the industry report - atlas

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The Industry Report

June 2021

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Table of Content Market Analysis

Market Definition

Market Size & Forecast

PESTEL Analysis

Demand Drivers

Customer Segments

Competitive Analysis

Market Players

Market Opportunities

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1.1 Market Definition

Hostels’ Definition

Hostels’ Governance

Hostels’ Future

Hostels’ Subcategories


1. Market Analysis

We segmented the industry background into two parts. The first one tackles the global hospitality market, focusing on hostels, and the second one will focus on the competitive landscape of the industry.

Market Definition

Before jumping into any quantitative analysis, this part explores what this industry stands for.

1.1.1. Hostels’ Definition

Hostels are a category of tourist accommodation that offers lodging with communal facilities for an affordable price. Thus, a hostel provides more and better opportunities for guests to socialize and meet new people from different cultures (Verissimo & Costa, 2019). Conceptually, the main characteristic of hostels is that they have a communal environment, including the shared dorms, and the habitation unit to sell is not the room, as in hotels, but the bed (Andrade, 2014; Satyro and Pinheiro, 2006). Nowadays, nine in ten hostels have private rooms and keep pleasing customers with other sorts of accommodation, such as male and female separate rooms and en-suite rooms.

1.1.2. Hostels’ Governance

On average, the hostel industry has far less complexity in its governance structures than the hotel industry. This is because most hostels are independently owned and operated. There are, however, popular associations in the hostel industry. An example of such is Hostelling International, which represents 4000 hostels worldwide. Currently, no brands have complete market dominance, though we can identify region leaders across the globe.

1.1.3. Hostels’ Future

Some hostels renounce low-quality stigmas and establish themselves as a "cool" type of tourist accommodation. Offering a stay based on good value for money and a social atmosphere, these establishments shape the industry's future by redefining the contemporary hostel's image and attending to modern travelers' specific needs. Primarily associated with the so-called low-cost services, some stylish tourist accommodations emerge to contradict the current knowledge that customers experience low quality when paying for low-cost service (Cetin and Walls, 2015).


1.1.4. Hostels’ Subcategories

The hostel market has been increasing and diversifying its services. For a long-time, hostels were known for their low fare and low quality in services; nowadays, this scenario is changing. Posh hostels (or Poshtels), design hostels, party hostels, and eco-hostels are examples of how the industry is renewing, leaving behind the low-quality stigma.

Let's break down all the subcategories one by one: A Poshtel is a portmanteau combining the words posh and hostel. The term refers

to upscale/luxury hostels that deliver the style and comfort of boutique hotels while staying in the price range of hostels. This type of accommodation is a rising trend, as it fuses the social aspects affiliated with hostels with the comforts related to hotels. This accommodation type is highly suitable in targeting more affluent solo travelers who are wishing to meet & bond with fellow travelers. While the majority of accommodations may still be shared, Poshtels still offer private rooms. However, the main facilities are shared to provide the social aspects of hostels. Additionally, the facilities such as restaurants, cafes, and bars offered often outperform the ones supplied at standard hostels regarding quality, design, and service provided. Thereby they can attract the local market as well, driving more business towards the concept.

Design Hostels are, as the name implies, hostels that are notable for their design.

The focus is on the visual concept, architecture, interior decoration, aesthetics, and decors. The appearance is the main appeal of Design Hostels, and the aim is to trigger a 'wow' feeling in the guest. A famous architect often designs these hostels, and, as an expression of his unique style, it gives a 'one-of-a-kind' message to the venues. Usually modern, contemporary, and cutting-edge, Design Hostels are often minimalistic and angular.

Party hostels are attracting guests willing to experience the full nightlife potential

of hostels. However, it does not imply that guests are not inclined to visit cultural and historical sites during the day. Party hostels cater to this by offering all kinds of fun experiences for their guests. You'll often find a bar or a pub built into a party hostel, the hostel activities will generally revolve around pub crawls or nightlife-based excursions, and they're also fantastic for meeting friends. Party hostels are great for solo travelers, as you don't have to work as hard to make friends. Everyone's there to have a good time and is much more open to spontaneous friendships.

Eco-hostels combine the hallmarks of "hostel" style lodging, a low price, and

usually a dormitory-style option for sleeping with low energy-footprint infrastructure and lifestyle. As a result, they can provide an affordable and relatively "green" place


to stay away from home. In addition, eco-tourism generally relies on the integrity of the local environment to attract visitors. Therefore, it makes good ecological sense and good business sense for hospitality operations serving the eco-tourism sector to help protect and educate about their local environment and to demonstrate low-impact lifestyles. Unfortunately, the hospitality industry is generally not highly regulated on environmental issues, so current efforts are typically undertaken by a relatively small number of ecologically conscious owners and operators who demonstrate what the industry could look like.

Hostelling International (HI) lays out six areas of concern in its Environmental

Charter, listed below:

• Recycling • Energy Conservation • Pollution Management

• Nature Conservation • Environmental Education • Consumption Reduction

Segmentation of subcategories is virtually unlimited in the Hostel Industry, but this segmentation is rarely known by the broad public. Also, Hostels are often considered, over and over, as the last option for accommodation, when it is one of the most promising options.

A new business in the market could ideally do a hybrid version of the most popular

sub-hostels categories to perform well in the global market and create a segment that remains yet unnamed, but that will structurally change the hospitality industry in the coming years. This mission is why Atlas is entering this market.


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1.2 Market Size & Forecast

Hostel market by value

Hostel market by region


Market Size & Forecast

The best way to prove the potential of a specific market is to illustrate it with data and real-life examples. In this part, we will give you a quantitative overview of the hostel industry. We will deep dive into the existing markets, their past growth, and key success factors. In addition, we will cover some of the other markets with the most potential.

1.2.1. Global hostel market by value

According to the Hostelworld Group, the hostel industry is currently valued at $5.2 billion in bed revenue and is projected to grow 7-8% year-over-year. In 2020, the industry was composed of 15,643 hostels worldwide: 37% in Asia, 30% in Europe, 16% in South America, 9% in North America, 5% in Oceania, and 3% in Africa (Statista, 2020).

The significant growth of the past decade has been spurred by the fastest-

growing customers of international tourism, the Millennials (aged 18-35). Estimations made by WYSE Travel Confederation and the UN World Tourism Organization (UNWTO) indicate that youth travel accounted for 23% of all international arrivals in 2017, the equivalent of 304 million trips. Furthermore, the global market value of youth travel totals to an estimated USD 330 billion in 2017, accommodation accounted for 15% of total youth travel spending, or an estimated USD 50 billion (WYSE - New Horizons IV).

The hostel market is snowballing with increased demand from new generations.

Some of the key demand drivers influencing this rapid change include more lavish spending by millennials, the rise of middle-class populations in developing countries, and the colossal development of technological and transport infrastructures.

The rise of hostels has unlocked the potential of many regions around the world.

Supported by the 60% increase in youth trips in less than a decade (Hickey, 2017), the hostel industry is now one of the leading accommodation options for travelers. This drastic change in consumption shows a significant behavioral trend when it comes to travel. Thus, a regional approach is needed to understand key market drivers, past performance, and future potential of the region.

1.2.2. Global hostel market by region

Following the global tourism trend, the hostel industry has witnessed rapid change in three main areas: Europe, South-East Asia, and South America. Indeed, over 83% of the world's hostels are located in these three regions, supporting significant interests from travelers.


A. Europe - An ancient continent with strong cultural diversity

Europe is a unique place for traveling and discovering new countries. As a result of complex historical roots, Europe is one of the most culturally diverse regions on the planet. Thus, the region is the global leader in international tourism, with over 600 million visitors each year (Statista, 2020). Its ideal location, cosmopolitism, and attractiveness have made this region the cradle of the hostel movement. Back in the 1990s, hostels were already starting to flourish in Western Europe. In the 2000s, the hostel industry began to attract mainstream travelers and, most importantly, investors. As of today, Europe is home to over 4,800 hostels.

• Infrastructure and networks The proximity between countries is a significant factor in the region's touristic

success. Indeed, a substantial portion of travelers is willing to discover multiple countries on a single trip. In 2017, WYSE reported that 2.5 countries were visited per trip by the youth population on average. This growth is supported by increased accessibility to more destinations and the intensifying drive that young people have for travel experiences.

Also, the well-developed mobility infrastructures in Europe have helped millions

of travelers to move from one place to another with ease, security, and efficiency. Indeed, several options are offered to international travelers to move around: trains (Inter-rails, Eurostar), Cars (Rent, Hitch-Hiking, Carpool), Buses, and Flights (Low-cost, Short-Haul trip).

• A flourishing ecosystem of hostels Being the cradle of the hostel revolution, Europe hosts a growing environment of

innovative and disruptive hospitality groups. This large pool of players allows every traveler to choose their accommodations according to their preferences and budgets. Additionally, the collection of players drives prices down, which dramatically benefits backpackers with low budgets. European lodging options tend to be sensitively high priced, primarily due to their central locations in major cities. However, prices remain affordable for youth travelers.

Europe is the biggest market for hostels when looking at beds number. Germany,

the birthplace of hostels, is amongst the most mature markets, with two of Europe's most prominent brand operators originating from over there: A&O and Meringer. In parallel, Spain is the most popular destination in hostellers' opinion (Hostelworld Group, 2017), but Portugal is the country that prevails when it comes to experience quality (Hostelworld Group, 2017). Finally, Europe has the highest occupancy rate and highest REVPAR in the world in 2019. Indeed, this region is the least subject to


seasonal changes compared to other areas like Asia or South America (Savills World Research, 2016).

• Political Stability and Ease of Circulation Europe is a very stable region when it comes to political conflicts and regional

governance. Leading nations such as Germany, France, or Sweden help mature this peaceful climate between countries, making the region a safe place to travel.

The European Union is an essential factor of Europe's attractiveness. Indeed, each

year, over 400 million EU citizens travel within the Schengen Zone (European Commission, 2020). Moreover, the ease of movement and the exemption of visas offer an excellent opportunity for international backpackers.

B. Asia - The fastest-growing region with endless opportunities

Asia-Pacific has economically emerged in the past decades. Its development led to the expansion of the middle class. Inter-regional travels grew over this recent period, correlating with increasing investments in the region’s touristic infrastructures. The region's economic development, which started years ago, positively impacts the T&T** sector. This sector will double in value, reaching almost $1.2 trillion in 2026 (World Travel & Tourism Council, 2017).

Each year, nearly 500 million tourists explore Asia's most beautiful resources

(Statista, 2019). From fast-growing cities to paradisiac landscapes and rich history, Asia has a lot to offer. The growing number of tourists has significantly supported hostels’ expansion in the region over the past decade. While the number of tourists in the area almost doubled in 10 years, the number of hostels tripled (Hostelworld, 2020).

