
Public Relations
Alliances
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ONE-STOP-SHOPPING LEADS TO INCREASED ONE-STOP-SHOPPING LEADS TO INCREASED SALES AND CUSTOMER RETENTIONSALES AND CUSTOMER RETENTION NEW
SEGMENTS
REGIONALEXPANSION
LOCALPRESENCE
BRANDAWARENESS
SERVICEOFFERING
Customer Service
Service Offering
ConvenienceCommunityContent
• Travel guides• Professional
reviews• Weather• Airport real time
scheduling• Destination video
clips• Maps
• Chat• Bulletin• Travel log• Customer
reviews• Photo Album• Meeting Place
• Local 800 call center
• Fare alerts• Fare finder• Trained travel
agents• VOIP• Chat service• Loyalty programs
• Self service• 24 - 7• Home delivery• Pick-up
locations• e-tickets• Quotes by
request
• Flight, hotel and car rental
• Vacation and cruise packages
• Travel guides• Insurance• Travel mall• Travelers
checks
Commerce
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... FOR THE DIFFERENT MARKET SEGMENTS... FOR THE DIFFERENT MARKET SEGMENTS
B2C(LEISURE)
B2B(CORPORATE)
• Potential markets: Spain, Brazil, Argentina, Mexico, Colombia, Chile, Venezuela and Uruguay;and US Hispanic
• 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
• Potential key partnerships: Accor Corporate Services and Carlson WagonLit Travel
NEWSEGMENTS
REGIONALEXPANSION
LOCALPRESENCE
BRANDAWARENESS
SERVICEOFFERING
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Latin America: Positive outlook for 2000Latin America: Positive outlook for 2000
Positive factors Sound fiscal & monetary policies Sound fiscal & monetary policies Low expected inflation (few double digit inflation rates)Low expected inflation (few double digit inflation rates)
Negative factors US economy growth is expected to slowdownUS economy growth is expected to slowdown Uncertainty on stability of economic policiesUncertainty on stability of economic policies
Forecasted GDP growth: 4%
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Economic indicatorsEconomic indicators
1995 1996 1997 1998 1999b 2000b 2001b 1995 1996 1997 1998 1999b 2000b 2001b
GDP ($ bn) 258.1 272.1 292.9 298.1 GDP ($ bn) 774.9 801.6 775.4 518.9GDP Growth (%) -4.0 4.8 8.6 3.9 -3.8 2.4 4.4 GDP Growth (%) 2.8 3.2 -0.1 0.2 0.2 3.1 3.9Inflation (%) 3.4 0.2 0.5 0.9 -1.9 -0.3 0.2 Inflation (%) 15.8 6.9 3.2 4.9 9.0 7.9 6.3Population (m) 34.8 35.2 35.7 36.1 Population (m) 157.5 159.6 161.8 163.7External Debt ($ bn) 93.9 105.2 123.2 138.9 External Debt ($ bn) 179.5 193.7 199.9 200.4Exch. Rate (avg./$) 1.0 1.0 1.0 1.0 1.0 1.0 1.0 Exch. Rate (avg./$) 1.0 1.1 1.2 1.8 1.9 2.0 1.9Country Ratingc 38.8 38.9 41.3 41.8 42.4 Country Ratingc 34.9 38.3 39.5 38.1 36.5
a: From The Economist Intelligence Unit. Country Report: Fourth Quarter 1999. a: From The Economist Intelligence Unit. Country Report: Fourth Quarter 1999.b: Estimates, except for Institutional Investor Country Rating b: Estimates, except for Institutional Investor Country Ratingc: Institutional Investor Country Rating. September of each year. c: Institutional Investor Country Rating. September of each year.
