There's not much travel companies can do about the coronavirus outbreak. Like many of its peers, Hostelworld is having to execute its growth strategy in an unfavorable environment.
Online travel agency Hostelworld Group has warned that the spread of coronavirus might end up hitting profit by as much as $4.5 million (€4 million) in the first quarter of its financial year.
The company said it had was being squeezed on three fronts, all of which would hurt earnings.
Firstly, there was a general drop in bookings, initially in China and now in Europe, alongside this was an increase in cancellations and finally customer acquisition costs had gone up.
The $3.3 to $4.5 million (€3 to €4 million) profit (EBITDA) hit is based on the current market trends continuing and only covers the company to the end of March. “Beyond that, April onwards. we’re not commenting,” TJ Kelly, chief financial officer, told Skift.
That figure represents around 20 percent of Hostelworld’s annual earnings.
Moving into Experiential Travel
While the outbreak of a highly infectious disease is out of the control of Hostelworld management, the company is still determined to push on with its expansion plans.
Former Expedia executive Gary Morrison took over as CEO in June 2018 and has wasted little time in refocusing the business, unveiling a new strategy, which called for more investment in technology.
Now, Hostelworld is looking to move into what it calls the “experiential” travel sphere, likely through buying other companies. Areas of potential interest include those offering study, work or volunteer abroad opportunities.
“We’ve been working on this strategy for some time – many months now. We have a significant pipeline of potential targets and some of those are very far advanced,” Morrison told Skift.
Hostelworld is cutting its annual dividend in order to help it invest in acquisitions.
Hostelworld saw its pre-tax profit more than halve to $3.4 million (€3 million) during 2019. The reasons for the 54.7 percent decline was an increase in costs as well as a drop in revenue, which fell 1.7 percent to $89.8 million (€80.7 million.)
While the headline numbers don’t look great, the company remained upbeat, noting that “the business saw a return to growth during the latter part of 2019” with year-on-year net bookings increasing from September.
The problem is, all the company’s hard work may be undone by something outside of its control.
Photo credit: The social area of the Lub D hostel in Phuket, Thailand. Hostelworld will take a financial hit from coronavirus. Hostelworld