Hostelworld Group reported a drop in revenue and said that it was seeing an “increasingly competitive” market, particularly in Europe.
The results came as Generator was due to open its first hostel in the US, casting off the ‘hostel’ part of its name along the way.
Gary Morrison, CEO, Hostelworld, who joined the company earlier this year from Expedia, where he was head of retail operations, said: “The market, particularly in Europe, is increasingly competitive. In addition the World Cup and the unusually hot weather in Europe have also led to a softness in bookings in the peak summer months of July and August. If these trends continue like for like, growth in group bookings is likely to be flat for the full year given the expected declines in our supporting brands.
“We are continuing our programme of rigorous cost control and our ABV continues to benefit from the increase in the base rate commission implemented in February. Weaker demand also leads to a natural reduction in variable marketing expenses. Combined, these actions will mitigate some of the softness in bookings at the Ebitda level. We continue to see strong underlying cash conversion.”
The OTA rolled out its new free cancellation booking option, which it said had resulted in increased conversion, longer lead times and higher booking values
Morrison said: “The global rollout of our free cancellation booking option on the Hostelworld brand in July this year will further enhance our competitiveness. We are increasing our technology investment in Porto to further improve and differentiate us from competitors. Hostelworld has the ability to continue to be the OTA of choice for the experiential/backpacker traveller and I will give further details of our plans for developing the business later this year.”
The company said that its average commission rate had increased to 15.3%, from 14.2% in the same period last year and said that it continued to invest in technology.
On the operator side of the hostel market, Generator was due to open its first hostel in the US, in Miami, but without the ‘hostel’ part of the name, which it said had negative connotations in the US market.
Queensgate Investments, which acquired Generator last year, was due to invest at least EUR300m in growing hostel brand Generator, predominantly in the US.
Generator was not the only European brand to look to the US, with Meininger is also eyeing development opportunities in North America and South Asia. The company, which has a portfolio of 20 sites, has a development pipeline of 16 and in May opened its first site in Russia, in St Petersburg.
Cox and Kings, Meininger’s parent company, reported 8,553 beds at the group in its 2017 Annual Report and said that it had a target of 15,000 beds by the end of 2019. The group said that Meininger’s “low capital intensity and high occupancy make it a business that is uniquely high on parameters such as return on capital invested. The unit delivered an average Ebitda per bed of more than EUR 2,700 in FY17, which is unparalleled in the hoteliering sector.”
Many of the properties were hotels or office buildings which have been renovated, refurbished, re-fitted and converted into a Meininger hotel. Cox and Kings said that the brand constituted “a core lever” of its overall growth, adding: “With the European economy in the midst of a cyclical uptick and geopolitical rumblings dissipating following the decisive French election, the outlook for Meininger’s growth and profitability has strengthened further.”
The market remains underserved and full of opportunity, with hostels accounting for 1.41% of room supply and 0.23% of the active pipeline in the UK, according to Savills. By 2020 the hostel market globally was projected to grow by 7% to 8% year-on-year on a current value of USD5.2bn in bed revenue.
The branded hostel market continued to see growth, with Berlin the most well-supplied city and London, Paris and Rome among the least well-supplied. In Berlin, there is a supply of 11.2 beds per 1,000 youth travellers although this is down from 13.1 beds in 2013 as stock expansion has been outpaced by rising visitor numbers. In terms of growth potential, Savills highlighted London and Paris as they continued to have very low relative supply of 2.8 and 1.4 beds per 1,000 youth travellers respectively combined with particularly large numbers of overseas visitors.
HA Perspective [by Katherine Doggrell]: The hostel market was ripe for an OTA and swoop in and, Airbnb style, bring it all together, something Hostelworld was not alone in thinking, hence the move to start offering free cancellations to set itself apart from its hungry rivals. There was no word on how pleased the average hostel owner is on this revolution, but the platform reported that bookings from not-paid-for channels had edged up by two percentage points to 64% for the half year, so its message is creeping out there.
Competing with the OTA were the likes of Generator and Meininger, busy building brands and pushing direct bookings.
According to a study by WYSE Travel, hostels were the top travel lodging choices for young travellers globally, with 21% of bookings. But the same age group saw 67% of bookings through an OTA, rather than direct.
With Generator dropping the hostel and Meininger continuing to push the ‘hybrid’ line, they are both looking to a wider audience than the typical backpacker and his or her allegiance to the OTAs. With them comes higher rates than the typical bunk bed frenzy and, it could be hoped, greater loyalty.