Where previously Asia was more of an inbound destination for Hostelworld Group, today it has become a strong source market for travellers and South Korea, in particular, is taking the Dublin-based company by surprise.
Feargal Mooney: The demographic of the Korean customer – young, have money, stuck to their mobile devices.
The global marketplace for hostels now counts South Korea as its seventh largest market. “We got good traction without doing much,” said CEO Feargal Mooney who joined the company as COO in 2002 when he says “there were 12 people working out of a bedroom or two or three bedrooms in a house” in Dublin.
“We have a Korean language version of our site and a mobile app but what we also saw was not only good traction for hostelworld but also our third brand, hostels.com, which is much stronger in Korea than anywhere else.
“We are not sure why but I will take it,” said Mooney who took the company to a public listing last October, raising £180m. Today the group is the largest standalone hostel-booking platform on the globe, comprising three brands, hostelworld, hostelbookers and hostels.com and operating in 19 different languages. It has over eight million reviews across 33,000 properties in more than 170 countries.
“The demographic of the Korean customer – young, they have money, they’re stuck to their mobile devices, they are increasingly wanting to travel and they are drawn towards Western brands.”
Asia now accounts for 15% of Hostelworld’s business and South Koreans show a higher propensity to travel to Europe unlike the Chinese who tend to travel within South-east Asia, said Mooney.
Keen to tap further into the South Korean market, it did a partnership with Naver, appointed a local country manager, formerly from eBay, and did its first brand advertising for hostelworld at a youth festival in Seoul where it was the headline sponsor.
China is another market it is tapping with an office in Shanghai staffed by a team of 13 people focused on sourcing supply. “China is a more difficult market,” said Mooney. “Even at a product level, our products work well for Korea but when you get into China, there are different payment methods, there’s no Facebook. We need to work on our products for China.”
While it is keeping an eye on the fast growing market of India, it faces challenges in that market due to the terminology of what hostels stand for. “In India, hostels means accommodation associated with universities,” said Mooney.
A hostel in the Mediterranean: “We need to raise awareness and change negative perceptions.”
Indeed, the company wants to change perceptions of hostels in markets outside Europe and Australia. “Europe and Australia have long heritage in hostels and backpackiing. But the hostel industry is changing – there’s modern private hostels now, we are seeing significant investment in hostels which now feature cafes, private rooms and other faciilities.
“We need to raise awareness and change negative perceptions. People want the social experience and hostels can provide that.”
The latest Phocuswright study on hostels identifies four key trends in the global hostel marketplace.
- The power of privacy: Bunkbeds and dorm-style rooms are almost synonymous with the segment, but hostel travelers are increasingly seeking privacy, and hostels are complying. Nearly nine in 10 properties offer private rooms as well as traditional dorms or shared rooms. In fact, private rooms represent 57% of global hostel room inventory.
- A step up in service: A majority of hostels now offer a range of amenities, such as free Wi-Fi, on-site food and beverage, linens and daily cleaning, social events, libraries and media centers. They offer these services with good reason – most hostel travelers purchase additional services on property, and ancillaries contribute to 18% of global hostel revenue.
- Social by design: After price and location, it is the opportunity to connect with others that attracts travelers to choose hostels. More hostels are specifically designing their common areas and introducing curated social events, parties and activities to foster guest socialization.
- Digital dominates: With approximately three in four hostel travelers globally under 35, it should be no surprise that they – like most millennials – do almost everything via digital and increasingly via mobile. Two thirds of global gross bookings for hostels are online. For millennials, online booking incidence is even higher: More than nine in 10 booked their last hostel stay online, and one in four via a smartphone.
Mooney said there were perceptions that there was a lack of privacy, cleanliness, safety and security in hostels. “We have to do a better job of educating the market.”
As such, it has launched a marketing campaign “bling with no sting” around the rapper 50 Cents sharing his debut hostel experience in this video.
Mooney said the company would be investing more in branding and marketing, going heyond paid search. “With paid search, we were only engaging with people who were already aware of hostels, now we want to reach a wider audience and increase the market.”
A year ago, the company spent 35% of revenues on marketing, that share has gone up to 45-50% this year.
Currently Hostelworld does seven million bookings a year and the typical booking is for 4-5 bed nights, worth about 100 Euros. With the low value of transactions, it has to go for volume and Hostelworld is scaling the business aggressively following the IPO.
Growing at 7-8% a year, Mooney said Hostelworld is the biggest distribution channel for hostels and accounts for half of the OTA business for hostels worldwide.
The hostels industry was maturing, he said. “Significant investments are taking place on the supply side and it’s another form of alternative accommodation that hasn’t received the hype of the Airbnbs. Hostels and guest houses are interchangeable in Asia. In the US, people think of them as student residences or residences for homeless people. It doesn’t have the negative perception in Asia.”
Mooney does not rule out the possibility of an acquisition in Asia “if there is an opportunity”.