Gary Morrison, chief executive of Hostelworld, used the Covid-19 pandemic to work on how the hostel-booking group could become more relevant to its target customers: millennial and Gen-Z backpackers.
Having ceded revenues to general online travel agents such as Booking.com long before lockdowns hit best laid gap-year travel plans, Hostelworld is back winning a greater slice of the action in hostel reservations – in a recovering market, to boot. This is thanks in no small part to a social network for independent travellers, who make up two-thirds of its customers, launched early last year on its app.
The company estimates global bookings by hostels that use its platform, measured as beds sold per night, rose 14 per cent in the first half of this year. However, bednights booked through Hostelworld surged 53 per cent during the period.
The “Solo System” network – something Morrison had been mulling since he joined the company in 2018, which invites customers into city and hostel chat groups 14 days before check-in – seems to be paying off. Over half of the company’s bookings are now coming from social members. Marketing as a percentage of revenue has also fallen.
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Now, Morrison is starting to think about how he can capture the minds of Baby Boomers to Gen-Xers – spanning those born between the end of second World War and the early 1980s – who may be looking for like-minded people interested in travelling to partake in specific activities, from surfing to bridge.
Over the past couple of years, there has been quite a lot of bed price inflation. I think that travellers’ budgets have not grown at the same pace
— Gary Morrison
“At any age group – whether you’re talking about people in their 30s, 40s, 50s, or 60s – there is not an insignificant number of people who are solo by circumstance. They might have retired; their partner might have passed away; they might have broken up or divorced; or they might have never met anyone – or moved to a new country,” says the 56-year-old Englishman.
“Although we are currently focused on our strong current category, we have a strong desire and plan to go into that larger, broader market of people who would like to use vacations as a means to meet other people.”
The father of three is not, he insists, talking about trying to squeeze boomers into dorms with shared bathrooms with 20-something backpackers. He’s thinking “slightly more upmarket, more plush” accommodation, like resorts, for potential older customers.
“One thing they do have is more disposable income and they’re able and willing to pay more per night. What they don’t have is the flexibility that your typical hostel-goer has. They can’t travel for a year. So, you’d tend to think about long weekend breaks, which might allow people to do two or three trips a year,” he says.
Morrison says he has not begun to talk yet with potential accommodation partners. “But I would love to have something up and running in 2025, even on a pilot basis,” he says.
For now, however, there is enough to be getting on with in the company’s core market of tens of thousands of hostels across 170 countries.
Revenue rose by 38 per cent for the first nine months of the year to a record €75.2 million as total bookings increased 43 per cent to 5 million, driven by activity in southern Europe, Asia (helped by China’s lifting of its zero-Covid policy at the start of this year) and Oceania being well in advance of pre-pandemic levels. Growth across traditionally core destinations in northern Europe and North America has been less pronounced, amid a spike in bed prices in these regions.
“If you look at the cheapest parts of the planet, there are parts of South Asia where you could get a bed [in a dorm] for €10 a night. If you look at places like southern Europe, Central America and some parts of Asia and Africa, the mid-range is about €30. But if you go to parts of northern Europe – like London, Paris, Rome, Milan, parts of Scandinavia – and New York, it can get as high as €60,” he says.
[ ‘Record’ revenues see Hostelworld raise full-year guidanceOpens in new window ]
“Over the past couple of years, there has been quite a lot of bed price inflation. I think that travellers’ budgets have not grown at the same pace. While we’ve seen growth in bookings everywhere, there are parts of the world where hostellers’ budgets can go much further.”
A quick check on the company’s website shows you can get a bed in a dorm in Dublin for as little as €49 a night this weekend. However, hostels that still have availability for the Saturday night of singer Taylor Swift’s concerts in the capital next June are running at double that rate.
The trend towards cheaper destinations this year served to push the company’s net average booking value down 4 per cent in the first nine months to €14.94. Still, Hostelworld was able in mid-October to upgrade its full-year earnings before interest, tax, depreciation and amortisation (ebitda) forecast to €17.5 million – €18 million from €16.5 million – €17 million previously.
The group, which raised about €16 million through a share sale in mid-2020 to help it navigate what was then hoped to be a shortish Covid-19 shock, was forced the following February to secure a €30 million debt facility from New York-based specialist lender HPS Investment Partners. It was burning through about €1.7 million of cash a month at the time amid heightened restrictions.
That five-year facility saved the company from having to dilute investors with another share sale. But it came at a cost: carrying an interest rate of nine percentage points over the prevailing European interbank rate (Euribor, which was in negative territory at the time, but has since surged to over 3.8 per cent) and the awarding of stock warrants, which were converted in March into 3.32 million shares – or a 2.7 per cent stake – at a nominal price of one cent each.
The company has also used the pandemic to rein in costs and reduce its headcount by a third to 215 employees – half of whom were based in Dublin. The headcount has since increased again to about 230.
Hostelworld reached an important milestone in May when it repaid the €28.8 million drawn down from the HPS facility three years in advance of schedule with the help of €17.4 million of much cheaper loans from AIB, €2 million of which has since been paid back.
Hostelworld also has about €9.5 million of warehoused employment tax outstanding from a relief programme offered by Revenue to businesses during the height of the pandemic. Businesses have until May to agree phased repayment arrangements on the debt, which is currently carrying a 3 per cent interest rate.