Now, Asia has over 5,800 hostel options, and this number is likely to keep

increasing as the pandemic ends and millions of people will be willing to go back and explore the world. Most of the hostels are located in major countries such as Singapore, Malaysia, Thailand, Laos, Vietnam, and Indonesia. Here are some of the key factors driving the hostel demand in this region.

• Asian diversity - A culture to explore When looking back at when we could still travel without restrictions, Asia was

one of the hottest and trendiest destinations. Countries of South-East Asia offer competitive prices and leverage their abundance of natural wonders to attract tourists.


Social media have contributed significantly to this traveling trend, with explorers sharing some of the most stunning landscapes and some of the best food in the region.

• Low cost of living and increasing Asian's purchasing power Asia's low cost of living offers excellent advantages for occidental tourists. In

addition, high purchasing power gives European and American backpackers the possibility to stay longer, travel to more places, and spend more money on experiences.

Moreover, the rise of new social classes in Asia will allow a more significant

portion of Asians to travel in the region. For instance, the increased number of "middle class" Chinese will significantly boost tourism in the area (Goldman Sachs, 2013). As a result, Asian travelers spend considerably more than others during their trips, despite shorter stays (World Travel Monitor).

Finally, the tremendous growth of the Asian economy will be an essential factor

in the hostel industry development. A study from McKinsey, 2019, estimates that by 2040, 50% of the global GDP and 40% of the world's consumption will be located in Asia, representing a fundamental shift in the world's power balance.

• Technology and infrastructure The development of infrastructures in Asia provides improved access to

transports, technology, information, and security. In addition, with global hubs like Singapore and Hong Kong, Asia is well-connected, enhancing the mobility of travelers.

Additionally, increased internet access and electronic payments proliferate,

especially in Asia, where new technologies like cryptocurrencies are adopted faster than regions like Europe or even the US. As a result, Southeast Asians are the most engaged mobile Internet users in the world. There are 360 million Internet users in the area, and 90% of them connect to the Internet primarily through their mobile phones (Temasek, Bain, 2019). Furthermore, technological development gives more access to services such as payments, but it also improves the quality of the information provided to tourists through reviews and social media. Therefore, mobile experience and mobile payments are increasingly hot topics in the industry and are essential factors to win the market.

• Geopolitical stability Finally, geopolitics among the ASEAN community is relatively stable. Despite

some recent conflicts in Myanmar, South-East Asian countries have strong relations, which support the overall growth of the tourism industry.


Additionally, the region has dramatically improved its international openness,

with projects like visa-free areas. Going forward, Asia will become a major player in the tourism industry if it is not already (World Economic Forum, 2017).

C. South America - An emerging region for long-term travels

Latin America also is one of the hottest destinations. The increased investments of countries like Mexico, Chile, or Argentina in touristic infrastructures have shown promising results, attracting more digital nomads and backpackers. In 2019, approximately 35.5 million international tourists visited South America (Statista, 2021). According to UNWTO’s forecasts, Latin America will welcome 78.2 million tourists by 2027, with gross revenue of $82 billion.

South America is the most extensive emerging backpacker route for travelers,

with an increasing 25% of them planning to explore the continent shortly (Hostelword, 2020).

South America has 3,000 hostels, making the region the third biggest hosteling

ecosystem in the world. The economic development of the region, stunning natural resources, and emerging cities are some of the key drivers supporting its growth.

• Solid economic development despite unstable political climates The rise of the middle class is one of the most significant achievements of Latin

American economic expansion. The poverty reduction allowed people to start enjoying what the region has to offer. More than 72 million people were lifted out of poverty in Latin America and the Caribbean between 2002-2013 (UNDP). Moreover, economic growth plays a significant role in the tourism industry’s development. Indeed, the rise of the middle class slowly opens up opportunities for the hospitality industry, with increasing demands from local travelers

Even though solid economic growth has supported an increase in purchasing

powers for residents, political instability in the region remains a significant concern for international companies. The weak political institutions failed to reform the economy of the regions structurally, and populism rules have plunged South American countries into an unstable atmosphere with waves of protests throughout the continent.

• Strong tourist attractiveness but a low market concentration We believe Central and South America are fascinating locations for the hostel

industry, especially since the cost of living and the local real estate market is relatively low. Despite various political and social problems affecting some countries, Mexico, Brazil, Costa Rica, and Panama are in the top 50 nations with the most


competitive tourism sector (World Economic Forum). While Mexico has traditionally been the most robust tourism economy in Latin America, Brazil, Panama, Costa Rica, Chile, and Argentina are becoming increasingly competitive. For instance, Chile experienced increases in European (+6.3%) and Chinese (33.8%) tourist arrivals in 2017, with the number of foreign tourists visiting rising by 14.3% compared with the previous year (EHL, 2020).

Though South America has experienced rapid growth, the hostel market supply

remains relatively low. Indeed, with just over 3,000 hostels for a land of almost four times the size of South-East Asia, the market concentration could be more prominent with the development of hosteling groups in the region.

Tourism also gained from regulatory improvements. Colombia, for instance, was

able to secure significant investment in the hotel industry after creating tax incentives and successfully stabilizing specific touristic regions. As a result, international hotel chains, such as Hilton, Marriott, and Hyatt, have increased their presence in the region and invested heavily in their Latin American hotel pipelines. This signifies that the area will see a growing influx of tourists in the future (EHL, 2019).

• Large countries with endless natural resources South America's contrasting cultures and landscapes – from the searing desert

and steamy jungle to snow-capped Andean peaks and ice-bound south – combined with a sometimes-turbulent social fabric, make the continent a very cosmopolitan and exciting place to travel. As a result, the continent offers diverse options for international travelers, especially those seeking responsible eco-tourism options. Indeed, over the years, South America has built an exemplary network of national parks and reserves that provide a magnificent resource for visitors, combined with remote eco-lodges.

Even though the region is immense and inter-country travel is more complicated

than in Europe, it goes hand-in-hand with today's travel tendency and the change of tourism behavior observed with the millennials. Indeed, nowadays, slow travel is becoming a new trend. Backpackers are choosing to explore fewer countries in a single trip to get more out of each destination. Down from an average of 3-4 countries per trip in the past to just 1-2 countries now, tomorrow's backpackers are less likely to visit overcrowded popular destinations, where everyone else has already been. Instead, they are looking to step out of their comfort zone to seek new fresh adventures (Hostelword, 2017).

• Infrastructure and Technology The growing development of transport infrastructure in Latin America has

naturally benefited the hospitality industry. By the end of 2018, fourteen new regional


and international air routes were opened to provide better connections between Latin America and the Middle East, Asia, and Africa. (ALTA, 2019).

Lastly, the rise of technological solutions in South American countries plays a

significant role in the industry’s dynamic. More people have access to digital payments and the Internet, which correlates with increased tourism activity in this region. Indeed, the use of social media and tourism portals through mobile phones, though still essential, is now the biggest source for destination choice and trip activities, with over 60% of South Americans having an internet connection (BizLatinHub, 2019).

D. Middle East, Africa, and North America – low competitivity

The increased number of tourists worldwide, though temporarily reduced during the pandemic, has created endless growth potential for the hostel industry in new areas.

Indeed, new opportunities are now emerging for the youth travel industry with

millennial markets in the Muslim world and China (New Horizon IV, WYSE, 2017). About 60% of Chinese outbound travelers are now millennials who are increasingly coming from second-tier cities. Considerable growth is also expected in the Muslim millennial market, with about 60% of the world's 1.8 billion Muslims aged under 30. The value of this market is predicted to rise to $220 billion and 158 million arrivals in 2020 (ITB World Travel Trends).

The increased interest for Middle Eastern locations such as Iran, Palestine

(+20.8% tourists’ arrival in 2018), and Turkey (+21.7% tourists coming in 2018) have made the region a fascinating place for tourists to explore. Though very politically unstable, the Middle East is home to some of the richest cultures in the world.

Additionally, Africa is also an emerging area with huge potential. Some 67 million

tourists visited Africa in 2018, representing a 7% growth from 2017. Africa is the second-fastest-growing region when it comes to tourism after Pacific Asia. African countries are now reaping the benefits from positive policy changes coupled with increased investments in the sector, which have made them more attractive destinations for tourists. In Ethiopia, for example, relaxing visa restrictions while improving flight connectivity has seen Addis Ababa transformed into a regional transport hub, even overtaking Dubai as the world's most significant gateway to Africa. As a result, Ethiopia became Africa's fastest-growing travel country, growing by 48.6% in 2018 (Africa Hospitality).

Finally, the US is a growing trend for the hostel industry. For a long time, the

hostel scene has left the US behind compared to Europe. With only 3% of worldwide hostel properties and 10% of global hostel revenue, the hostel market is very late in development compared to the US Hotel market. Now, the US is ramping up to


develop very innovative hostel chains across the country, with significant investments coming from big private equity groups. For instance, the recent opening of Generator Hostels in Miami showcases the increased interest of institutions in the sector.

Below is a graph representing major cities worldwide with their associated

number of hostels.

To conclude, the global hostel market is quickly developing, with new players

coming in, each year. Estimates forecast a market CAGR of about 8-10% in the next 5-10 years, supporting a shift in the hospitality industry and significant changes in traveler's behaviors and international dynamics. Finally, growing interests in developing countries such as South America and South-East Asia will likely help democratize the hostel standards and set a stepping stone in this disruptive economy for good.


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1.3 PESTEL Analysis

Political Analysis

Economic Analysis

Social Analysis

Technological Analysis

Environmental Analysis

Legal Analysis


PESTEL Analysis

To assess the impact of large-scale factors on the hospitality industry, Atlas’ team developed a PESTEL. This framework usually covers a specific area, but here it is adapted to fit the company’s interest by adopting a global perspective. Thus, running a local PESTEL analysis will be needed once a definitive location is chosen. Below is a glimpse of what this part will cover.

1.3.1. Political Analysis

Politics have different impacts on the Hosteling business. The most apparent effect is negative. Indeed, when a country suffers from political instability or controversy, tourist inflows ultimately reduce, altering the attractivity of the country: a terrorist attack would fatally plunge the local tourism industry. An example of such an adverse event is the 2015 terrorist attack in Tunisia in a five-star hotel in Sousse. The mass shooting killed 38 people, including 30 foreigners. As a result, Tunisia’s touristic industry plunged by 50% (CNN 2017) despite a rebound after the 2011 Arab


spring. Furthermore, a survey of WYSE 2018 showed that political or social unrest caused anxiety or a change of plan for at least 30% of young travelers.

