How does the hostel business model compare to hotels?

In this day and age, the hospitality industry provides travellers with a whole range of accommodation choices.

With options like serviced apartments, guesthouses and cabins, long gone are the days of hotels dominating the market. Hostels are increasingly becoming a popular choice for travellers and there are several key different to running a hostel compared to a hotel.

hostel businessIn this article Sleep Eat Love, a luxury hostel in Liverpool, presents a look at how the business model of operating a hostel compares to that of running a hotel.

Hostels vs. hotels business model

A hostel offers a cost-effective choice in accommodation for a short-term period. Hostels will usually feature shared lounge and kitchen areas as well as shared dormitory-style rooms. The target market for this area of hospitality has typically always been young travellers aged up to their mid-thirties and is a common choice for backpackers. However, within the past decade there has been a rise in people of all backgrounds choosing to stay in a hostel. An individual hostel usually focusses on a niche market, such as specialising in social gatherings or quiet holidays. It’s well known that hostels are a viable solution for people on a budget who want affordable accommodation, greater flexibility, ease of convivence, and social interactions with strangers from all walks of life.

In comparison, hotels offer luxury accommodation with a more private atmosphere. While hotels are still far more common and popular, interest in hostels has surged from Europe all the way to the United States. In fact, during the 2007-08 financial crisis, it was reported that there was a significant increase in occupancy numbers for hostels while hotel figures dropped.

If you are wondering whether it’s better to operate a hostel or a hotel, there are simply too many variables at play that can influence the best choice for you. Things like location, competition, target audience and your management experience all have an effect on the type business venture that would be most profitable.

Something to ask yourself is whether you prefer the challenging of filling more expensive beds or more reasonably priced beds. Hotels usually provide more premium services and are therefore more expensive to operate, while also benefiting from higher room rates. Hostels, however, manage to keep costs down by offering a no-frills experience. So while a single hotel room will bring in more money, low cost hostels are more attractive to a particular type of traveller. Plus, with fewer amenities and services, the cost of operating and maintaining a hostel is much lower. Not to mention hotels usually recruit more staff than hostels and feature furniture and dector that is more premium and expensive.

One of the key differences between a hostel and a hotel is how accommodation is shared. Hotel rooms are always booked on a private basis where guests can enjoy the company of their own travelling party. While hostels may offer the choice of private rooms, shared rooms are always an option with this type of accommodation. Through this sharing business model, hostels can maximise the amount of paying guests without increasing room inventory.