1995 1996 1997 1998 1999b 2000b 2001b 1995 1996 1997 1998 1999b 2000b 2001b
GDP ($ bn) 65.2 68.6 75.8 73.0 GDP ($ bn) 80.5 86.4 96.7 94.0GDP Growth (%) 10.6 7.4 7.6 3.4 -0.7 4.8 5.0 GDP Growth (%) 5.8 2.1 3.1 0.6 -5.0 3.0 2.4Inflation (%) 8.7 7.0 6.5 5.3 2.5 3.9 3.8 Inflation (%) 20.9 20.2 18.9 20.4 9.7 9.1 8.5Population (m) 14.2 14.4 14.6 14.8 Population (m) 38.8 39.5 40.2 40.9External Debt ($ bn) 25.6 27.4 31.4 37.8 External Debt ($ bn) 25.0 28.9 31.8 34.7Exch. Rate (avg./$) 396.8 412.3 419.3 460.3 549.1 549.4 560.0 Exch. Rate (avg./$) 826.5 912.8 1,036.7 1,141.0 1,986.0 2,115.0 2,259.0Country Ratingc 57.4 61.2 63.5 62.0 61.0 Country Ratingc 46.5 46.7 47.2 46.2 44.1
a: From The Economist Intelligence Unit. Country Report: Fourth Quarter 1999. a: From The Economist Intelligence Unit. Country Report: Fourth Quarter 1999.b: Estimates, except for Institutional Investor Country Rating b: Estimates, except for Institutional Investor Country Ratingc: Institutional Investor Country Rating. September of each year. c: Institutional Investor Country Rating. September of each year.
Argentinaa
Chilea
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Economic indicatorsEconomic indicators
1995 1996 1997 1998 1999b 2000b 2001b 1995 1996 1997 1998 1999b 2000b 2001b
GDP ($ bn) 286.1 329.5 401.4 415.0 GDP ($ bn) 77.3 70.3 87.5 104.3GDP Growth (%) -6.2 5.2 6.8 4.8 3.4 3.9 4.4 GDP Growth (%) 4.0 -0.2 5.9 -0.7 -6.4 5.3 4.0Inflation (%) 35.0 34.4 20.6 15.9 13.1 10.9 10.1 Inflation (%) 59.9 99.9 50.0 35.8 20.4 23.1 21.0Population (m) 91.2 92.9 94.7 96.5 Population (m) 21.6 22.7 23.2 23.7External Debt ($ bn) 166.8 157.8 149.7 158.5 External Debt ($ bn) 35.8 35.3 35.4 36.2Exch. Rate (avg./$) 6.4 7.6 7.9 9.1 10.0 10.9 11.9 Exch. Rate (avg./$) 176.8 417.3 488.6 547.4 638.5 822.0 967.5Country Ratingc 41.8 41.6 43.5 45.4 48.2 Country Ratingc 31.4 32.0 35.4 36.1 33.8
a: From The Economist Intelligence Unit. Country Report: Fourth Quarter 1999. a: From The Economist Intelligence Unit. Country Report: Fourth Quarter 1999.b: Estimates, except for Institutional Investor Country Rating b: Estimates, except for Institutional Investor Country Ratingc: Institutional Investor Country Rating. September of each year. c: Institutional Investor Country Rating. September of each year.
Mexicoa
1995 1996 1997 1998 1999b 2000b 2001b 1995 1996 1997 1998 1999b 2000b 2001b
GDP ($ bn) 258.1 272.1 292.9 298.1 GDP ($ bn) 774.9 801.6 775.4 518.9GDP Growth (%) -4.0 4.8 8.6 3.9 -3.8 2.4 4.4 GDP Growth (%) 2.8 3.2 -0.1 0.2 0.2 3.1 3.9Inflation (%) 3.4 0.2 0.5 0.9 -1.9 -0.3 0.2 Inflation (%) 15.8 6.9 3.2 4.9 9.0 7.9 6.3Population (m) 34.8 35.2 35.7 36.1 Population (m) 157.5 159.6 161.8 163.7External Debt ($ bn) 93.9 105.2 123.2 138.9 External Debt ($ bn) 179.5 193.7 199.9 200.4Exch. Rate (avg./$) 1.0 1.0 1.0 1.0 1.0 1.0 1.0 Exch. Rate (avg./$) 1.0 1.1 1.2 1.8 1.9 2.0 1.9Country Ratingc 38.8 38.9 41.3 41.8 42.4 Country Ratingc 34.9 38.3 39.5 38.1 36.5
a: From The Economist Intelligence Unit. Country Report: Fourth Quarter 1999. a: From The Economist Intelligence Unit. Country Report: Fourth Quarter 1999.b: Estimates, except for Institutional Investor Country Rating b: Estimates, except for Institutional Investor Country Ratingc: Institutional Investor Country Rating. September of each year. c: Institutional Investor Country Rating. September of each year.
