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Today’s Leading Hostels?

Hostel Trends and News

Rucksack Brian started this discussion 11 years 1 month ago

Someone asked this question at the Hostel Management Unconference in St. Petersburg:

Which specific hostels do you think are leading our industry right now? What are they doing that sets them apart, raises the bar, or makes them a good role model for other hostels?

Everyone in this Forum comes from different parts of the world, we run different types of businesses, and we’re all exposed to different hostels in our travels, so the opinions are likely to be quite varied.

So give us your opinion. Which hostels do you think are setting the standard for the industry right now?

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mappedouttravel

11 years

There are two types of hostel today;

1: the original - small, cheap, cosy, full of character, close to a bus station! and full of backpackers
&
2: the new hostel, or 'poshtel/flashpacker hostel' These are ones that have the big financial investment. you can identify them by their modern/expensive 'designer' decoration, bigger/better facilities, fancy branding and prime location. These places need to repay the big investment in them, so usually sell themselves on hotel websites and don't attract nearly as many backpackers as 1: the original hostels.

If you are in the no:1 category, you are probably in it for the love of travel - and are probably no different to any other no:1 category hostel.

if you are in the no:2 category, you are probably in it for the love of money - and probably no different to any other no:2 category hostel (but they always sell themselves as 'different').

At the end of the day though - if you sleep in a dorm, you will experience a bad smells and people snoring and your toothpaste may go missing... no matter who/what/where/when/how and why.

I don't want to say names, but i think the above applies to every continent in the world!!

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gordo

11 years

Not too many people get into the hostel industry for the money. Sure, there's some to be made - but take the guys at Generator/Patron, they make their money in real estate, not hostel operations.

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mappedouttravel

11 years

your kidding?

generator London = 1000 beds (nearly)...

1000 x £15 (per night, for example) = £15,000 per night (@100% occupancy), lets say their operating profit is 20%, and their average occupancy is 75%;

that is still £2250 pure profit per night...
and that's for £15 per bed!.. (tonight: 21/10/13 the cheapest bed in London is £24 at the time of typing).
-then you can add on bar revenue and in-house sales/extras.

These are all 'made up' numbers of course.. but there has to be a lot of zero's involved.. build them big, pack them in!

why else would people like Accor and Holiday Inn (for example) get into hostels?

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gordo

11 years

Care to take a guess at the value of their buildings? 100,000 sq ft in central london? same size in paris? venice?
at 900 beds @ 80% occupancy (avg for london) at nearly £25 a bed (again, avg), thats just over $17,000 a night. i'm not going to guess at their operating profits - but i can tell you that every last penny goes into paying for the building (they own the london one outright and have done for years). at that scale, there's a LOT more money in the freehold than there would be in operations, and its more secure.

accor do the same (though they only own a share of base hostels) and i'm not sure if IHG (owners of holiday inn) have got their fingers in the hostel pie yet.

these guys are getting involved because the real estate returns are the same as hotels but the operation and development costs (and hence risks) are much lower.

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mappedouttravel

11 years

firstly - thank you for fast response (made my day that did).

the numbers in/out are astronomical, but i go back to my original point, with regards what you say about every penny going into paying for the building - and the more pennies the better, they want land paid for (as soon as possible), so why not turn it into an ibis or a mercure? why not make double rooms instead of dorms - they have the business model/resource and buying power in place to do this economically.. I think they don't do it because they can get a faster return on the hostel model (@ high quantity turnover) -and then expand..

which goes back to the question which started this, regarding who are the leading hostels.

I stand by the different types and motivations of hostels today (i've worked and stayed in both) - and think the revenue investors are leading the way, by a clear financial catalyst.

forgive my bitterness, I was brought up with hostels that had 'backpackers' in their name (usually preceded by the town they were in!), now it seems to be dominated by factory scale cash-cows with a name thought up from a team of designers who.

on that note, I have met a small few people involved in developing these flashpackers, and there is a odd number of people at the top level who have never stayed in a hostel before!

