Hostelworld Counts Cost of European Heat Wave

Hostelworld Group is the latest European travel company to bemoan the continent’s long, hot summer and its impact on bookings.

The company on Tuesday blamed the heat wave as well as the World Cup for this “softness” and that if the trend continued, growth in group bookings would “likely to be flat for the full year”.

Travel Giants TUI Group and Thomas Cook have also warned that the sustained sunny weather has had an impact on bookings as travelers opt to stay at home in the warmer climate.

Hostelworld is going through a period of transition with a new business model and a new CEO. It introduced a free cancellation policy in Europe at the end of April. later rolling it out across the world. The change meant an alteration in the way it recognized revenue.

In the six-month period up to the end of June, revenue declined 9 percent to $49.1 million (€42.6 million). Hostelworld has deferred revenue of $4.8 million (€4.2 million) generated during the period from free cancellation bookings and will recognize it, net of cancellations, in future periods.

The change in revenue recognition also affected earnings. Pre-tax profit fell 45.2 percent to $3.3 million (€2.8 million).

Although the move to offer free cancellations has hurt results in the short term, it brings Hostelworld in line with market leaders such as Booking.com, and will likely benefit it in the long term.

“The global rollout of our free cancellation booking option on the Hostelworld brand in July this year will further enhance our competitiveness,” said CEO Gary Morrison, who joined the company from Expedia Group in June.

“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.“

Alongside the first-half results, Hostelworld also announced the appointment of a new chief financial officer. TJ Kelly will join the company in November. He replaces Mari Hurley, who left earlier this year.

A new CEO, CFO, and business model represents a significant change in the company.

“Hostelworld is in a period of transition and a new management team (including the announcement of a new CFO), enhanced product flexibility and significant growth through the app channel provide a solid base for mid-term growth,” analysts at stockbroker Davy wrote in a note to investors.

“However, a softer booking trend in July and August (key months for the business) means that nearer-term expectations will be scaled back — for 2018, we expect a 11 percent downgrade to consensus forecasts. The stock price is already down 30 percent since early-May and we therefore remain constructive on the value opportunity.”