Brazila
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On-line competitorsOn-line competitors
Viajo.comViajo.com Main on-line competitor in Latin AmericaMain on-line competitor in Latin America Offers tickets, complete tourism packages, language Offers tickets, complete tourism packages, language
translation, extensive travel contenttranslation, extensive travel content Operates both on-line and off-line storesOperates both on-line and off-line stores
Regional portalsRegional portals Terra and Star Media have entered alliances with agenciesTerra and Star Media have entered alliances with agencies
US on-line travel agenciesUS on-line travel agencies Expedia and Travelocity have launched sites for markets Expedia and Travelocity have launched sites for markets
outside the USoutside the US
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The Threat & The OpportunityThe Threat & The Opportunity
THREAT OPPORTUNITY
• Similar portals in development
• Viajo.com @ Mexico
• “Despegar Network” in place
• Simultaneous deployment in LatAm
• First-mover advantage
The Timing is NOW
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The Venture CapitalThe Venture Capital
Despegar.com needs 8 M$ to accomplish a Regional Roll-out
Management team is presenting its Business Planto the 1st Round of US Institutional VC Investors
Despegar.com will be financed by 100% Equity (all VCs)
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Questions ...Questions ...
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Case Key LearningsCase Key Learnings
Identify Project’s RisksIdentify Project’s Risks Affect Cash FlowsAffect Cash Flows Affect the Cost of Capital Affect the Cost of Capital
Set up Cash flowsSet up Cash flows
Sensitivity AnalysisSensitivity Analysis
Real Options Real Options
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Project’s RisksProject’s RisksCash Flow ImplicationsCash Flow Implications
RISK CAUSE ADJUSTMENTPre-Completion
Resource Availability NO - -Technology NO - -Timing HIGH Strategic Advantage Reduce MarketshareCompletion NO -
Post-CompletionMarket HIGH Adoption rate & Commissions Reduce Web Adoption & Comm.Supply/Input MEDIUM Marketing & Brand Issues Reduce MarketshareThroughput MEDIUM Technology Problems Reduce Penetration SpeedOperating Costs MEDIUM Lack of Experience Increase Expected Oper. Costs
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Calculator Adjustments Cost of CapitalAveraged
• Brazil• Argentina• Mexico• Venezuela• Colombia• Chile
• Macroeconomics• Political/Legal• Force Majeure• Financial Risks
WeightedPer country
Gross booking
Project’s RisksProject’s RisksCost of Capital ImplicationsCost of Capital Implications
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Argentina Brazil Chile Colombia Mexico Venezuela
Cost of Equity Capital (“calculator’)
22.80% 25.45% 16.4% 22.10% 20.53% 26.81%
Industry beta adjustment + 0.41% + 0.41% + 0.41% + 0.41% + 0.41% + 0.41%
Operational - Sovereign Risks
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%
Project’s RisksProject’s RisksCost of Capital ImplicationsCost of Capital Implications
(*) Industry Beta adjustment corresponds to Travel and Tourism, Internet effect is considered in Cash Flows.
*
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Re = 23.47%
Project’s RisksProject’s RisksCost of Capital ImplicationsCost of Capital Implications
Despegar’s Capital Structure: 100% Equity, no Debt
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Cash flow SetupCash flow Setup
POPULATION
%Internetusers
%Onlinebuyers
Spendingp/person
COUNTRYE-TICKETSBOOKINGS
ShareOf
Travel
ShareOf
eMarket
UntappedMkt
COMPANYE-TICKETSBOOKINGS
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Cash flow SetupCash flow Setup
REVENUESTicket Bookings Commissions
Others: Rental Car + HotelsAdvertising
Corporate ExpensesIT
PersonnelOperations
OperatingCountries Expenses
Marketing Costs
NPV = $ 50 M
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Sensitivity AnalysisSensitivity Analysis
SensIt - Sensitivity Analysis - Tornado
50%
80%
80%
80%
2.0%
80%
60%
85%
80%
67%
67%
125%
120%
120%
120%
3.0%
120%
100%
105%
110%
105%
125%
-20,000
-10,000
0 10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
Spending per person ($)
Internet users (k)
% online ticket buyers
Share of e-market
% commission (paid to travel agents)
Media advertising
% growth (terminal value)
Personnel
IT / website
Operative
Untapped market potential
Net present value
Monte Carlo: Mean NPV = $ 25 M
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Real OptionsReal Options
Delay Option
Abandonment Option
Expansion Option
Brand or Knowledge Building Option
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Thank you !!Thank you !!