Skift Take
With two partners having big B2B ambitions, something had to give.
Under an existing partnership established in 2015, Despegar was restricted to using Expedia Group hotel supply for the vast majority of inventory outside of home base Latin America, a stipulation that hindered Despegar’s expansion ambitions.
But that will be changing, as will several other key terms, in a new 10-year Despegar-Expedia Group Lodging Outsourcing Agreement that Despegar announced Wednesday. Most aspects of the agreement will become effective on January 1, 2025, Despegar stated.
Under the new pact, Despegar, the largest online travel company in Latin America, will be “able to expand its own directly sourced non-Latin America hotel supply and establish new strategic partnerships,” Despegar said.
This will enable Despegar to enhance its B2B and M&A strategies, the company said.
Under the current agreement, Despegar had some ability to forge partnerships outside of Latin America to obtain hotel supply from entities other than Expedia, but faced penalties if transactions involving those properties exceeded a certain percentage.
The new agreement will also give Expedia “a guaranteed percentage of Despegar’s global hotel bookings and exclusive rights to distribute certain lodging supply in Latin America,” the announcement said.
Expedia Group was Despegar’s second largest shareholder as of April with a 13.3% stake, and has a seat on the Despegar board. Expedia first took a stake in Despegar in 2015. The largest shareholder, at 15.27%, was LCLA Daylight LP of Greenwich, Connecticut.
New Flexibility for Growth
Both Expedia and Despegar are active in the business-to-business segment, with Expedia being the largest in the travel industry with more than 60,000 partners. Both see B2B as an opportunity to grow their companies internationally in markets where their B2C businesses might have more difficulty penetrating.
The agreement “ensures that we maintain uninterrupted access to Expedia Group’s vast lodging supply while granting us increased flexibility to grow complementary businesses and establish new strategic partnerships,” said Despegar CEO Damian Scokin in a statement.
Expedia declined to comment about the agreement.
Despegar’s B2B business grew 43% year-over-year in the second quarter, with the vast majority of it generated in Brazil and Mexico, but the company hopes to expand it to Europe, for example.
$125 Million Liability
Expedia pays monthly commissions to Despegar as a percentage of gross booking value that Despegar generates by using Expedia’s hotel supply. But Despegar was subject to paying Expedia a $125 million termination fee if those commission amounts didn’t reach at least $5 million every six months.
Despegar therefore had to record a $125 million contingent liability on its balance sheet. Under the new pact, Despegar will be able to amortize that liability over 10 years, “materially improving Despegar’s net asset position,” the company said.
Under an amendment to the current agreement in 2023, Expedia Group began supplying Vrbo’s inventory to Despegar, as well.
