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AGENDA

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.

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AGENDA

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  1. AGENDA • Current situation • How the idea was born • What is Despegar.com • Strategy / business model • Economic outlook for Latin America • Competitive Environment • Proposed Solution

  2. The Vision Be the leading provider of on-line travel services in Latin America.

  3. 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

  4. 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

  5. Insurance/Financial Services Computer 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 CONSUMER COMFORT WITH BUYING ONLINE INTERNET BUSINESS OPORTUNITY Source: Morgan Stanley Dean Witter E-TRAVEL IS THE MOST IMPORTANT ON-LINE COMMERCE CATEGORY IN THE USA Total 98 online spending: $4,390 MM Source: NUA Internet Services

  6. Expected on-line travel market in Latin America

  7. Expected on-line ticket salesin Latin America (in $ million)

  8. STRATEGY BASED ON 5 CONCEPTS REGIONAL EXPANSION NEW SEGMENTS LOCAL PRESENCE SERVICE OFFERING BRAND AWARENESS

  9. REGIONAL EXPANSION NEW SEGMENTS LOCAL PRESENCE SERVICE OFFERING BRAND AWARENESS REGIONAL EXPANSION ENABLES SCALE AND OPERATIONAL SYNERGIES… Synergies Scale • 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 • Development of a brand with regional presence • Cross selling of products between countries • Regional alliances • Larger base to support start-up costs REGIONAL EXPANSION

  10. LOCAL PRESENCE PROVIDES COMPETITIVE ADVANTAGES REGIONAL EXPANSION NEW SEGMENTS LOCAL PRESENCE SERVICE OFFERING BRAND AWARENESS • 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 DESPEGAR ALLIANCE MANAGER DESPEGAR INC. PRINCIPAL ADVISOR COUNTRY MANAGER CALL CENTER MGT. TEAM TRAVEL AGENCY ARGENTINA BRAZIL MEXICO

  11. BRAND AWARNESS IS CRITICAL TO THE GENERATION OF TRAFFIC REGIONAL EXPANSION NEW SEGMENTS LOCAL PRESENCE SERVICE OFFERING BRAND AWARENESS TRAFFIC Online and Offline advertising campaigns Alliances Public Relations • Brand & Product • TV • Radio • Magazines and newspapers • Billboards • Banners • Links • Travel suppliers • Internet sites • Co-branding promotions • Press coverage • Special events

  12. ONE-STOP-SHOPPING LEADS TO INCREASED SALES AND CUSTOMER RETENTION REGIONAL EXPANSION NEW SEGMENTS LOCAL PRESENCE SERVICE OFFERING BRAND AWARENESS Service Offering Commerce Content Community Convenience Customer Service • Travel guides • Professional reviews • Weather • Airport real time scheduling • Destination video clips • Maps • Chat • Bulletin • Travel log • Customer reviews • Photo Album • Meeting Place • Self service • 24 - 7 • Home delivery • Pick-up locations • e-tickets • Quotes by request • Local 800 call center • Fare alerts • Fare finder • Trained travel agents • VOIP • Chat service • Loyalty programs • Flight, hotel and car rental • Vacation and cruise packages • Travel guides • Insurance • Travel mall • Travelers checks

  13. ... FOR THE DIFFERENT MARKET SEGMENTS REGIONAL EXPANSION NEW SEGMENTS LOCAL PRESENCE SERVICE OFFERING BRAND AWARENESS • 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 B2C (LEISURE) • Main target: small companies with limited travel sophistication • Potential key partnerships: Accor Corporate Services and Carlson WagonLit Travel B2B (CORPORATE)

  14. Latin America: Positive outlook for 2000 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 Forecasted GDP growth: 4%

  15. Economic indicators

  16. Economic indicators

  17. On-line competitors • Viajo.com • 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 • Regional portals • 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

  18. The 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

  19. 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

  20. Questions ...

  21. Case Key Learnings Identify Project’s Risks  Affect Cash Flows Affect the Cost of Capital Set up Cash flows Sensitivity Analysis Real Options    

  22. Project’s Risks Cash Flow Implications

  23. Project’s Risks Cost of Capital Implications Calculator Adjustments Cost of Capital Averaged • Brazil • Argentina • Mexico • Venezuela • Colombia • Chile • Macroeconomics • Political/Legal • Force Majeure • Financial Risks Weighted Per country Gross booking

  24. Project’s Risks Cost of Capital Implications * (*) Industry Beta adjustment corresponds to Travel and Tourism, Internet effect is considered in Cash Flows.

  25. Project’s Risks Cost of Capital Implications Re = 23.47% Despegar’s Capital Structure: 100% Equity, no Debt

  26. Cash flow Setup % Internet users Share Of Travel POPULATION COUNTRY E-TICKETSBOOKINGS COMPANY E-TICKETSBOOKINGS %Online buyers Share Of eMarket Spending p/person Untapped Mkt

  27. Cash flow Setup REVENUES Ticket Bookings CommissionsOthers: Rental Car + HotelsAdvertising Corporate Expenses IT Personnel Operations Operating Countries Expenses Marketing Costs NPV = $ 50 M

  28. Sensitivity Analysis Monte Carlo: Mean NPV = $ 25 M

  29. Real Options • Delay Option • Abandonment Option • Expansion Option • Brand or Knowledge Building Option

  30. Thank you !!

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