Monday, December 11, 2023
Argentina, despite its significant economic size, has experienced relatively limited penetration of digital innovation. The online travel technology marketplace and infrastructure, both in B2C and B2B sectors, are underdeveloped, with Despegar being one of the few successful exceptions.
Innovation in the travel sector in Argentina has been hindered by economic instability, challenges in accessing international finance, currency controls, high taxes, and an unpredictable regulatory environment. The newly elected free-market promoting government under Javier Milei, which aims to abolish the Peso and liberalize the economy, could potentially bring about significant changes in this scenario, according to Nicolás Posse, Country Manager for Argentina at Civitatis. He adds that the strong mandate for Milei, winning 55% of the vote, based on campaign promises indicating a shift towards a more business-friendly environment, suggests potential benefits for the digital travel economy in Argentina.
Argentina’s travel industry faces challenges due to an underdeveloped online ecosystem, economic instability, and regulatory issues. The new government, led by Javier Milei, aims to promote a free-market approach and economic liberalization, potentially fostering digital innovation in the travel sector. Currently, key travel processes like inventory management and pricing are offline, hindering data analysis and technology adoption. The government’s initiatives could pave the way for a more advanced and technologically integrated travel industry in Argentina.
The challenges in Argentina’s digital travel economy stem from a predominant use of cash transactions, offline processes, and currency controls. Most activities, even online bookings, often involve offline elements such as in-person cash payments at travel agents. Currency controls force foreign earnings into local currency at an official rate, discouraging digital transactions. High taxes and regulatory uncertainties further incentivize businesses and individuals to favor cash transactions to avoid full earnings declaration. Addressing these challenges is crucial for fostering a more digital and streamlined travel industry in Argentina.
Posse from Civitatis comments “It can’t be stated just how much a cash economy is the enemy of digital innovation. Not least as businesses that aren’t transparent in their bookkeeping find it hard to raise capital to innovate. But more generally as digital payments are one of the first baby steps towards a digital economy. If you don’t have someone’s credit card details how can you take their reservation remotely? Or be sure they’re actually going to turn up? How are you going to automate refunds or rebookings?”
Argentina’s heavy reliance on cash and challenges in the foreign exchange system, coupled with high inflation rates, have hindered the country’s travel industry from embracing digital innovations. The focus on cash transactions is inconvenient for consumers and reduces international demand, creating a cycle that hampers investment in technological advancements. The frequent adjustments to prices due to inflation necessitate manual efforts from travel sellers, making the process time-consuming and risky. Argentina’s travel industry lags in digital evolution compared to other top 20 global economies, mainly due to a history of economic crises.
The path to digital innovation for Argentina’s tourism sector begins with addressing payment challenges. Currently, there are limited payment technologies suitable for the market’s needs. The hope is that with the new economic outlook and a more liberalized approach, local companies or international firms will emerge to provide innovative payment solutions for the industry.
Transitioning to digital payments and leveraging available data will pave the way for the adoption of modern technology solutions in inventory management, pricing, marketing, and distribution within Argentina’s tourism sector. The increased digitalization opens opportunities for both international and local providers to offer relevant services. Successful navigation of this path could position Argentina as a significant global source market, benefiting local travel businesses and international suppliers alike. Without this digital revolution, challenges in international transactions, such as accepting cash on arrival, may persist.
At the end, Posse mentions that the Civitatis team is eager to see the specifics of the new Milei government’s economic policy. They believe that establishing a clear, consistent, and long-term regulatory framework is crucial for developing a thriving digital travel ecosystem in Argentina.
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