According to ehotelier.com, the global growth of the hostel sectors is set to continue as the consumer increasingly values experience over formality and is highly influenced by social media in the choices they make.
According to leading hospitality research company HVS, MILLENNIAL TRAVELERS ARE FUELING A HOSTEL REVOLUTION. Alternative accommodations are on the rise as 18- to 35-Year-olds spend more money on travel adventures. According to Hostel Trend Report, commissioned with independent travel research company Phocuswright, the hostel industry has experienced strong growth spurred by millennial travelers aged 18-35 seeking to spend more money on longer trips and see as much of the world as possible. This travel bug has revolutionized the hospitality industry, as millennials are prioritizing social interactions and shared adventures with newfound friends versus the average traveler population. The hostel itself is undergoing its own transformation to take a larger slice of the hospitality market. Private rooms and designer hostels are now the standard (9 in 10 hostels have private rooms), replacing the dormitory hostel image of the past.
The highest revenue growth areas are in desirable markets for millennial travelers, including South and Southeast Asia (13 percent), followed by the Middle East (11 percent), Eastern Europe (11 percent) and Northern Asia — spearheaded by China – (10 percent). There remains a strong opportunity for growth in major hospitality markets in Europe and the U.S. Supply, relative to potential demand, remains constrained across European gateway cities pointing to expansion opportunities. Some cities have seen stock expansion outpaced by the growth in overseas tourist arrivals. .
According to KPMG, the youth hostel sector is undergoing profound change, with renewed interest from investors. In this traditional not-for-profit sector, investors see new prospects for profitability through changes in quality and product offering,” said research firm KPMG in a recent report.
The ability of the operator to maximize the efficiency of the property and achieve a profitable balance from the different elements is now critical to the success of each operation. As the product has become more widely known, the configuration of individual properties and the types of bedroom have evolved to accommodate guests’ specific requirements and tastes in the urban environment or at resort locations. The ratio of beds to rooms is dependent upon the guest segmentation of the business the individual hostel accommodates, the property it operates from and local planning restrictions. Operators typically configure new units to maximise bed occupancy and exceed customer expectations by providing the appropriate number and type of rooms suitable for the target groups. In most locations, the ideal room-type is perceived to be a quad (that is, variations of twin beds and a bunk bed), because its flexibility enables a hostel to react to both seasonality and the requirements of the individual traveler.
According to HVS, whilst hotel occupancy is measured by rooms, hostel performance is measured by beds, with the occupancy and average rate dynamic producing Revenue per Available Bed (RevPAB). Occupancy largely mirrors and often exceeds local hotel market occupancy, and average rate is a function of the hostel’s direct sales to groups and individuals and the increasingly critical online travel agents (OTAs).
The term Ho[s]tel attempts to embody the hybrid product that combines hotel services with the informality and friendliness of a hostel. The corporate-run hostels are referred to as “upscale” or “boutique” hostels. These properties are managed and operated by large companies that bring in operational structures, brand standards, and efficiencies akin to those of a major hotel brand. Some of the “upscale hostels” comprise more than 500 beds—much larger than the standard 75 to 150 beds at a traditional hostel. The move to more upscale hostel accommodations has expanded the sources of demand from backpackers to families and corporate travelers who seek extensive food and beverage outlets and a social atmosphere not available in the limited- and select-service hotel space. Upscale hostels bridge a gap between traditional hostels and lifestyle hotels. For one, the upscale hostel provides relatively inexpensive accommodations along with amenities expected at branded lifestyle hotels, including Wi-Fi access, swimming pools, and trendy décor. Secondly, first-rate hostels offer a variety of room accommodations and communal spaces aimed at drawing demand from solo millennials, families, and corporate travelers alike.
Most boutique hostels provide flexible room types, including (1) separate rooms for male and female travelers, (2) dorm rooms that can accommodate up to six beds per room, (3) private rooms for up to three travelers, (4) single rooms, (5) en-suite rooms, which include a private bathroom, (6) twin rooms, which offer one bunk bed, and (7) double rooms, which offer one double bed. This product flexibility is critical to the success of a hostel operation. Hostel guests may travel individually, as couples, or in groups of six or more. The availability of everything from en-suite individual rooms to larger dorm rooms provides guests with plenty of options based on their requirements.
According to HVS, with operators focusing predominantly on bed sales, food & beverage (F&B) revenue in hostels varies considerably. The Freehand and St. Christopher Inn brands derive approximately 50% of their revenues from food and beverage sales. As profit margins are high with beverages, a greater proportion of total revenues flow to the bottom line. Profitability may be up to 65% on account of the limited menus and all-day snack offers that may also include high-margin alcohol sales served from the reception desk, where permitted.
The higher number of guests capable of occupying a hostel versus a traditional budget or midscale hotel brings potential food and beverage revenue even higher and increases other ancillary revenue streams. Hence, hostels can produce higher revenues and net income streams versus traditional budget or midscale hotels constructed on a similar footprint. In addition to more efficient utilities distribution and lower energy consumption than hotels, further cost efficiencies can be made where economies of scale exist to reduce wage costs attributable to servicing the rooms, as fewer staff are required to run the business than in a conventional hotel.
To remain competitive, hostels need to keep up with modern trends and so by their nature require dynamic hands-on management often preferring to market themselves as a group of individual venues rather than a chain of hotels.
As this sub-sector of the wider hotel market matures, there will be a higher proportion of leasehold models as groups look to penetrate new markets more rapidly. From HVS analysis of a number of European destinations, it is clear that this market is set to enjoy rapid growth and continued interest from major companies keen to diversify their operational exposure.