Contrarily, tourism flourishes in conflict-free environments, where policies

benefit touristic activities. Good diplomatic relations and free travel zones positively impact a country’s openness to tourism. Visas are the most prominent political pain points for a traveler, and their respective policies have significant influences on the destination choices of travelers. In 2015, 61% of the world's citizens required a travel visa (World Economic Forum, 2017). Visas-related problems are numerous, such as high costs, language barriers, or mandatory pre-travel interviews.

Politics also impact infrastructures and development strategies. It means being

potentially slowed down in cases where local regulations do not facilitate local business and expansions for a hostel company. In addition, travelers also seem to choose destinations based on the quality of tourism infrastructure. Efficient transportation hubs, modern airports, well-connected cities, developed hosteling businesses, and proper infrastructures all account for the rise of a destination.

Taxation laws are the last significant impact politics can have. For example, FDIs

(Foreign Direct Investments) are taxable. We could imagine the impact of such laws on investment plans targeted to the hosteling industry. But, on the other hand, it could dramatically affect the development plans of the industry’s newcomers. Another taxation system that directly impacts the industry is the “Goods and Services Tax” (GST). This tax affects (almost) all goods & services consumed and is based on each of the goods’ value-added. In India, the government recently unified the GST system to facilitate e-commerce and reduce overall taxes on services. It translates to lowering costs for the customer for the hospitality industry, leading to more international attractiveness (CorpBiz 2020).

With the likes of healthy structural measures, countries and regions can boost

their attractiveness. The European Union is an excellent example of such, with the Schengen Zone's immense success. It boosted the economy and benefited both European and non-European explorers.

1.3.2. Economic Analysis

The economic situation is a good indicator of whether the business will flourish or not. In other words, the condition of the economy correlates with the purchasing power of travelers. If the economy is thriving, consumers can spend more on leisure activities. On the other hand, in times of recession, travel expenses suffer from a drastic negative shift in budget. Under such conditions, industry players like hotels, hostels, tour companies, and airlines would be forced to cut their prices to match the shrinking demand, profoundly affecting their profits. This situation is also valid on


the opposite, with higher yields when the market grows. This phenomenon is called economic cycling.

Foreign currencies and exchange rates are other economic factors directly

affecting the industry’s dynamic. Hostels are even more impacted as their broad target customer is usually very budget-driven. From a tourist point of view, this results in more attractiveness for hostels implemented in developing countries with low EX rates. Indeed, with higher purchasing power than when in their home country, occidental travelers benefit from such circumstances. From a business point of view, the currency’s stability will strongly impact the activity. An unstable EX will create fluctuation in revenues. For example, in 2014, when the Russian Rouble devalued abruptly, it led to considerable losses for large hotel groups like Accor, with millions of dollars lost.

When economic activity and employment are high, people have sufficient

disposable income to spend on tourism and travel. Therefore, it leads to good demand, and on the other hand, lower economic activity and employment lead to low consumption of tourism services and less spending. For the hospitality industry, high local income means higher local consumption levels, impacting the hostels’ market positioning strategy.

1.3.3. Social Analysis

The younger generation has shown consequent interests in traveling. This phenomenon is further fueled by social media, where people can share and exchange their experiences, thereby creating an unconscious pressure to explore. Added to their rising purchasing power, a wider range of people will use hostels and hotels when on the go. This tendency is likely to exponentially grow in the coming decades, leading to even more demand for hostels.

People are usually friendly to tourists, despite occasional tensions. Certain

regions or cultures are very warm and welcoming, inevitably attracting more people to discover their countries. People are willing to go out and explore different cultures, languages, religions, and traditions.

However, mass tourism has had profound social consequences as well. On the

one hand, tourism benefits local economies. Still, on the other hand, it can also damage the residents' day-to-day lives, culture, and heritage when tourism is not environmentally friendly designed (Hunt, 2018). As a result, many European cities have witnessed protests by residents against mass tourism. For example, Airbnb has faced harsh backlash in Lisbon after being accused of causing more gentrification and expelling the lower class outside the center after prices skyrocketed from short-term rentals.


The tendency is also toward social inclusion, and this is particularly true in the hospitality industry. This tendency is accentuated with the help of governments that implementing policies to prohibit discriminative acts. For example, in many developed countries, every structure offering service must have proper disabled people-friendly infrastructures.

Social advancements also benefit the industry. The empowerment of women and

the rising number of solo female travelers have translated into new specific needs and demands, driving changes in the industry. It includes improvements in privacy in shared facilities and the creation of women-only dormitories. With the rise of gender equality, the demand for these types of services will continue to grow. Despite a huge delay in women’s rights, Saudi Arabia has recently shown slight progress. They recently granted the freedom of solo traveling to Saudi women. This topic will be further discussed in the segmentation section.

Cultural gaps also impact the competition on the market: different regional

profiles provide opportunities for niche players to thrive and boost their expansion opportunities for the ones keen on expanding their business models. However, most youth travel accommodation operators prefer to stick close to their original geographic base to leverage their domestic market-related knowledge.

1.3.4. Technological analysis

The ever-changing technological advancements shape the ways various services are and will be provided. With the introduction of broadband connectivity, the commercial world has undergone structural changes.

The advent of software solutions of Enterprise Resources Planning (ERP),

Customer Relation Management (CRM), and Supply Chain Management (SCM) has contributed to the systematic enlargement of the industry over the past two decades. Indeed, in a data-first era, such systems have enabled statistical tracking and better understandings of markets, consumers, and industries as a whole.

As mentioned earlier, social media also impacted the way hospitality services are

consumed. Strong customer relationship is essential to the hostel industry. It ensures customer satisfaction at all times and is vital for customer retention. With customers being at the heart of the business model, you ensure strong customer loyalty and market growth. The professional use of social media by hostels has become an essential tool to ensuring visibility. Social Media are an excellent tool for word-of-mouth 2.0 and play a heavy role in the customer decision process.

These technologies are the opportunity for market players to gain exponential

visibility by creating viral content. In addition, these channels are great for creating long-lasting and direct relations with customers: 47% of consumers think Facebook


is the best channel to solve a customer service issue (Wanderlust 2018). To enhance customer experience, the potential of social media is vast, and more incredible uses are still to be discovered.

Additionally, Online Travel Agencies (OTAs) have flourished. Their goal is simple:

centralize all booking activities into comprehensive platforms. By gathering all the necessary information for the customers (Information, photo, review, features, Etc.), transparency is improved. Therefore, the customers’ decision-making processes are improved. Also, thanks to this customer-centric approach, OTAs quickly took over the market and have kept growing ever since.

Lastly, innovative uses of blockchain technologies can be integrated into Atlas’

Business Model. Indeed, Airrack, managed by Zack Honarvar, used NFTs to divide his videos into shares, distributed to fans. Atlas could leverage this new technology using the LABs group’s services and bring the Yes Fam into Atlas’ capital. Beyond the emotional bond, this would generate, it would also translate into financial benefits distributed thanks to renting payments Their concept is simple: Making individual real estate investment accessible to most. By segmenting the real estate into various smaller NFTs, everyone can own a small part of the accommodation. Looking into the future, this technology could drastically challenge the way specific projects are funded, and we could be part of this change.

1.3.5. Environmental Analysis

The environmental dimension is one of the critical factors to manage, even though it often translates into a natural phenomenon you cannot anticipate. Indeed, the weather is an essential factor in the decision-making process for travelers. The broad market is keener to visit sunnier and warmer places rather than experiencing tropical monsoon season. Also, when choosing where to implement, hostels and hotels usually try to adapt to the local weather trends to offer the most comfortable stays to their guests. Seasonality is, therefore, a centerpiece in defining the pricing strategies. However, hostels are the least subject to weather-dependent tourism. Indeed, hostel guests tend to be more “adventurous”, reducing the economic impact of extreme weather.

When talking about the “sustainable” dimension of environments, studies found

that tourists were more likely to travel to countries that took more excellent care of their environment. Whether that is to take advantage of unspoiled landscapes or avoid adverse environmental effects like pollution isn't clear. Still, places where visitors had access to sites of ecological preservation, ranked high on travelers' lists. For example, western European countries such as Switzerland, Norway, and Iceland accounted for 17 of the 20 countries listed as the most environmentally friendly (World Economic Forum 2017). The rise of eco-tourism worldwide has confirmed this trend.


1.3.6. Legal Analysis

Each region comes with its set of complex regulations, whether social, economic, or environmental. Complying with the local policies is a must-do for any business willing to enter a new market and getting to know all the local requirements may turn out to be a difficult task.

Hotel owners usually obey innkeeper laws, which ensure guests' welfare and

safety. Reversely, it also ensures guests respect the environment they are paying for. In some locations, this hospitality-specific set of laws must be displayed in most of the rooms of the venues. These laws will state all compensations related to specific events.

Any hotel with food or beverage establishments must follow truth-in-menu laws,

which means the food establishment must be truthful about the food and beverages served to guests. In addition, the establishment needs to be honest about the calories in the food and the nutritional benefits of the dishes.

Generally, hostels are impacted by local labor regulations when hiring local staff.

Therefore, businesses must comply with these laws to ensure that their employees have the right benefits, salary, working time, Etc.

Although hospitality chains are expanding internationally, significant geographical differences remain in the youth travel accommodation market, maintained mainly by those regulatory barriers, particularly in North America (WYSE 2018). Consequently, it produces different profiles of youth travel accommodation supply and demand in other world regions.

Regulatory issues affecting development plans will continue to be essential for

hostels and other youth travel accommodation operators. The current tendency for hostels to cluster together in the centers of major cities means that new travel accommodation may be subject to more controls in the future. Cities like Amsterdam and Barcelona have already introduced partial bans on new accommodation development, reacting to complaints about 'over tourism'.

Regulatory issues will also be necessary for the development of sharing economy-

type accommodation. At present, some cities are trying to deal with Airbnb by introducing new regulations, but this piecemeal approach is exacerbating an already uneven playing field in many cases. Until different administrations can coordinate their efforts, Airbnb will play one city off against another and delay introducing adequate controls. On the other hand, hostel operators can benefit from this negative momentum surrounding Airbnb: it is a chance for them to present themselves as more responsible and manageable options for cities to provide accommodation for young travelers and visitors.