“As soon as we sort out the repayment plan, we’ll gladly pay it back,” says Morrison of a company that had over €8 million of cash on its balance sheet at the end of September. And growing.
The career path Morrison took before checking into Hostelworld was a meandering one.
He was in his final year of an electrical engineering masters at the University of Leeds in 1990 when he had a “romantic notion” of taking off to the Continent with his O-Level (the rough equivalent the Irish Junior Cert) French. He landed a job in the research and development unit of oil services group Schlumberger in Paris, before undertaking a masters in business administration (MBA) in the Instead business school.
Morrison went on to work for four years with management consulting firm Booz Allen & Hamilton in the mid-1990s.
Following a period with General Electric’s (GE) lighting division – where he worked on acquisitions of LED (light-emitting diode) companies – Morrison got a call in 1999 from an old friend, Mark Read (now CEO of advertising giant WPP), who was setting up WebRewards, an online frequent-flyer rewards programme provider, as a joint venture with German group Webmiles. German media conglomerate Bertelsmann acquired the business in 2001.
“We made a bit of money from it, but nothing life-changing,” he says.
A call with another former colleague – this time, his former boss at GE Lighting, Mike Zafirovski, who had quit for Motorola after missing out in the race to find a successor to the ruthless GE CEO Jack Welch – resulted in him joining Motorola’s mobile phone unit in 2002. Morrison was part of a group that convinced the world’s then No 2 handset maker, after Nokia, to buy a small UK mobile software company in 2006 to replace its own “nightmare” technology and develop a smartphone, as its sales started to flag.
It would be 2007 before they had a product to present to the board – just when Apple launched the iPhone. “It was game over,” he says.
By then, Morrison was living in Dublin for family reasons (his ex-wife is Irish) and commuting to Motorola in the UK. He left the group later that year and, following stints trying to develop another start-up, working for Google, and doing some consulting work, he joined travel tech group Expedia in 2011. This time he was lured into the company by a former Motorola workmate, Scott Durschlag. “You can see the pattern,” he quips.
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He would spend the next seven years at the group, ultimately ending up as head of the global retail for the Expedia brand, before he was approached by Hostelworld chairman Michael Cawley, the former Ryanair deputy CEO. Cawley was searching for a successor to Feargal Mooney, who was stepping down from the hostel reservations group after 16 years.
Morrison would end up joining a company in mid-2018 that had kind of lost its way – even if the stock market had yet to realise it.
Founded in 1999 by serial tech entrepreneur Ray Nolan, the business – then known as Web Reservations International – was sold a decade later to Californian private equity firm Hellman & Friedman for almost €230 million.
Hostelworld raised the equivalent of €180 million in a sterling-denominated initial public offering (IPO) in 2015, with the deal valuing the group at €245 million. Morrison’s appointment was announced in May 2018, weeks after the stock had reached a peak of more than £4.
It would fall more than 85 per cent over the guts of the following two years as bookings and revenues went from gradual decline to a virtual standstill during the pandemic.
“For quite a long time, the company had the category to itself and was growing on a [booking] volume basis each year until about 2016, when it started to decline,” says Morrison, noting that it was around then that the company began to feel the effects of Booking.com’s gradual entry into the hostelling segment of the market.
The impact was masked in the financials, as Hostelworld increased its commissions from 10 per cent to 15 per cent over time – and added a feature, called Elevate, where hostels could pay extra to be bumped up the listings. The problem with Elevate – which Morrison would go on to scrap – was that it attracted accommodation providers with lousy reviews, who didn’t mind paying more to get customers.
He also took a dim view of the company’s penchant for splashing cash on star-studded advertising campaigns. While ads featuring the likes of actor Charlie Sheen, singer Mariah Carey, former boxer Chris Eubank and US rapper 50 Cent got plenty of views on YouTube, they did little to bump up bookings.
Soon after joining, Morrison set about improving Hostelworld’s platform to allow hostels to run promotions such as offering discounts for multi-night stays – and improving the company’s technology to be able to measure the market competitiveness of its offering.
“Just by doing that, we managed to get the business growing again in the fourth quarter of 2019,” he says. “But there was a long list of things that had to be done to address years of underinvestment in tech. We needed, for starters, to rebuild [the Apple and Android apps] and rebuild the website using different technology.”
Morrison used the pandemic to carry out “open heart surgery” on the technology used by the company. Shares in Hostelworld have rallied 170 per cent from their Covid lows – but remain 28 per cent off their IPO price.
He reckons the pioneering social feature will give Hostelworld the edge over general online travel agents as it targets 10-13 per cent compound annual growth in bednight bookings out to 2025, the end of its current strategic plan.
“The reason why people go hostelling is not just down the fact that it is cheap – but because it is a way to meet people when you are travelling. Sixty-six per cent of our bookings are made by solo travellers,” he says. “The big need of this category is finding other people to hang out with. The social network offers that.”
Name: Gary Morrison
Position: CEO of Hostelworld
Lives: Dalkey, south Dublin
Family: Married to Edyta; has three children, Finn, Clara and Daniel, from previous marriage
Hobbies: Running, swimming and skiing
Something about him you might expect: “I get up early – seven days out of seven.”
Something about him that might surprise: “My wife is vegetarian, so I’ve become a keen vegetarian chef over the years, with probably 30-plus cookbooks on the shelves.”
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