When is the last time you bought an airline ticket with cash?

Today, as it turns out.

Brazil has a great network of low-cost airlines: Gol, Webjet and Azul all offer cheap flights throughout the interior of Brazil.  But there is just one problem - for foreigners, these flights can't be purchased online.

See, when you book a flight online at nearly all of the sites you need a CPF number (closely equivalent to a US social security number). As a foreigner, I don't have a CPF.

Most frustratingly, the Webjet website (the company I was considering) says that a foreigner can use VISA and Amex.  However, when I tried to submit, it required a CPF to proceed to the payment page.  We eventually called the company only to have them tell us that we needed to go to a travel agent.   Grrr...

So, today off we went to a real person travel agent (remember those?).  They found the flights we wanted at the price we found online but - here's the beautiful thing - we couldn't pay with a credit card.  They said that the airlines wouldn't accept foreign cards.  We marched to the ATM and withdrew R$400.  Double grrr...

Now, let's clear up some potential questions.  Best I can tell, this is not a regulatory-induced problem.  A foreigner can easily book online at TAM; but they are not a low cost carrier.  Also, it would seem reasonable to guess that perhaps the discount carrier websites aren't sophisticated enough for this, but surely one of the OTA (online travel agents) like Viajanet or Decolar would work.  Tried that too - no such luck, as it turns out.

Needless to say, this could get ugly if someone hasn't figured it out before the World Cup and Olympics.

Online Travel Market in Brazil

This also gives me a great opportunity to talk about the e-commerce travel market in Brazil.  While at Goldman, I worked on an equity raise with Yatra, an Indian OTA, and the spin off of Trip Advisor from Expedia - the online travel sector still has exciting potential.

In Brazil the two main OTA's are Decolar and Viajanet

Viajanet was profiled in my first post, but to recap - founded in 2009 by a team that left Decolar.  They recently received $19mm in VC funding from General Catalyst and Redpoint Ventures (firms which are both very active in Brazil).  The company had 2010 ticket sales of $10mm (not the same as revenues) and a headcount of 120.

Decolar is a previously Argentina based, now Miami based Latin American behemoth.  It grew organically and through acquisitions, including Viajo.com, a Mexico focused firm.   Its investors include a host of major global firms like Merrill Lynch, Newbridge Andean Partners (an affiliate of ACON Investments and TPG), Yahoo!, Hicks Muse, GP Investimentos, JP Morgan Partners, TH Lee Putnam, Morgan Stanley and GE Equity.

I also want to mention another agency you probably haven´t seen - Vai Voando.  The company is especially interesting because it was started last year to capture the growing market in Brazil´s favelas - yes, the favelas.  There is a real market here - in 2011, the company estimates it will have R$8 million in ticket sales (compare that to Viajanet last year at 10mm).  The company offers flights through its online portal and through brick and mortar stores inside of the favelas.  The stores have spartan decor so they ¨don´t scare the clients¨ (the company´s words).  They serve these lower end customers in part by allowing them to pay in installments up until the actual flight.  Their marketing is also creative - they have an endless array of jingles that are trumpeted on sound trucks that drive in the favelas streets (how this doesn´t drive people crazy, I don´t know).  See a great profile here (in Portuguese).

Historically, flights have been the biggest market for OTAs.  An interesting aspect of the Brazilian market is that its structure is similar to the structure of the US market about 5 years ago.  In that model, the OTA lists a flight price in the search (the same one that airline offers) but then adds on a service/booking fee at the end.  This was how OTA's made their money; they hoped the customer wouldn't notice/care about the extra fee.

However, about 5 years ago they found that customers were doing their searches on Expedia/Travelocity/Orbitz and then going to the airline website directly to purchase their tickets (cutting them out of the revenue).  To be sure, I did the same thing when I was searching for my flight here.  I searched for it on ViajaNet, found the cheapest/best flight was on Webjet, and then went to the Webjet website to purchase the flight.   Et, voila! - R$30 (~20 USD) cheaper ticket.  The punchline is that the OTA's won't be able to get away with this model forever.

Also, in every geography, industry watchers are realizing that the real money and profit margins are in hotels and packages.  This is for many reasons but mainly because 1) the market for hotels is more fractured 2) hotel pricing tends to be much less comparable/straightforward and 3) hotels aren't a commodity like flights - location matters.  As a result, it's not as easy to cut out the middle man.

Here, the Brazilian players have a big boy to contend with - Hoteis.com, which is owned by Hotels.com, which is owned by Expedia.

An interesting US model which has not yet taken off here is the Priceline, Name Your Own Price, model.

Are there any other exciting US travel site models waiting to take off in Brazil?

P.S.  I had dinner on Saturday with employee number 85 at Facebook (now that many people have left, employee 15) who had come to Brazil to open Facebook's office here.  Orkut better watch its back.