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1.4 Demand Drivers

Location & City Connection

Security & Safety

Facilities & Design

Cleanliness

Price

Staff

Social Atmosphere

Experiences & Supplemental Services

Potential Future Dimensions


Demand Drivers

In this part of the study, we look at the demand-side factors that lead to a perfect Hostel Service Quality. With the help of an exploratory research methodology, we cross-analyzed reports and industry analysis to develop the Demand Mind-map. Also, this infographic is solely constituted of secondary data collected from professional resources. All these data are the results of other research papers' primary data, collected from surveys. Because this mind-map covers the demand side only, bear in mind that other parameters should be considered, especially when looking at suppliers and staff.

As per the above map, the Hostel service quality gravitates around eight different

parameters that, if mastered, constitute the best hostel experience from the customer's perspective. This part will further develop each of the parameters. The order in which they are arranged in this report does not reflect any scale of importance. However, to keep a logical framework, we will first tackle the parameters with said "objective functions" and then the ones with said "subjective/emotional functions".

“Objectives Functions” are the tangible ones: hostels managers have complete

control over them. These parameters can be entirely modified or changed if needed. On the other hand, “Subjective Functions” are where customer satisfaction relies on some non-tangible factors. The involvement of personal opinions and judgments are


the reason behind the characteristics of this category. However, subjectivity is not a barrier to improvements. Service quality also encompasses emotional concepts of delight and the creation of a memorable experience. Satisfied customers are more likely to give positive word-of-mouth referrals to others: guests should be provided with experiences that are personal, memorable, and add value to their lives (Ladhari, 2000).

1.4.1. Location & City Connection

The first objective parameter is Location & City connection. The question here is: where is the hostel in the world, what city, and which area in that city? Also, if the hostel's purpose is solely to accommodate customers and provide shelter for a night, it is more likely that you want to have a central location in the city. However, this is less relevant if you can create a solid social and experiential atmosphere in your hostel. The majority of customers are looking for a central location with easy access to local transportation networks and a great integration into the city's life.

Guests appreciate it when the hostel is near prominent tourist attractions and

nightlife spots. They also want to stay in accessible accommodation. Therefore, it is recommended that hostels not located at a walking distance from main touristic sites have a good connection with public transport (Verissimo & Costa, 2019).

1.4.2. Security & Safety

A second aspect to address with a lot of care and precision is Security and Safety. Again, it concerns the customers but also the employees and the staff. Indeed, one of the hostels' customers’ top concerns is that the security of their belongings will be jeopardized. It is a common assumption, especially from older generations that have not seen changes in this industry. Indeed, the hostel market has muted so rapidly, from leftover to premium choice for younger audiences, that the market is not yet fully educated about what hostels now have to offer.

Safety in hostels is comprised of two dimensions, both inside and outside the

facilities. Inside the hostel, guests appreciate when they have lockers to keep their bags and personal objects. Outside, they value it if the hostel is located in a pleasant and safe neighborhood (Verissimo & Costa, 2019).

The risk perceived by backpackers is a multidimensional and heterogeneous

phenomenon, which tends to vary according to gender, age, nationality, previous travel experience, travel purpose, travel motivation, travel arrangements, and destination.

A second step to provide safety to customers in a hostel is to ensure that every

single customer, no matter how crowded the hostel is, can have a piece of privacy.


It can be achieved with curtains added to regular bunk beds. This simple bed improvement creates a personal bubble for the customer to find peace. A second important environment in which privacy is essential is bathrooms and showers. Hostels' customers' experience of toilets and showers is determinant and is often mentioned in reviews. It is imperative to work on these shared spaces because they influence overall customer satisfaction and safe feelings. Having bad reviews mentioning the privacy and cleanliness of bathrooms has a heavy negative weight in the customers' decision-making process. For female and older customers, results show that they are willing to pay a higher price premium than males and young hostel guests for a hostel with a higher security level. The same logic applies to countries with higher crime rates, whose bedding offers are usually priced based on security (Cró et al., 2018).

The hostel segment has the highest crime rate among the various types of

accommodation. Therefore, it is not surprising that tourists are willing to pay a premium when a lodging offer shows signs of greater security.

The last step towards more safety comes through staff training. Then,

experienced people will know how to deal with urgent matters and let the customer know that they competent (Cró et al., 2018).

1.4.3. Facilities & Design

Directly linked to Safety and Security, the design of facilities requires strategic efforts. Building a robust social atmosphere starts from Design. It’s one of the rare dimensions that is a tool for influencing “subjective functions”. According to their latest report, Hostelworld stated that the importance of a hostel's décor has risen by 44% for today's travelers when choosing where to book.

Physical spaces in a hostel, such as bedrooms, common areas, bathrooms, and

kitchen, usually relate to the perception of comfort, privacy, cleanliness, and aesthetics. In addition, visual efforts are linked to cognitive processes, affecting both "quality perception" and "good value for money".

Beyond that, guests attribute different functionalities to facilities. For instance,

they cherish privacy and silence in more intimate spaces, like bedrooms, whereas common areas are spaces where guests can socialize.

This dimension also refers to the esthetical planning of hostels' facilities, the

architecture of the buildings, the layout of spaces, and the decorative elements. Guests appreciate when the design is beautiful but functional (lockers under the bunk beds, plug for chargers close to the bed, Etc.), and value well-planned facilities that can create an environment for socialization (with lounges, terraces, pool, gym,


bowling Etc.). Besides, decoration must be beautiful, modern, and faithful to a theme (Verissimo & Costa, 2019).

Starting with the kitchen, hostels are expected to provide guests with the

possibility of cooking for themselves and thus provide them with good tools and pieces of equipment. Next, dorms should be comfortable and provide guests with all necessary elements, such as electrical plugs, a nightstand if possible, lighting, and all kinds of little attention and details that will enhance the stay. Finally, the lounge room should promote interaction between guests, with a "home-like" atmosphere.

Extra facilities can be a tremendous comparative advantage when it comes to

choosing a hostel. Having a co-working space, for example, could potentially help differentiate from the competition and attract specific customer segments that would have otherwise not consider hostels. Along with décor, on-site co-working facilities have seen a rise in importance for travelers: over one in ten (11%) now see this as an essential factor when making a booking (Hostelworld, 2020).

The most successful hostels have created solid visual identities for their

accommodations. Having a quirky design also opens doors to new customer segments, who grant immense importance to the visual experience of a place. Quirky design often results in a "home-like" feeling, breaking down the common formal barrier from hotels. This atmosphere also is an excellent lever for social connections between guests. Such an atmosphere improves the authenticity of the place, allowing the venue to be personal.

Space management is crucial for hostels. Unlike dormitories and private rooms,

shared spaces do not generate direct revenues. However, they can drive the customer to consume at the hostel's bar or consume cross-selling products sold at the location, hence driving up the revenue per customer.

The majority of hostel guests are traveling alone and are open to making new

friends, listening to others' stories and tips. It is easy to get into chatting about others' travel plans, routes and lives in their countries of origin in hostels. Also, hostels make it easy for those traveling alone to get some company for exploring the city or planning an activity. The spaces in hostels are shared and intended to enhance the interactions, while the informality in services turns staff members into friends of the guests, and Millennials value that (Verissimo & Costa, 2019).

1.4.4. Cleanliness

Cleanliness, Facilities, and Privacy are interconnected. Good performances in all three means a higher probability of recommendation. Cleanliness in hostels is the first cliché that the industry is a victim of, inherited from the old hostel industry, which was far less developed and demanding at the time.


Today's best hostels have similar cleaning policies of high standards hotels.

Also, adapting hotels’ cleaning strategies is critical to perform in this dimension. Dormitories and bathrooms are the most important. Guests like it when the hostel is continuously cleaned and organized. In addition, keeping a clean hostel is a way to appeal to guests' sense of aesthetics, since they have commented that a clean hostel imposes more respect towards the place and encourages guests to maintain a collective standard for cleanliness (Verissimo & Costa, 2019).

One example to enhance the "clean" feeling of guests is the use of scent

marketing. Indeed, an award-winning hostel in Lisbon has scent sensors in every room, even in the staircase. They diffuse a "Christmas" type of smell with cinnamon, contributing to creating a welcoming atmosphere.

1.4.5. Price

The pricing dimension is core in defining a hostel’s success. Being the last objective function despite being partly subjective, price is composed of two sub-dimensions.

The first dimension is value-for-money. Younger generations are especially

conscious of this concept. It could be a consequence of the Internet offering more transparency in product information. With a lower budget, millennials and youth want to make the most of their experience, with a minimum of wasted resources. Cheaper services can be perceived as better value; however, these generations are not as price-sensitive as we would like to think of them, especially when it comes to more expensive services or goods. As long as the price is up to the task and that the result justifies such an investment, good value-for-money is maintained.

The second notion is subtle: customers' perception of quality. It is related to

good value-for-money; the money has been well spent, appealing to cognitive value dimensions of customer experience. Therefore, the excellent value-for-money positively influences a service experience (Walls, 2013). Results suggest that a hostel experience is more valuable when hostellers think they are investing money worthily. With that in mind, some supplementary services have been mentioned as a worthy aspect of their expenses: dinners, pub crawls, experiences, Etc.

Even though the literature suggests that the new generations are price-oriented

and seem to save money with hostel accommodation, they spend on additional services and activities in return. Furthermore, they do not mind spending more if they get a good value for money (Verissimo & Costa, 2019).


Therefore, perception of quality can be improved through thorough and creative experience development. On the other hand, other hostels are memorable for their breakfast, common areas (especially with a view), or their social atmosphere.

In conclusion, all demand drivers are very much interconnected, and the price is

hard to be improved if other parameters, such as facilities, cleanliness, or others, are not improved beforehand. If an establishment can improve objective factors, then there is a positive correlation between improvements and price insensitivity. The hostel will be less subject to price competition, as its value-proposition is differentiating it from others based on quality and not price.

1.4.6. Staff

Staff’s quality perception is experience-based. Managers have much work to improve this dimension. Only the result evaluated by the end consumer will value the overall performance of staff. Therefore, it is crucially important to identify the market's best practices to replicate and improve them for further application.

As each staff is unique, this parameter is only successful if managed in both

macro and micro scales. Indeed, standard guidelines should be established to ensure continuity in the service amongst all facilities. The human resources section is deeply involved in this dimension with recruitment and continuous training. They are the frontlines and can have an important role in satisfying guests' requests (Musa & Thirumoorthi, 2011).

Staff is part of the most mentioned item in reviews. They play an essential role in

building the first human relationship with the guest. Therefore, they also play a crucial role in facilitating social interactions between guests. Research shows that a good staff must be friendly, helpful and must encourage guests to feel at home.

Additionally, staff must be knowledgeable and informative. As per the analyzed

hostels, staff usually ensure that guests have all the information they need, especially at check-in. It can be an important occasion for staff to show how they care about the guests, besides creating an emotional connection with them. Moreover, hostel guests tend to label the best staff as "cool" but professional. Both characteristics embody the differentiation that some establishments obtain when offering a relaxed workplace to a skilled team.

