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Hostelworld explains increase in commission

11 February 2014

Following a recent request by STAY WYSE to Hostelworld for an explanation on the recent increases in commission by the Online Travel Agent for Hostels and the disquiet it has caused within the sector, the following letter was received by the association:

STAY WYSE Members,

As an organisation that represents the industry, I am sure STAY WYSE has the necessary research, access to data, and understanding of the hostel sector economics over the last number of years to fully understand and be able to explain the inevitability of the commission increase in the marketplace. Going back only two or three years, the main competitor OTAs in the hostel sector all charged the same commission (10%), and were therefore on an equal footing when competing to grow their brands and acquire customers through digital marketing. SEO and Direct bookings were a greater proportion of customer acquisition, and Search and Meta traffic channels were less sophisticated in their pricing yield algorithms.

Today there are much larger OTA’s catering to the hostels globally, albeit non specialist to the hostel category. Operating at much higher commissions, and charging variable commission rates based on room type, these competitors have a significant Digital Marketing advantage as they are operating from higher margins when acquiring customers, which then allows them the opportunity to sell hotel type accommodation to customers who were initially seeking hostels. This imbalance, coupled with increased sophistication from the Search engines and the emergence of Meta Search have effectively doubled the cost of customer acquisition whilst bed prices and overall booking value have generally fallen in many European destinations.

Our strategic plan over the next three years is based on funnelling the additional revenue from the commission increase into customer acquisition and building brand, whilst continuing to re-invest in our platforms and interface technology. Hostelworld will consolidate and strengthen our position as the leading specialist OTA in the hostel sector. We intend to grow as a company by using all our marketing resources and brand capabilities to work with the operators in growing the hostel business globally. It is my sense that the hostel industry is poised for expansion and we want to grow as a brand alongside it. As such we intend to “go back to our roots” and put a lot more emphasis back on the “Hostel” in “Hostelworld” and put the hostel industry back as the primary growth focus of our business. This is demonstrated with our recent commission increase announcement where rather than imposing a blanket commission increase across all property types, we increased the commission for hostels to 12 % but for all other property types (Hotels, Guesthouses etc) to 15%. Rather than “damage the industry”, our focus will be on strengthening and growing the industry, as we are and continue to be an integral part of that industry.

Thank you for giving me the opportunity to outline the economic drivers and strategy behind the commission increases.

John O’Donnell
Chief Operations Officer
Hostelworld

Following a meeting of a group of leading youth travel accommodation providers and associations at WYSTC 2013, a position statement was agreed upon regarding online distribution practices. The Sydney Declaration represents a constructive and balanced approach to resetting the relationship between OTAs and youth accommodation operators. Please click here to read the Sydney Declaration and to register your support of it.

Screen Shot 2013-09-17 at 11.28.58 AMSTAY WYSE Members can access the latest consumer survey of Youth Travel Accommodation Usage free of charge here.

This extract from the WYSE Travel Confederation New Horizons III survey contains data on Youth Travel Accommodation demand in 2012/13. The main sectors covered in this report are Apartments, Independent Hostels, Hostelling International Hostels, Hotels and Student Residences. It looks at the motivations and behaviours of youth travellers with respect to their accommodation bookings and includes a section on Third Party Bookings.

Please contact Eva Kubrichtova to obtain your copy of the latest research. If you are not a member yet of the association but would like to obtain a copy you can either apply for membership or simply purchase the report online.

STAY WYSE will also be hosting a session at ITB Berlin on Online Distribution Channels: OTAs vs Direct Bookings. We would like to invite both operators and OTAs to join us to discuss the importance of OTAs for bookings and how hostels can potentially win the battle for direct sales.

The seminar will present the latest findings from the STAY WYSE research, looking at the supply and demand side of third party bookings. In addition it will also present some strategies on how operators can increase their direct bookings.

Join us in the Youth Travel Hall (4.1) at ITB Berlin on Friday 7th March on the Big Stage at 10:30 to 11:30.