Getting a bunk up 

Hostels provoked much head scratching during the pandemic, and not just because of all those school-aged children sleeping in close proximity and sharing crawling head creatures. 

It’s not like that any more in hostels, you see, as we learned with Generator. This observer spent a happy couple of days staying in the Stockholm Generator and discovered that the days of cheap shots and socks drying off the end of beds were indeed long over, if the evenings of Mario Kart tournaments were not. And even more relevantly for the sector, the company sold for €450m, which sure does focus people’s interest. 

So back to this week and Safestay’s interim results, where there was much chat about plans to “undertake a strategic review in order to maximise value for all shareholders” and try for “additional value for shareholders”, all of which adds up to “let’s have a look at a bit of world domination and if you fancy paying us billions to take over the planet, we’ll have some of that”. 

To survive during the pandemic, the group sold two hostels, raising £16.8m and cut its running costs by 60% against pre-covid levels. Given that the running costs of a hostel are largely a cleaner and someone to make sure the offers of lifts tacked on the bulletin board aren’t out of date, the attraction to investors is clear. And you can, in a very real way, pile ‘em high and sell ‘em cheap. 

As Safestay chairman Larry Lipman said: “Group bookings from colleges and schools are starting to return for the winter period and summer 2022 showing the fundamental appeal of our premium hostels remains unchanged and when our market does normalise, we will have a great opportunity to grow market share.” 

The 16-strong group is liable to have takers, given the colossal wall/tsunami of money now desperate to deploy itself all over the sector, but there was a period when caution ruled in hostels and the very idea of spending a night breathing all over strangers and having them breathing over you felt like the antithesis of Staying Aware, or whatever the covid advice was at that time.

But investors continued to crowd the sector, feeling that the target youthful market was least affected by the pandemic and also least likely to be deterred from a return to travel. This has, in the main, been borne out.

But it’s not just socks and bulletin boards in hostels. It’s not just a volume business. Hostel booking engine Hostelworld sees its future in experiences; more specifically, charging for them. Gary Morrison, CEO, said that he saw “significant opportunities to build a broader catalogue of experiential travel products beyond hostel accommodation”.

These, he said, might include “opportunities to study, work or volunteer abroad, with hostel stays featuring as part of an extended itinerary. Our research would also suggest that this market is very fragmented, with many different marketplaces and business models.

“With the group’s deep knowledge of experiential travellers built up over 20 years, our trusted brand, and a loyal and relevant customer base, I believe we are uniquely positioned to help both our existing customers and new experiential travellers.”

Hostels also find themselves in the position to offer what hotels won’t but Airbnb has; group accommodation, increasingly in private spaces. This is something the UK’s Youth Hostel Association has been offering for years but failed to capitalise on (I don’t know, anyone would think it was not motivated by profit), but as someone who has stayed in a manor house with a wine list under the YHA flag, this one can confirm that they’re onto something. 

And even more strikingly for the sector, Generator illustrated not only the power of the brand, but the power of going upmarket. Still volume, still low-cost operations, but now with corporate guests. There may not be many of them around, but they’ll be looking for bargains and maybe a bit of Mario Kart. 

Should every operator have a hostel brand? Probably. Are they capable of mirroring the budget hotels’ revolution? Maybe not, but they bring interest, community and flexibility and we’ve all been starved of that. 

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