1.4.7. Social Atmosphere

The social atmosphere emerged as a new dimension endemic to the hostel businesses. This factor is one of the most challenging to manage, despite its great importance in the customer experience. The Social Atmosphere overthrows all other aspects in terms of volume in the matrix. The overall service quality is mainly


explained by the social atmosphere. One of the significant "push" factors for backpacking is the opportunity to meet other like-minded individuals and to make new friends (Leslie and Wilson, 2006).

The social atmosphere refers to the ambiance of the hostel. It is the persona of

the place, its "self, and soul". Guests appreciate when the atmosphere marks the hostel's identity, which makes them reflect positively on the quality of service encountered. Friendly, social, inclusive, welcoming, party-friendly, fun, homely, relaxed, comfortable, and unique are characteristics guests comment as a must-have for great hostels. However, a supportive staff, like-minded travelers, and well-planned communal facilities can enhance the probability of creating a positive atmosphere for travelers (Verissimo & Costa, 2019).

Indeed, Social Atmosphere cannot be isolated from the other dimensions, but

rather is a result of good practice in all of the others. Creating a good atmosphere also is a matter of time. It can be accelerated if the brand was already in business or is affiliated with a well-known company. Therefore, we can imagine that a brand like Yes Theory, which already carries positive vibes, can only benefit the creation of an intense atmosphere. Staff training is a second way to build a strong identity. Staff is responsible for two types of relations: Guest-to-Staff and Guest-to-Guest. They actively participate in the first one, and they can encourage the creation of the second one. Thus, the staff is key to creating a positive experience.

The social atmosphere’s construction is binary: it results from the owners' inputs

and the guests' inputs. In this equation, guests have a more substantial influence, especially in these accommodation types where social connection is an ultimate goal. Those interactions happen thanks to tangible aspects but mostly because hostellers are willing to explore their social side. Considering that, guests expect to meet fun, outgoing, curious, and communicative people from different parts of the world. Thus, hostels are an opportunity for social interaction and meeting people.

The social atmosphere is considered the total sum of the functional and emotional

outcomes of the services encountered. Experiences are processed individually, by each consumer, on every single occasion of consumption. The service experience is context-based; therefore, studying it must capture the complexity of the relationship to individual cognition. The concept implies the relevance to interpret it as a socially produced and context-specific phenomenon.

1.4.8. Experiences & Supplemental Services

Experiences and supplemental services are different in nature. Experiences are offered by hostels or affiliated partners outside of the facilities, while additional services are distributed within the accommodation walls. This dimension is the


second most important, frequency-wise, closely behind the social atmosphere in online reviews.

Supplementary services are essential to guests because they turn into occasions

where guests can interact with others and socialize. They can range from serving breakfast or free Wi-Fi to having a bar. They are tools to leveraging hostel activity by generating extra revenue with costless customer acquisition costs. Offering welcome drinks to guests is, for example, one way to leverage the use of supplemental services to create social interactions. In addition, hostels’ guests are very keen on consuming on-site, which turns out to be beneficial for both the business and the individuals.

Potential improvements are numerous in this dimension. With the advent of

digital tools, enhancing the customer experience is multidimensional (Verissimo & Costa, 2019). It is especially true now, in the Covid-19 times, with new contactless habits.

One of the most profitable supplemental services of hostels is food. 28% of

backpackers rate trying local food as one of the most memorable experiences of their trip. An example of such a success is a Portuguese hostel. When they introduce the “Dinner of Grandma”, cooked by the owner’s mother, they did not know how it would end up. However, months later, they made their most considerable profits from this service, and guests loved it. The convenience of the place mixed with the large number of people participating justified a higher price for the end consumer. Furthermore, once the dinner is over, groups of strangers tend to spend the evening together, illustrating the successful connections this moment generated.

Looking at experiences, they are limitless. They range from “Pub Crawls”,

“Walking Tours”, “Hiking initiation”, “Boat” tours, to sports events like running sessions. Hostels tend to externalize such services to actual tour companies. In return, they receive affiliated benefits. Indeed, producing in-house activities is a real business of its own, and externalizing it can be a better solution.

However, a more profitable strategy, especially in Europe, is to specialize in one

or two in-house produced activities. Complete control over the activities means more customizable options and better returns. In-house activities also generate a more critical impact on your brand image. If you provide customers with unique activities, you ultimately generate a tremendous competitive advantage.

“Living like a local” is the type of experience avid hostels travelers are seeking. As

a result, activities’ local content is increasingly judging the authenticity of travel experiences. Making connections with the culture and everyday life of the destination is an essential part of product development and marketing.


The search for experiences is critical, and young travelers are packing more into each trip. Experiences are what young travelers are most likely to splurge money on rather than traditional travel upgrades (Horizon IV, WYSE 2017). The more in-destination activities and experiences young people have while traveling, the happier they are. The number of activities had a more decisive influence on happiness than trip length, splurging, or travel budget (Horizon IV, WYSE 2017).

Although this part highlights that some guests might value social experiences, it

must also look into consideration that others might just want a clean bed in a central location.

1.4.9. Potential Future Dimensions

Inevitably, this matrix will transform in the future, with new dimensions arising and the balance between them all ever-changing.

Sustainability, for example, has not yet been identify as one of the pillars, though

we can only consider it as a primary dimension. Guests will tend to value a hostel that takes action in favor of becoming a more sustainable entity. Concerns around sustainability and the impact of traveling will be a hot topic in the following years. Youth travel is an opportunity to influence positive change in sustainable travel behaviors (New Horizons IV, WYSE, 2017).

In parallel, local integration of the business will be increasingly important to

young travelers looking into being part of a more responsible tourism industry. Hostels have great potentials to be immersed in the local culture. Acting in favor of local communities means actively participating in the life of the hostel, whether it translates to job opportunities or something else. By embracing the local human wealthiness, hostels will be able to please more “conscious” travelers.

With the pandemic, health arose as a top priority for accommodation business

owners. The sanitary crisis significantly impacts the hospitality industry, and we can only imagine dormitories to be the most vulnerable type of accommodation. Indeed, shared spaces are entirely compromised with such a situation. Therefore, innovative measures should be taken to gain guests’ trust.

1.4.10. Conclusion

To meet people, hostels have shared environments, and most Millennials choose to stay in hostels because of it. Spaces in hostels are planned to enhance social interactions, while the informality in services turns staff members into friends, and Millennials value that. In addition, they like to feel comfortable, but not just in terms of the quality of beds or bathrooms. They want to feel cared for and well-received; hence, supportive staff and like-minded fellow travelers are essential aspects.


Various hostels mean various personalities. Guests do not know what to expect

when they check-in, but they are comfortable with the ambiguity; in fact, the ambiguity is a desired component of the experience for many travelers.

To engage in activities and events, hostel travelers seem to be non-stoppable.

When they travel, they want to explore as much as they can. Hence, when choosing to stay in hostels, they want to engage in activities and events to explore the city and get to know people.

Millennials are willing to explore the places they travel to, and they want to

experience things as locals, try local food, and discover local spots. Therefore, everything differing from regular tourist circuits is "a must" for these travelers. Being aware of that, hostels include local elements into their spaces and services: a decoration that refers to the local culture, dinners with local food, trips to hidden spots – are all appealing to the Millennials. In this way, the staff, the activities, the events offered, and the atmosphere help Millennials engage in local experiences (New Horizons IV, WYSE, 2018).


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1.5 Customer Segments

Backpackers

Digital Nomads


Existing Customer Segments

To understand what customers are looking for, hostels need to know who their customers are. This section aims to identify the main types of customers who are more likely to book a hostel as their accommodation for a trip. Segmentation is a multidimensional tool that grants a comprehensive understanding of the market. We, therefore, segmented this section into two main types of travelers while raising the complexity and diversity of the persona through a demographic, psychographic, and behavioral analysis.

1.5.1. Backpackers (Flashpackers & Poshpackers)

A. Demographics

Age

Primarily associated with the concept of hostels, backpackers are typically millennials aged from 20 to 35 years old.

Future backpackers will be part of the new generation: Gen Z also called iGen,

who seems to be following a similar pattern. Generation Z represents younger travelers aged from 13 to 22 years old. The iGen

is the "socially-conscious generation". Very early on, they are dealing with mental health issues, gender preferences, and cyberbullying. These phenomena lead to Gen Z being the most culturally and diversity-exposed generation.

Gender & Marital status

The hostel industry used to be dominated by single male travelers or groups of males. Now, the hosteling landscape is much more diversified, with a complete reshaping of the demand.

Female millennial backpackers are becoming increasingly important, with

75% of women declaring they have gone backpacking or are planning to, compared to only 67% of men. (Hostelworld, 2020). Their implication in the industry also challenges traditional beliefs, forcing the industry to adapt its offers (e.g., Female-only dorms).

Beyond the sole gender segmentation, hostels have widened their offers to accommodate different groups of people. However, as demand is much more complex than a dominating male solo backpacker segment, hotels and Airbnbs still


compete with hostel accommodation. The graph below shows the proportion of booking per accommodation style for each traveler type (WYSE, 2018).

Occupation

Students account for just over 60% of all youth travelers. In addition, a large proportion of travelers work full-time (28%) or part-time (26%), and work often combines with studies.

Backpackers have very diverse backgrounds, education, or

social origins. However, this variety of personalities does not prevent the mixing in hostels. On the contrary, it is part of the hostels’ mission to mix everyone into one space, regardless of their backgrounds, and create connections. This vision, however, may differ according to the location of the hostel and the type of hostel.

Segmentation based on occupation is not a complex factor because guests do

not aim for any high comfort standards. Their expectations are towards the social experience rather than the comfort of the venues. Therefore, they are willing to be part of a more extensive social mixing.


Income

Although young travelers generally have low annual incomes, their travel budgets tend to be augmented by family, savings, or working while traveling. According to WYSE 2018, getting funded by family is growing compared to 2013’s figures.

Savings represent the primary source of income for young

travelers, reaching 32% of the total budget. Being the most critical source of funding gives even more reasons to younger generations to look for the best value-for-money and the most intense experiences.

Gen Y’s total travel budget is identical to millennials. Indeed, a more significant part of their travel budget comes directly from their parents (31%, compared with 17% for millennials).

Geographic

Looking at the country origins of backpackers, it becomes evident that they are not restricted to any specific locations in the world. However, are not restricted to any specific locations in the world. However, an important proportion comes from the UK and Western Europe. Other countries like Canada and Australia have many youth travelers. Overall, developed countries are also the ones sending their younger generations abroad to explore.

