Hostelworld Seeks to Better Define a Community Amidst Declining Revenue

Budget accommodation provider Hostelworld Group is looking to build a community as it seeks to establish a closer relationship with both its core audience and newcomers.

The online travel agent, which listed on the London Stock Exchange in November 2015, will roll out new features that both connect guests with the hostels themselves and also with each other.

“We certainly want to build a community of hostel travelers,” Chief Executive Feargal Mooney told Skift. “We have launched some good functionality within our mobile app product and we will launch some new functionality over the course of 2017 that really facilitates greater engagement and communication between both the hostel operators and the guests and also in time between guests that are staying at the hostel. So it’s a lot more focused and personalized to people who are staying within a particular hostel at a particular time.”

One example given was the ability for owners to put out details of events that are happening either at the hostel or nearby to guests who are staying there.

The hope is that this will also entice people who don’t ordinarily stay in hostels to use the platform as well.

A survey by Phocuswright last year found that while 56 percent of those travelers polled weren’t hostel users, they had the right credentials to be targeted.

“That to me suggests that there’s a big opportunity for us to not only grow community around the current population of travelers but to reach out to that broader audience,” Mooney said.

Tough 2016

The push to improve engagement came as Hostelworld published its full-year results for 2016.

Revenue fell by 4 percent to $86.6 million (€80.5 million) with average booking value dropping by the same amount to $12.49 (€11.60). The company’s operating profit declined by 97 percent to just $201,000 (€187,000). Investors though didn’t seem fazed as the company’s share price has risen by 6.9 percent to $2.90 (£2.33) since the results were published.

“Disrupted travel patterns made for a challenging year in 2016 but, in our view, management negotiated a tricky period well,” said Tim Barrett, an analyst at Numis, in a note to investors.

The company suffered from some of the challenges that affected the sector as a whole, such as terrorist attacks, but it also experienced a poor performance in one of its sub brands.

Bookings at core brand Hostelworld increased by 18 percent to 6.2 million but the supporting brands, notably Hostelbookers, dropped 53 percent to just under a million. The company also booked an $8.8 million (€8.2 million) impairment charge relating to the Hostelbookers domain names

“Hostelbookers was a business that we acquired a couple of years ago,” Mooney said. “Prior to us acquiring Hostelbookers, it had a high volume of bookings that were at very low margins, some of them at negative margins, so in the context of consolidating that business we’re not particularly interested in lower, no-margin bookings. So we have scaled back a lot of that unprofitable marketing and that has clearly impacted the booking volumes for that brand, but costs have come out associated with that and what it means now is that what is left there in those supporting brand is a smaller volume of bookings but more profitable business.”

Hostelworld has 36,000 properties, of which 14,000 are hostels. The average commission rate earned in 2016 was 13.8 percent, up from 13.1 percent in the previous year.

Hostelworld said that 2017 had started well and that total group bookings were ahead of the previous year.

“While negative macro issues impacted Hostelworld, like the rest of the European travel space, in Q2 and Q3 of 2016, the company notes that momentum improved through to year-end and has continued into the first quarter of 2017 and it remains well placed to benefit from continued market growth,” wrote Ross Harvey, an analyst at Davy Research.