Hostels and Hotel-Hybrids
PART II OF III
July 2020
EXECUTIVE SUMMARY
In 2016, after spending ten years working for the largest hotel company in the world, Marriott International, we set out to uncover what experiences were like at alternative accommodations in Europe, Asia, Oceania and Central America. Over 18 months, we carried everything we needed in an 80-liter backpack and traveled using car shares, buses, trains, RVs, ferries and the occasional rickshaw (our favorite mode of transportation), to understand the unique offerings at hostels, Airbnb, guest houses and campgrounds all over the world. We also spent time disconnecting from our cell phone to immerse into the conversations we were with having with the other travelers, the large majority of them between the ages of 15 – 35.
In this article, we want to share the essence of these amazingly welcoming, local social clubs which are Hostels, and how they encourage travelers to meet others and stay ‘connected’ in a low cost environment. The purpose of this article is to provider readers a background of the history of hostels, emphasize their success with Millennials and Generation Z, and start to breakdown how they do it. In closing, we will offer examples of the opportunities which exist for companies to react to this competition and enter the segment themselves.
Here are a few key takeaways about hostels:
They are misunderstood
The hostel concept began in 1909 for the purpose of academia. In the 1970s, these products became known for sex, drugs and loud music, resulting in an identity-crisis which hostels have been growing up from the past eight years. You no longer have to sacrifice privacy, cleanliness and safety for affordable, social travel experiences in a locally immersive setting.
They offer incredibly flexible pricing from $30/bed to over $200/suite per night. 90% of hostels have private rooms and most offer a combination of private rooms with shared bathrooms, community rooms with high-end bunk beds and other unique offerings like RVs or tree-houses for guests to choose from based on their travel purpose and budget.
They appeal to the young explorers
70% of hostel users are Millennials, many of them location-independent workers called ‘digital nomads’
Solo travelers make up 72% of total US hostel users
Hostels are the top lodging choice for young travelers globally, aged 15 – 29 years old
They are experts at creating social environments
Hostel users are activity intense and have a higher spend on overall trips than of those who use Airbnb
Ancillary Revenue through tours and activities, experience programming and Food and Beverage can drive over 40% of on-site revenues
Travelers will meet others at one hostel and continue traveling as a group for weeks at a time
They’re quietly expanding
It’s hard to tell when they are there, as many don’t bear hostel in their name. Instead, they take on independent names and offer an ecosystem of offerings within their four walls to keep guests engaged, satisfying multiple needs of their travel purpose, while capturing a larger share of traveler spend.
Booking.com is responsible for over 40% of global hostel bookings and is reinvesting in their marketing towards these products
In the US, the alternative accommodations subsector had a 7% market share in 2017 and is expected to have an 11% share by YE 2019. This includes incorporated businesses that operate apartments, bungalows, chalets, cottages, cabins, and youth hostels.
Youth travelers are the most resilient travelers and are forecasted to be the first cohorts to hit the road post-COVID. Although Millennials appear to be the number one demographic staying at hostels today, we expect Generation Z, with their thrifty spending habits and desire for authenticity, to shift that distribution over the upcoming years. The negative impact COVID-19 has had to Millennials in their peak earnings years, and the predicted delay it will cause Gen Z to reach theirs, is likely to create strong demand for the budget and economy segment of travel. We anticipate this segment, hostels/budget travel, to be the next wave of development and the expectations of design and operations will undergo a transformation, where spending less will no longer mean you get less.
We hope you enjoy!