Destinations are chosen by young travelers’ local costs of living. Therefore,

subregions within Asia are proliferating. There, their purchase power is maximized, with beds from €3 to €4 per night. As a result, over two-fifths (42%) of today's


backpackers say they've visited Asia, and 37% of tomorrow's travelers plan on going there over the next five years.

B. Behavior

The cognitive behavior most often associated with backpacking includes easily putting up with people, and habits, relaxing, learning to do something more cheaply; to watch how you spend your money and being less conscious of time.

However, some variations to this common ground for backpackers exist. These

variations include some sections of backpackers who will willingly spend more money for comfort and additional service.

Flashpackers

They value the authentic experience of the budget backpacker. However, they don’t want or need to make quite as many cost-saving decisions. They aren’t interested in a luxury vacation spending a week at the same resort every year, but they also don’t want to stay in cheap hostels. They will happily spend more money to get to their destination faster and treat themselves to different restaurants and sample the local cuisine. A flashpacker doesn’t want to compromise on experience. They combine the best of both worlds to create the ultimate adventure, experiencing more by sacrificing less.

Poshpacker

Poshpackers are luxury travelers who love a good spontaneous adventure and can carry a backpack, but that also grants much importance to design, esthetics, and comfort compared to flashpackers. Staying in beautiful hostels is a way for them to make the most out of their trips. They are refined but can still enjoy some crazy local experiences. In addition, they will never be afraid of trying new food at the local food market.

In terms of tourism services, backpackers are very budget-oriented. It is not that they just prefer cheaper services, but they usually search for a good value for money in services. Consequently, whether for social media, research, or purchases, millennials who represent most backpackers, use web devices in nearly every aspect of their life, even while shopping in stores. Retailers should recognize that social media are critical to Millennials in their purchasing journey. Even though they value the opinions of family and friends, they seek out the experiences of other consumers above all. 90% percent of Millennials research product reviews online. Consequently, 82% of Millennials say word-of-mouth is a crucial influencer of their purchase decisions (Synchrony Financial, 2014).


Hostel backpackers are known to stay longer than brief vacation periods. Their propensity to spend on locally-owned services and facilities is higher than any other segment. The majority stay for a period of four to fifteen days in one hostel. Therefore, they generally tend to be price sensitive. Despite low yields on bed prices, these segments can generate considerable revenues in the longer term. Their propensity to consume-in-house compensates for the bed losses.

Backpackers also tend to be socially active, seeking new memorable shared

experiences. Flexibility and independently arranged travel plans also are amongst the most important criteria for them. Informality and participative activities allow backpackers to thrive while on the go.

C. Psychographic

Backpackers show interest in personal growth. This phenomenon is primarily explained by the context in which backpackers are traveling. Often, they are at a transitional point in their life. Traveling is a gateway for them to clear their mind before eventually jumping back into urban life. By experiencing new cultures and meeting new people, they broaden their scope of reflection, helping them cooperate with their challenges.

Lastly, backpackers spend more money than other tourists because they travel

for extended periods. This behavior is key to developing local tourism industries: they accelerate the development of emerging destinations (e.g., Iran, Bolivia, and Myanmar).


1.5.2. Digital nomads

Digital Nomads are a population of independent workers who choose to embrace a location-independent, technology-enabled lifestyle that allows them to travel and work remotely, anywhere in the world. An MBO Partner study finds that 4.8 million independent workers currently describe themselves as digital nomads, and many more, 17 million, aspire to someday become nomadic.

The top challenges of being a digital nomad are finding reliable Wi-Fi, finding a

good place to work, networking, time zones, and work communications, However, some benefit of such status are flexible schedule, no commuting, freedom to live and work where you want, work-life balance, no office politics, not dressing up for work.

A. Demographics

Age

Digital Nomads are young people whose majority age between 22 & 35 (77% according to WYSE 2018). Digital nomads will become an essential segment of youth travelers as location-independent work and related travel increase. The demand for co-working spaces and flexible accommodation will grow accordingly.

Gender & Marital status

Digital nomads are a diverse group in terms of age, gender, and income. However, more than one-third (35%) are female. Digital nomads tend to be more frequently to be in a relationship than backpackers. Therefore, the most developed countries are also the ones sending their younger generations abroad to explore. As traveling and being in a relationship offer challenges, 31% of married digital nomads travel with their partners full-time (FlexJob, 2019).

Occupation

Most are full or part-time independent workers (freelancers, independent contractors, self-employed, etc.), but some have traditional jobs. These positions often enable the freedom to work remotely and to have flexible working hours.

The most common professions for digital nomads are marketing, computer sciences/IT, design, writing, and eCommerce and account for 51% of all reported digital nomad professions.


Income

Being financially independent when traveling is vital for digital nomads and the overall youth travelers' market. It allows them to willingly invest in specific services depending on their needs: more comfort, more parties, or more explorations. Hostels are tools for the customer to create last-minute tailor-made experiences. Furthermore, staying in hostels is a door for many to discover a city. Moving into a new town can be tricky, and for the more recent generations, more nomads than ever, hostels are steps to settling in a new city.

Geographic

The digital nomads' market is composed of 76% of occidentals. 10% then are Latinos or Hispanics, 8% are Asian or pacific islander and 6 % only are of African descent. (A Brother Abroad, 2019)

Behaviors

There might be multiple reasons for which a digital nomad would choose a hostel as its accommodation.

The first one is to evolve in a dynamic environment where they can interact with

other people who are in the same position as them. Despite their activities, digital nomads tend to engage in more activities than most travelers; and female digital nomads are even more avid experience consumers. (WYSE, 2018).

Despite changes happening thanks to players such as Selina, digital nomads’

favorite place to stay is not yet the hostels. Most digital nomads live in hotels, with friends/family, in Airbnb, car, van, RV, and then hostels with only 16% of them choosing it as their favorite accommodation.

This is because digital nomads, tend to be pickier about services offered by the

hostel. For example, they would rather pay a premium for a hostel that offers coworking space. These spaces provide a place to work, professional business infrastructure (including high-speed Internet), and access to a local community of like-minded people. Generally, very internet-dependent, digital nomads use online talent marketplaces to find remote work.

Psychographic

Digital nomads have a specific and common entrepreneur mindset that helps them overcome difficulties. It can be illustrated by 53% of digital nomads who are self-taught in their profession and believe they could have done so without a traditional education. (A Brother Abroad, 2021).


Digital nomads are mostly very aware of mental health and value self-care. 92%

of digital nomads say the lifestyle is important to them. 88% report that being a digital nomad has had a huge improvement or positive impact on their lives. (FlexJobs 2019)

Overall, both digital nomads and backpackers have a similar driver that pushes

them to travel and discover the world. Personalities are all unique in a sense. Some main psychological hostel travelers are generally part of but not limited to the following categories:

o The collector is a traveler seeking to compile the most exceptional, exotic experience. The most unique place won’t be enough for him.

o The conformist travel for social acceptance, having the feeling he will not be

part of society until he has seen the world.

o The thrill-seeker's main characteristic is to be a challenger. He wants to defy what he found exciting and experience strong emotions.

o The escapist has internal and external problems he is trying to escape.

Traveling is a way for him to avoid confronting his problems.

o The self-improver is up early, out late, while traveling he is making the most out of everything.

o The pilgrim travels to follow traditional touristic paths he always heard

about.

o The pioneer is the opposite type of traveler from the previous one. He is only interested in things no one else does.

o The genuinely curious traveler is a contemplative type of traveler. He travels

because he is fascinated by the world around him and because he is genuinely interested in discovering similarities and differences between other cultures.

While defining the target persona it is crucial to remain open to the vast range of personalities of customers and motivations to book a hostel.


Atl

as.

2.1 Market Players

Similar Offering

Similar Solutions

Atlas’ Position


2. Competitive Analysis

Market Players & Best Practices

Although the first hostel opened more than 100 years ago, hosteling can be considered a new business. According to Hostelworld Group (2016), only four in ten hostels in developed markets have been in business for more than ten years, a number that decreases to just one in ten hostels in the emerging markets. The “cost appeal” of hostels has been one of the critical drivers of their expansion in the wake of the 2007/2008 financial crisis, whereas the appeal for local involvement is another driver of hostels’ boom. According to the European Tourist Hostel Report (Savills World Research, 2016), travelers are increasingly looking for something different and more local than hotels. Filling in this gap is the challenge new hostels need to take.

The global hostel market is highly fragmented, with many market players

operating worldwide. Many local and regional hostel operators provide high-quality accommodation for guests of all ages. The hostel industry is still in a growth phase with very few market leaders and will likely reach its mature state 10 to 15 years from now. The sector comprises 15,000+ hostels worldwide spread across major cities, rural areas, and unexpected locations. Even though we can identify competitors at a regional or local level, it is essential to mention that competition is not concentrated between 2-3 leading players and remains broadly divided into individual operators (c.f. 2.2.2. Why there is room in the market).

From international to regional and local scope of research, this analysis will draw

a comparison between hosteling accommodations providers. Indirect competitors will also be subject to this analysis considering their substitutional aspect. For this exercise, we will only mention the most compelling hostel chains. As the market is highly fragmented, any hostel operator is a potential competitor at a continental level. So, we decided to focus our attention on hostel chains with more than ten venues. Moreover, our analysis does not focus on one specific market, and we will cover the fastest growing and most attractive regions for the hostel industry.

The future competition of Atlas can be divided into two categories:

- Similar offering: They are hostel operators offering high-quality accommodations, a great social atmosphere, and activities.

- Similar Solutions: They target similar customers to Atlas; digital nomads,

backpackers, Gen Z, and Millennials. These travelers’ lodging options range from hotels and Airbnb to other local lodging options.


2.1.1. Similar Offering – Medium-size players dominating regional hosteling markets.

Based on similar offerings, we have identified a handful of hostel chains worldwide that would compete with Atlas.

A. Selina - The ultimate remote living experience

Selina is a unique hostel operator in South America, providing the ultimate remote living experience. Founded in 2014, Selina is amongst the most developed operating players in the world. Their innovative business model offers living-coworking-activity spaces across South America for backpackers, digital nomads, and locals. The company has grown exponentially in less than seven years, from a single hostel in Panama to over 80 hostels across 18 countries today. The brand is now expanding to other significant markets such as Europe and the US. In addition, they recently opened a new location in Camden, UK, while being in the middle of the pandemic.

Selina's target customer is predominantly backpackers and digital nomads willing

to explore remote places while having a quality space to work. The group also expanded its offerings towards families with higher-quality standards services and bigger rooms. As of now, Selina welcomed over 1.2 million travelers already.

