Safestay said that a large number of small hostel operators were under pressure as a result of the pandemic, which “may well create unique opportunities” for the group.
The company was planning to reopen its hostels on a staggered basis through 2020, when it believed they could be profitable, targeting each country’s domestic market.
Safestay said that 80% of the hostel market was made up of small operators, with one to five hostels, who were currently being put under “severe financial pressure due to the pandemic”. The company described it as inevitable there would be closures and distressed sales as a result and there might well be opportunities for Safestay.
Under the re-opening plan there will be protective changes introduced to check-in, food service, cleaning rotas and the temporary closure of common spaces with no shared rooms, and instead rooms woud be sold to individuals or groups known to each other.
The group said that it was “well placed to weather the current crisis”, having minimised costs, agreed a £5m overdraft with HSBC, utilised available government reliefs.
For the full-year 2019, the company added seven new properties, in Pisa, Venice, Glasgow, Berlin, Athens, Bratislava and Warsaw. It reported 43% growth in F&B revenues, which represented 14% of total revenues.
Group revenue for the year increased by 26% to £18.4m. Adjusted Ebitda post-IFRS 16 was £6.1m in 2019 and would have been £5.1m in 2018 on a comparable basis.
Larry Lipman, chairman, said: “2019 was a transformational year for Safestay. We added seven new hostels increasing our number of sites to 20 making us a leading premium hostel operator in Europe. Our financial performance reflected this expansion with revenues up 26% and while we also made a good start to trading in 2020, the sudden spread of Covid-19 has meant we have had to adapt quickly to an unexpected phase.
“Navigating the re-engagement of the business will require us to be highly flexible as we test and match demand in individual markets, however, we are confident of being able to do this and making sure that we balance increased operational cost with increased income. From an industry perspective, the hostel market is highly fragmented with a large number of small operators who are under pressure as a result of the pandemic and this may well create unique opportunities for Safestay.”
Occupancy increased to 77.3% from 75.6% whilst average rates have also increased to £21.40 from £20.30. The company said that the increase in bed rate was not only attributable to the effort of the revenue management team, but because some properties had been operating as hotels in 2019 pending conversion to becoming hostels in 2020, therefore attracting a higher rate.
The group said that the revenue generated directly via its website increased by 50% in 2019 to reach 9% of the total room revenue. It said that it was targeting a revenue split of 40% from a broad range of group bookings, 20% from direct individual bookings and 40% through OTAs, spreading revenue generation beyond OTAs to the higher margin direct and group bookings.
Insight: This hack had pretty much given up on hostels in the wake of the pandemic. Too crowded. Too many people. Too crowded. This illustrated a couple of failings: to be young - which can be excused what with all the accrued wisdom - and to fully appreciate the changes in the sector over the past few years.
The market has changed, thanks to products such as Generator, which offer individual rooms, meeting rooms and locally-sourced artisan ales. They are now an option for travelling business folk looking for a well-priced option in markets such as Stockholm and they usually have pretty good wifi thrown in.
Products such as these are not too hard to reopen under social distancing rules and don’t tend to be heavy on costs, making them likely to return to profitability quickly.
Addressing the age issue, it was Brookfield’s Laura Brinkmann who told In Sync that the typical hostel traveller was of an age less affected by the virus. This means that a) they could be allowed to travel more freely and b) they were less likely to fret when they did so. I stand corrected, preferably at the bar with a frosty one.