Low budget & hostels ITB panel: low price, less service is well accepted
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Great success with low prices: (from left) Mark Lankester, Oliver Winter, moderator Martina Fidlschuster, Franz-Josef Koenig and Andrea Mehanna. |
Berlin (March 25, 2011). Their companies were the result of a situation full of frustration, but it opened their eyes to the niche: the founders of the Malaysian Tune Hotels, A&O Hotels & Hostels in Berlin and hostelsclub.com, an online distribution platform from Venice, seized their chance. Within ten years, they have managed to play a strategic role in the hardly structured hostel and low budget hotel market. During the panel discussion titled “Low Budget Hotel & Hostels: A Good Night’s Sleep for Peanuts?” at the 6th ITB Hospitality Day at ITB Berlin two weeks ago, they explained the products and philosophies which have helped them establish themselves successfully worldwide. A summary.
Moderator Martina Fidlschuster introduced the entrepreneurs. Their company figures speak for themselves: in 2001, Andrea Mehanna from Venice founded hostelsclub.com. In 2010, he generated 7.6 million euros of turnover with hostel and budget reservations.
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| Mark Lankester, Tune Hotels. |
Oliver Winter started up A&O Hostels with 12 beds in 2000. Currently, he operates 17 hotels and hostels and generated 37 million euros of turnover last year. Mark Lankester, a career changer from the music industry, started up Tune Hotels right in the middle of the crisis in 2007. Today, he operates 13 hotels, generates 48 million dollars (about 34 million euros) of turnover and has 88 hotels in the pipeline.
Franz-Josef Koenig, Managing Director of Gesellschaft fuer Systemisches Management in Kobern-Gondorf, considered these success stories credible: “Change is possible if there is a clear goal. And quite often it is the people who don''t come from the hotel sector that find it easier. They are hungry!”
Their entrepreneurial hunger was accompanied by a keen sense of demand: according to a survey by Dicon Unternehmensberatung (details see Dicon link/article), the number of budget chain hotels in the big German cities alone surged by 52.8% between 2006 and 2011, while hostel supply even skyrocketed by 175.4%. The main guest group consists of young people and school classes – however, the number of mature guests is rising according to both Tune and A&O. In Asia, the new cheap beds led to a travel boom, remarked Mark Lankester of Tune Hotels: “It enables Asians to go on vacation more frequently, between five and six times per year! Retired people for the most part tend to amuse themselves today.” They generate 30 percent of Tune’s turnover.
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| Oliver Winter, A&O Hotels & Hostels. |
Lease as a challenge
Of course, budget locations in cities are in high demand. Here, the fast growth of the segment can be understood best: “70 to 80% of our costs result from lease or debt redemption”, explains Oliver Winter. “Ten years ago, finding new locations was easy in Berlin.” Today, there are too many hotels and thus fewer locations, even if you just convert already existing buildings as A&O does. A&O’s concept is based on the idea that a budget hotel and hostel can be combined in a single building with a common lobby and restaurant. “Each extra star makes a hotel more boring”, says Winter smugly.
If you want to sleep at a low rate, you need to pay extra for any extras, just as with no-frills airlines. However, there are obviously major differences between providers: at A&O, guests pay extra for bed linen and towels, but daily cleaning was included due to the competition.
Charging heating as Tune Hotels does, for example, is not legally possible in Germany: legislation defines a minimum room temperature. Tune also charges air conditioning, TV and toilet articles. “People are satisfied as long as you are honest to the market”, says Mark Lankester, founder of Tune, describing his experiences. “Low budget bookers just want to have a clean room”, confirmed Andrea Mehanna of hostelsclub from a hostel point of view.
Budget of low budget between 20 and 25 euros
On average, A&O’s guests spend 23 euros including breakfast (and VAT) per night, which roughly corresponds to hostelsclub’s expectations (20-25 euros) and those of Tune Hotels (20 euros). While A&O sells its beds based on a reliable price range, the Malaysians max out yield management: for early bookers, they throw beds onto the market for a single pound (approx. 1.15 euros). “But you need to book one year ahead for that”, says Lankester.
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| hostelsclub founder Andrea Mehanna, system manager Franz-Josef Koenig and moderator Martina Fidlschuster (from right). / photos (4): map |
According to Franz-Josef Koenig, hostels and low budget hotels have one major benefit compared to youth hostels: the latter are regarded as totally untransparent taking into account their vast numbers including Christian facilities. In addition, Oliver Winter critically remarked that the Deutsche Jugendherbergswerk as non-profit organisations – in contrast to A&O – received properties for free, which helped to keep their costs low.
All low budget providers work with a mixture of fixed employees, trainees and students. This keeps high staff costs at bay. Whether guests were satisfied with their accommodation, they mostly found out from online comments and evaluations. “The market is in motion”, says Franz-Josef Koenig,” but service quality will determine competition here as well!” This seems to appeal to low budget entrepreneurs like Mark Lankester: “I love the mass market”, says Lankester at the end. The low budget and hostel market is said to have a worldwide potential of 700 million travellers. / Maria Puetz-Willems
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