Selina's objective is to focus on building a global hospitality network for digital

nomads. Their mission is to challenge the way millennials live, work, play, learn and give back. Additionally, Selina diversifies its operations to please customers; they produce music festivals, food exhibitions, and art galleries. Additionally, Selina has an important community-give-back program that has a very positive local impact.

Their unique vision and business model allow smart and exponential growth. For

example, the company mainly leases the buildings where it operates its services rather than buying the real estate. Doing so, local contributors pay in to help refurbish their locations to share in some of the returns that come from the hostels that eventually open up. Additionally, the company has secured massive investment from private equity funds (Access Industries, Grupo Wiese, and Colony Latam Partners) and raised $300 million for a total valuation of $800 million in 2019.

Selina is one of the big players in the hostel industry. Employing over 1,000+

people, the company is now planning to expand its global network to 130,000 beds across 400 properties by 2023. So, what seems to be an essential rival for Atlas will also be an ally in changing travelers’ mindsets about hostels and helping us to achieve customer adoption quickly.


B. Mad Monkey - The Asian party hostel

Founded in 2011 in Cambodia by three English backpackers, Mad Monkey is reinventing how millennials travel, share memories, and give back to communities. Since its creation, the hostel chain has expanded rapidly, with 17 hostels in 6 different countries. Indeed, between 2016 and 2018, their number of beds almost doubled, growing from 760 to 1,500+.

Mad Monkey based its expansion on the concept of "Party Hostel" (c.f 2.1.1.

Market Definition) - providing customers with a fantastic experience - combined with a strong sense of belonging and impact on local communities. Indeed, the group has launched several programs such as a clean water project, educational and art funds to benefit local communities.

Mad Monkey embodies well what hostels stand for nowadays: a fun and social

environment for backpackers to share memories and give back to local communities. Additionally, Mad Monkey provides many different activities (expedition, boat tours, BBQs) and different room offerings. So far, they have welcomed over 350,000 backpackers in Southeast Asia.

Mad Monkey is one of the fastest-growing hospitality companies in Asia, with a

CAGR (Compound Annual Growth Rate) of 35% in 2019 and solid financial performances. Building a strong presence in countries like Thailand, the Philippines, Indonesia, and even Australia came through an innovative franchising model, skyrocketing Mad Monkey’s development pace.

Overall, Mad Monkey is an essential player in the hostel industry and is currently

leading the Southeast Asian market. Their positive community impact is an important factor of their success, and Atlas could use this positive social responsibility for its purpose. Indeed, parties are a great way to bring people and make social connections. However, we believe partying is not what long-term travelers and seekers are only looking for. The new generations are also looking for daytime experiences, and thus, party hostels are not viable in the long run for our targeted customers. Indeed, future travelers expect once-in-a-lifetime experiences (34%) and the culture (49%) to be more memorable than the nightlife (17%) (Hostelworld, 2019).

C. Generator - Leader in the design-led hostel market in Europe

Based in London, Generator Hostel Group is a historical hostel chain and has led the growth of the hostel industry for the past 20 years. The company was created in 1995 by two siblings who saw a great opportunity in renting out their apartments. Since its creation, Generator Hostels have outpaced the hostel market due to several strategic acquisitions from investment funds. Indeed, twelve years after the creation of the group, Patron Capital acquired Generator. Furthermore, in 2012, the


Queensquate Investment made a significant investment of $300 million to prepare for the group's expansion in Europe.

The Generator Hostel Group owns 15 properties across 12 countries in Europe,

growing from 5,000 beds in 2012 to 8,600 beds in 2018. It is now expanding to other significant growing markets such as the US, with a recent opening of its new hostel in Miami. The group offers stylish and superb yet affordable accommodation in centrally located event-led hostels. Compared to other competitors, the group targets backpackers and individuals and large groups, families, and even corporate audiences.

As part of their new dimension of relaxed, social travel accommodation and

public spaces for the young at heart, Generator provides multiple services for its customers. They boost their revenues with large cross-selling operations. Each hostel possesses its bar, restaurant, and set of tourist activities.

Overall, Generator Group is the leading provider of hostel accommodation in

Europe. Their strategic positioning and ideally-located venues make them a strong competitor for our potential expansion in Europe.

D. Wombats - The ultimate backpacker’s European hostel

Wombat first opened in Vienna in 1999. It took several years for the founders to open this first location. Inspired by travels in Australia, New Zealand, and China, they built a customer-centric venue. Wombats embodies an excellent opportunity for friendly gatherings in affordable accommodations. They welcome the communities that come together to share stories of exploration. Since their opening in Austria, they expanded to London, Budapest, Rome, Munich, and Venice.

Wombats shares very similar beliefs to Atlas. The company creates spaces where

travelers feel invited to come together and connect. For wombat, guests need areas where they can work, share their passion, create, and live. Wombats mainly targets millennials of Europe: solo travelers or groups. Having welcomed more than 300,000 guests, Wombats is an awarded business; it received the “Best Hostel Chain in the world” award and the “Top 10 extra-large hostels worldwide” award.

Overall, Wombats is a genuinely unique hostel chain that provides backpackers

with everything they are very much looking for during their trips in Europe: a positive, fun, and social atmosphere in venues where people can come together and share experiences. In addition, Wombats’ hostels are relatively cheap while maintaining a high degree of safety, cleanliness, and quality. Thus, Wombats is a significant player in the hostel industry.


E. Zostel - Leading hostel operator in India

Zostel is the first and largest provider of hostel accommodation in India and Nepal. Founded in 2013 by a group of international backpackers, the group has expanded its hostel base to over 200 hostels in less than five years. Today, Zostel has a presence in 37 cities and has welcomed over 2.5 million backpackers.

To become one of the biggest brands in the global youth travel industry, Zostel

relied on India's entrepreneurial and dynamic human resources. Indeed, when they launched their new EDP 3 (Entrepreneurial Development Program), Zostel opened its business model to exterior entrepreneurs by franchising its concept. In India only, 75 entrepreneurs decided to launch their own franchised hostel. Zostel created local micro-entrepreneurship ecosystems in different cities of India. Being faster than any other players on the market and quickly adapting to the local regulations and conditions, this model accelerated Zostel’s growth and expansion,

Zostel’s mission is to change the way people travel in India by providing safe,

hygienic, centrally located, and affordable accommodation. There, travelers can come together and share their stories while having a good time. Since the first opening in 2013, Zostel launched several other adjacent services to help travelers get the most out of their trips. For example, in 2017, Zostel launched “Zostel Escape”; rented homes in offbeat destinations to experience everything the local environment offers. Additionally, the brand also provides traditional experiences like hikes, camping trips, BBQs, Etc.

Overall, Zostel’s business model allowed the company to grow on a regional scale

exponentially. They made India their main focus and their best asset. As we move forward, they may not be our first competitor, but their unique proposition and ways to leverage local resources are inspiring. As a result, they can create long-lasting impacts across one of the world's biggest developing countries.

F. St-Christopher Inn - The English Pub & Hostels Group

Founded in 1970, St-Christopher Inn is one the oldest market player in Europe. It all started with a single bar in the center of London, which then transformed into a lodging offer. Since then, the group has expanded to 26 unique accommodations across 13 cities in 9 European countries.

From a commercial perspective, St-Christopher Inn’s unique business model -

The bar & hostel formula - greatly diversifies the company’s revenues and drastically increases its margin. Indeed, we have identified that a significant part of hostels' profit margin comes from adjacent services such as activities, bar serving, food offers, and other supplemental services. For example, having their bars strategically positioned on the first floor of each hostel maximizes consumption from customers


and external visitors. In addition, this model made St-Christopher Inn's group less vulnerable to seasonality and improved their cash-flow streams.

Overall, the group is a leading provider of hostel beds across Europe. However,

St-Christopher Inn does not attract the same customers we plan on hosting, and a great social atmosphere is not at the core of their value proposition.

G. Hostel One - A young and dynamic brand across Europe

Hostel One is another European leading hostel bed provider. Privately held, the company already opened 17 hostels in seven European cities. Though quite basic in style but of excellent quality and in the center of Europe’s most dynamic cities, their accommodations led them to win the “2nd best hostel chain in the world 2019” and the “best hostel worldwide 2018” award.

Like many of Atlas's competitors, Hostel One offers young, secure, and dynamic

places for backpackers to stay for a short time. Attractive prices allow them to compete with the industry’s most prominent players, especially in Europe. Additionally, Hostel One offers a wide range of extra services and activities, diversifying their portfolio and perennializing their financially stable model.

To conclude, our competitive analysis is based on the most significant and

leading hostel chains worldwide, focusing on South America, Europe, and Asia. As Atlas’s ambitions are to rival the big players, this analysis focuses on the most significant hostel chains. However, the global market is highly fragmented, mainly composed of tiny players (less than three hostels).

2.1.2. Similar solutions – Potential substitutes to hostels

In this section, we are looking at who the hostels’ substitutes are. They are the indirect competition for Atlas. These alternative options are the most commons, and smaller local options should not be disregarded. However, with a global scope of research, tiny hosteling options are irrelevant to explore individually further.

A. Airbnb - The largest peer-to-peer rental platform

Naturally, Airbnb is one of our top substitute services. It has taken an important place in the lodging industry in the past decade. Their peer-to-peer innovative business model introduced a new way to travel - more sustainable, friendly, and cheaper than most hotels. After 12 years of service, the platform counts over 2 million people staying in Airbnbs each night!

Millennials are looking for cheaper, more sustainable, and community-based

options to stay in during their trips, and Airbnb is a great option for them. Airbnb


offers more privacy, often more personal, and more comfortable lodging options. However, travel motivations are different, and Airbnb guests can, for example, be less interested in sharing experiences or need larger private spaces for work-related reasons.

As mentioned earlier, younger generations are seeking off-the-beaten-track

experiences and new social interactions. Consequently, hostels are much more appropriate for these purposes. Furthermore, Airbnbs are selected options for groups of friends with different traveling objectives than hostels’ customers. On the contrary, solo travelers will be more looking into creating social connections rather than isolating themselves. Consequently, hostels are prime choices for solo explorers.

Overall, Airbnb is a significant competitor for Atlas's targeted group segments.

However, Airbnb remains a distant substitute as both services’ value propositions are very different.

B. Low-budget independent hotels - Great option for backpackers

Local independent hotels are great options for travelers. Contrarily to bigger hostel or hotel chains, they carry a more “home-like” image which helps them attract “authentic” travelers. These travelers refuse to experience new cultures through the lens of organized business and are ready to compromise to experience a more genuine environment. For them, independent hotels are essential to immerse themselves in a new culture fully.