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gordo

11 years

I've been involved in both - the bed factories and the old school.

why not turn it into an ibis? fit out costs mostly. installing a hundred bathrooms aint cheap, they also take up more space meaning less actual rooms. staffing costs are also higher for hotels as, well, they tend to employ more staff. they also tend to pay higher commission and are more susceptible to economic fluctuations than hostels. essentially, the risks are much higher the higher up the accommodation chain you go.

i can assure you this new breed of hostel supporting by big investment firms etc aren't interested in the cash flow generated by hostels - theyre interested in them as safe real estate assets. it's an investment, pure and simple. but owning real estate in major cities in the world does a LOT more for your bank balance than selling lots of beds.

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mappedouttravel

11 years

that's the whole point isn't it? big investment firms setting up hostel as "Safe real estate assets".

build them big - pack them in, tell them your 'different' etc... smaller hostels, many set up by ex-travelers, or people who have at least backpacked once in their life! do struggle to compete with the big spenders...

I think they have much more to offer - and hope anyone setting up a hostel looks to them for a role model and lesson in travel ethics over bed factories..

good name for a hostel that 'the bed factory'

do you think the old school hostel has a future in travel or do you think they will be phased out/replaced by the investors?

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gordo

11 years

I think the romanticism we attach to hostels has to go - this doesn't mean that small, cool, old-school hostels are dead, only that they need to be treated as businesses and not purely as labours of love. no business has the right to exist beyond its ability to compete. if you're a small hostel and being pushed out by the bigger players, i'm sorry but that's the way the world works. I think the industry is a young one and growing in leaps and bounds, we'll see increased differentiation and yes a lot of the old 'mom n pop' hostels will fall by the wayside. I dont really see that as a bad thing in and of itself, this is how our industry (any industry) improves.

I think so long as young (and young at heart) people travel, the industry will only grow stronger. Yes, a lot of that growth will come from the big end of town but so long as there are people out there with the drive and skills to make their business work, smaller independent hostels will always have a future.

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blyth backpacke...

11 years

a lot a small hostels in rural areas provide a low cost clean bed for good people were a large hotel or high end (large) hostel would not show a profit. I run a hostel at the edge of a village on main road on farm and try help people see the other side. and love to meet new people. WE run a long with a repair shop, farm, and trucking co in a very large doctor built farm house so there is no upfront cost and aim to cover operating and staff costs. IT also provides a way to bring new mechanics in for 3 months to see if they are a good mix from other places in the world :steve: you can still have fun in a small hostel as many people love to chat and drink in common area and the bar

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backpackster

11 years

Hey guys. It's an interesting discussion you've got going here. In a nutshell, what do you think the leading hostels of the future are going to be about??

Since 2007 we've been transforming Generator. We're genuinely trying to create something a bit different in the market for budget travellers young and old to enjoy. We've been bringing local artists, popup local clothes, DJs and up and coming local bands into the hostels. The design at our newer sites (eg Barcelona) is frankly awesome. Having a strong, supportive financial backer with fantastic design contacts etc definitely helps.

To the money point - you are both half right - all businesses are (to an extent!) about maximising operating profit (cash flow) as well as capital gains (prop values) because, simplistically, the value of any asset is derived from future cash flows. If the op flows aren't solid then the hostel isn't worth anything. Basic NPV/IRR stuff that guys like Jones Lang LaSalle and CBRE do all day long. It's naive to think otherwise.

My personal view is that the attraction of the hostel business model over hotels is, as you mentioned, one of risk. In a recessive market, as travellers go down market, hostels can still stay profitable where as many hotels struggle. Conversely, in a bull market, hotel price premiums can ramp up enormously (say £50 to £100) where as a hostel cannot ramp as much. So it is a smaller, but lower risk if done right, return. Just my view. Doubtless our investors have another view. Having a number of sites also helps deliver even greater value to guests (economies of scale for stuff like rev mgt/sales/marketing/online etc).

All of our management team stay in hostels when we travel big and small. More than likely including all of yours. I've personally stayed in some absolute shockers as well ace mom 'n pop packers. This gives us a good feel for what others are doing. As an industry we hope to see more people enter the hostel market and succeed - this can only help to break down the stigma attached to the word hostel.

Also, check our the Hans Brinker in Amsterdam - it's hilarious. They've made being a shoddy hostel their USP!

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