REPORT: MILLENNIAL TRAVELERS ARE FUELING A HOSTEL REVOLUTION

Alternative Accommodations on the Rise as 18- to 35-Year-Olds Spend More

Money on Travel Adventures as revealed by the primary set of findings from
the first ever 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. This changing
traveler profile and new breed of hostel are remaking the market. Even though
millennial hostel travelers tend to be much younger and have a lower overall
average income, they spend at similar or even greater levels than the general
traveler population. One in four expect to be able to book their
accommodations on their mobile devices, and 93 percent used their phone
while traveling. As such, they can easily compare and contrast experiences on
the go. Hostels have risen to the occasion by offering amenities that cater to a
more demanding clientele, such as free WiFi, onsite food and beverage, daily
cleaning services, social events, bicycle rentals, libraries and media centers.
Here are some of the report’s other key findings. More than 70 percent of
hostel travelers are millennials, 15 percent of whom have used a hostel in the
last 12 months. Compared to other traveler types, they stand out as being
undeterred in their passion for travel. 86 percent of millennial hostel travellers
said, “I plan to travel as much of the world as I can in my lifetime,” and 87
percent said, “I consider travel a very important part of my lifestyle.” The
research shows that hostel travelers take more trips across markets than any
other traveler type, and they are more likely to go abroad. In the U.S., 85
percent of millennial hostel travelers took an international trip in the past 12
months - compared to just 33 percent of all U.S. leisure travelers. Hostel
travelers are the social butterflies of the travel world. The majority of U.S.
hostel travelers (72 percent) are solo travelers – seeking social connections.
They’re also likely to spend more on trips. Amazingly, on average, hostel
travelers spend more on travel annually in absolute terms ($4,474) than the
general traveler ($3,155). In the U.S., spend is significantly above average - a
reflection of their remarkable passion to see the world. The Market
Opportunity for Hostels Hostels have marked a major transformation of the
hospitality industry, and many travelers are now attracted to alternative
accommodations.
The hostel industry is projected to grow seven to eight percent year-over-year,
currently valued at $5.2 billion in bed revenue. Guests ranked low cost (44
percent), convenient locations (44 percent), high overall value for money (43
percent) and opportunities to meet other travelers (31 percent) as the top
reasons to choose hostels. Unlike hostels of the past, today, 9 in 10 have
private rooms in addition to dorm rooms or traditional shared rooms – and
incredibly, there are now more private rooms than dorm rooms per hostel. The
U.S. (along with Canada) accounts for just three percent of properties and 10
percent of global hostel revenue, whereas the U.S. alone represents 28 percent
of global hotel revenue. But, instances of hostel travel among U.S. travelers is
roughly equivalent to that of European and Asian travelers, suggesting an
opportunity to tap into domestic demand if the supply was available. Emerging
markets are seeing the largest expansion in the hostel industry, whereas 4 in
10 hostels in developed markets have been in business for more than 10 years,
just 1 in 10 hostels in emerging markets have been around for that long. The
largest double-digit revenue growth will be in 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). Online
channels are driving the majority of spend -- accounting for two-thirds of
global hostel revenue in 2014 (compared with less than 40 percent of hotel
gross bookings globally). Online Travel Agents are driving these bookings – in
fact more than 70 percent of online gross bookings are made via an OTA. “It’s
astounding how much the hostel industry has transformed in the last five years
alone,” said Feargal Mooney, CEO, Hostelworld. “Today, we’re seeing luxury
hostel accommodations that are offering the perfect balance of privacy,
amenities and social activities. The millennial travel demographic is perfect for
hostels as they’re spending more of their time seeing as much of the world as
possible. Hostels allow for serendipitous, adventurous things to happen in
more places, and let millennial travelers get more value for their money.”

Risk Factors
1. Impact of terrorism threat on leisure travel
The threat of terrorist attacks in key cities and on aircraft in flight may reduce the appetite
of the leisure traveller to undertake trips particularly to certain geographies, resulting in
declining revenues. Increased incidence of terrorism impacts consumer confidence and can
shift demand away from certain destinations. Our target 18-34 year old population tend to
be both flexible as to destination, and less concerned about risk-taking than other sectors in
the leisure travel industry. The dispersed nature of our business also acts as a mitigant, and
this will be further addressed by our continued expansion in Asia.
2. Competition

The business operates in an increasingly competitive marketplace where increased competition

from other online travel agents (“OTAs”) or from the alternative accommodation sector via
websites such as Airbnb, or a disruptive new entrant such as big hotel chains into the hostel
segment or loss of key accommodation suppliers could impact revenue due to potential loss of
traffic or could increase traffic acquisition costs. Demand for our services could suffer, reducing
revenue and margins. One of the companies selling points is its social nature and marketing it is
not easily replicated as an offering by more generalist OTAs.

3. Brand

Consumer trust in our brand is essential to ongoing revenue growth. Negative publicity around our
products or services could negatively impact on traveller and accommodation provider confidence
and result in loss of revenue. We invest in and proactively monitor our brand impact, including
actively managing our brand profile through social media channels. Our customer service team strive
to ensure that customers have a positive experience at all stages of interacting with us.

4. Data Security

Personal data from our customers, including credit card details and retain this on our systems
for a certain period. There is a risk of a cyber security related attack or disruption, including by
criminals, hacktivists or foreign governments on our systems or those of third party suppliers.
Cybercrime including unauthorised access to confidential information and systems would have
significant reputational impact and could result in financial or other penalties. Systems and
processes are in place to restrict access to personal and transactional data and detect misuse,
and all credit card details are encrypted and deleted in line with our Retention Policy which itself
is in line with best practice.