Locals usually run these independent hotels and, despite lower service quality,

still find ways to attract new guests. Their low prices allow them to be competitive enough. Their value-for-money is convincing with the cheapest private rooms and private bathroom options on the market.

Alike Airbnb, travel motivations differ from Atlas’s market position, but their

indirect competition should not be overlooked. To conclude, hostels remain a unique accommodation for travelers, but

independent hotels can compete based on their unique selling proposition.

2.1.3. Atlas - Unique positioning to enter the hostel industry

As mentioned, the industry is undergoing profound change, with renewed interest from investors. What they see in hostels are new prospects of profitability through quality and product offering improvements. Although large, branded hostel chains’ expansions already started five years ago, the market is far from reaching


maturity. Most players are still small owner-operated assets. Nevertheless, the industry is in a growth phase, and business opportunities are numerous.

The following section describes how Atlas will settle in this market and how it

plans to leverage its key positioning. Caused by an everchanging demand, the “differentiation strategy” is prevalent in

the hospitality industry. An accommodation can compete through product features, complementary services, technology, design, location, innovation, advertising, and better supplier relationships leading to better services. (Cathy, A.Enz., 2011).

Atlas's unique selling propositions will create significant comparative

advantages. Indeed, by streamlining the “seek discomfort” vision to a hostel chain, Atlas would be the first hostel brand to combine a unique philosophy, strong digital presence, and a significant community.

Atlas's mission to embrace local communities, develop intercultural friendships,

and create a long-lasting impact on people’s lives would be a fundamental key success driver. Yes Theory’s movement would perfectly fit with the longevity of Atlas’s business model. Expanding Yes Theory’s presence beyond its digital canals and create a lasting legacy for passionate seekers is Atlas’s mission.

Furthermore, results indicate that identification and a sense of belonging are

strong in the hostel community. This phenomenon is even more accentuated when hostels offer experiences that appeal to the creation of emotional bonds (Emerald Insight, 2018). Therefore, Atlas would leverage the current community gathered around Yes Theory.


Atl

as.

2.2 Market Opportunities

Hostels’ low-quality standards

Millennials’ travel revolution

Covid-19’s Social Impact

Low Concentrated Market


Market Opportunities

Recently, the hostel industry has seen very rapid and dynamic growth. It results from the boom of Millennials and Gen Z, cheaper travel, and better accessibility. This section focuses on the structural changes the industry is undergoing and on the current opportunities flourishing on the market. As a result, the growth potential for the hostel industry is enormous, with predicted annual growth rates of 8 to 10% between 2022 and 2025.

2.2.1. Hostels’ low-quality standards

Whether it's from personal experiences, press-related facts, or shared beliefs, hostels are often categorized as lower-quality services. Even though hostels are, by definition, cheaper than hotels, their quality does not reflect the beds’ price tags. Nowadays, successful hostels’ quality is as good as budget hostels, if not better, and they often offer better services.

However, a large portion of independent hostel providers is not willing to go with

this trend. The truth is that some hosteling market players are not interested in investing in better comfort, design, and overall experience. In addition, the lack of professional brands in the budget segment creates significant room for development. As a result, only a few essential industry players lead the way to change industry norms and democratize hostel standards (Hotel Analysist, 2018).

To conclude, branded hostel groups like Generator or Selina offer good value-

for-money through their excellent services and accommodations. Yet, the most significant part of the industry’s transformation hasn't happened. Instead, big players are leading the way, creating new paths for others to explore.

2.2.2. Millennials leading the travel revolution

Millennials and Gen Z lead our society to new norms; social media consumption, eagerness for doing what they love, traveling, social interactions, and eco-responsible behaviors. This change in lifestyle and mindset is a significant factor of growth for the hostel industry.

Moreover, millennials’ behavior tends to differ from older generations. Indeed,

this population is looking for personalization, uniqueness, and authenticity during their trips but also a sense of belongings to share everyday experiences and immerse themselves into a new culture. Also, millennials tend to interact more often with their peers. For example, 97% of millennials use social media while traveling to share their


experience or find places to go to, and 75% are posting to social networks at least once a day (FutureCast, 2016).

Finally, millennials are intelligent spenders and value-conscious regarding travel

services. The hostel industry primarily supports this rising trend of mindful trips. Indeed, through their locations, unique accommodations, and attractive value for money, hostels are the perfect combination for millennials to plan their trips. As a result, it is unlikely that this number will decrease in the future (Accenture, 2017).

2.2.3. Social changes due to COVID-19

This pandemic has witnessed interesting changes in peoples’ behaviors: evolutions of social interactions, lifestyle habits, working habits, and overall life priorities perception. While, as time passes, some aspects may not change back to "normal", social behaviors are likely to shift the other way. People cherish social interactions, community spirits and are aware of their benefits. More social connections mean less anxiety, loneliness, and mental well-being issues. Therefore, added to the genuine interest in traveling again, people will be seeking new experiences. This opportunity is one Atlas will seize.

Besides, work-related habits have drastically changed over the past 18 months.

Remote work is now the norm for a large part. People realized that if they could work remotely, they could also work from anywhere and enjoy the benefits of living abroad (WYSE, 2018). Conservative estimates forecast that one American out of 4 will be working remotely in 2021. Furthermore, this trend will persist in time and resist the end of the pandemic (Analytics Global Workplace, 2020).

The pandemic is reshaping the way we live, work, and travel. Prioritizing health

and well-being will become increasingly essential. Not being liable to specific locations will be necessary for younger generations. Remote places like South America and South-East Asia will be very attractive. "Digital Nomads" will drive a significant part of hostels’ revenue in the future, and services will adapt accordingly.

2.2.4. Low concentrated market and COVID impacts

There are very few vertically integrated hostel firms operating numerous hostels, with the European chains topping up to twenty properties (Mintel, 2019). Also, the hostel industry lacks a single international firm utilizing a franchise model (Bunda, 2014).

Currently standing at an early stage of its development, the hostel industry is

growing one step at a time and is starting to get increasing attention from mainstream travelers and the general public. Reinforced by a non-aggressive and


non-concentrated competition, significant opportunities arise. Barriers to market entry are shallow, and a mature market state is far from being reached.

Additionally, the Covid-19 crisis creates new opportunities. While the market is

paused and growth is limited for existing businesses, timing is perfect for new players willing to enter the industry. The following months are an opportunity to catch up with the competition. Besides, suppliers are looking for new partners to keep their business up and running. Similarly, estate owners are looking for opportunities to rent, lease or sell their properties. Selina used a similar business approach to boost its expansion globally. The group leveraged a new innovative strategy by acquiring undervalued or abandoned lands, leading to exponential growth and limited debt.

Overall, the hostel industry has numerous opportunities for Yes Theory to

harness. In our business model, you will get to know how Atlas will be using all available resources, processes, and knowledge available to create unique and attractive places for all travelers and seekers.


Definitions

1. Seeking discomfort: Seeking discomfort is all about stepping outside of your comfort

zone to accomplish incredible things you would have otherwise chosen not to do. 2. Digital nomads: A person who earns a living working online in various locations of their

choosing (rather than a fixed business location). 3. Posh packers: Derived from the concept of an “upscale-backpacker” or as Wikipedia

defines it, “Poshpacking: a portmanteau of posh and backpacking, refers to backpacking with more style and money.”

4. Posh hostels: Portmanteau combining the words posh and hostel. The term refers to

upscale/luxury hostels that deliver the style and comfort of boutique hotels, while staying in the price range of hostels.

5. NFC Technology: Near-Field Communication is a set of communication protocols for

communication between two electronic devices over a distance of 4 cm or less. NFC offers a low-speed connection with a simple setup that can be used to bootstrap more capable wireless connections.

6. SWOT Analysis: Strengths, Weaknesses, Opportunities, Threats. 7. CAGR: Compound Annual Growth Rate. 8. B-Corp Certification: Certification for businesses assessing the overall positive impact

of the company. 9. CCTV: Closed-circuit television is a TV system in which signals are not publicly

distributed but are monitored, primarily for surveillance and security purposes. 10. Amortization & Depreciation: A & D are two methods of calculating the value for

business assets over time. Amortization is the practice of spreading an intangible asset's cost over that asset's useful life. Depreciation is the expensing of a fixed asset over its useful life.

11. KPIs: A performance indicator or key performance indicator is a type of performance

measurement. KPIs evaluate the success of an organization or of a particular activity in which it engages.

12. Posh hostels: Portmanteau combining the words posh and hostel. The term refers to

upscale/luxury hostels that deliver the style and comfort of boutique hotels, while staying in the price range of hostels.

13. T&T: Travel & Tourism. 14. FDI: Foreign Direct Investments are investments made by a firm or individual in one

country into business interests located in another country.


15. GST: Goods and Services Tax is an indirect tax used in India on the supply of goods and

services.

16. EX rates: Exchange rate is the value of one currency for the purpose of conversion to another.

17. Enterprise Resources Planning (ERP): Enterprise resource planning is the integrated

management of main business processes, often in real-time and mediated by software and technology.

18. Customer Relation Management (CRM): Customer relationship management is a

process in which a business or other organization administers its interactions with customers, typically using data analysis to study large amounts of information.

19. Supply Chain Management (SCM): The management of the flow of goods and services,

between businesses and locations, and includes the movement and storage of raw materials, work-in-process inventory, and finished goods as well as an end to end order fulfillment from point of origin to point of consumption.

20. Online Travel Agencies (OTAs): OTA is a web-based marketplace that allows

consumers to research and book travel products and services, including hotels, flights, cars, tours, cruises, activities, and more, directly with travel suppliers.

21. UNDP : The United Nations Development Programme is the global development

network of the United Nations.


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58. Verissimo, M., & Costa, C, (2019). “Unveiling the key features of a positive service experience at hostels.”

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74. Ana Brochado; Paulo Rita, (2015). “Exploring backpackers’ perceptions of the hostel service quality.”

75. Papis, J, (2006). “Understanding the workforce: the key to success in a youth hostel in Scotland.”

76. Reichel, A., Fuchs, G., & Uriely, N, (2007). “Perceived risk and the non-institutionalized tourist role: The case of Israeli student ex-backpackers.”, Journal of Travel Research.

77. Barker, M., Page, S., & Meyer, D, (2002). “Modelling tourism crime: The 2000 America’s cup.”, Annals of Tourism Research.

78. Boakye, K, (2010). “Studying tourists’ suitability as crime targets.”, Annals of Tourism Research.

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81. Ladhari, R, (2000). “Service quality, emotional satisfaction, and behavioral intentions: a study in the hotel industry.”, Managing Service Quality.

the industry report - atlas

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