The sector where Hostelworld operates is called budget, youth, independent travel (BYIT). As a part of travel segment, BYIT is gradually changing, and nowadays appears to be an attractive market. It is caused by the following main reasons: • Youth all over the world are becoming more and more active seeking efficient and affordable places to stay for vacation. It means that the number of potential customers in BYIT segment is constantly growing. • Many general travel agencies overlook the opportunities to cease in this segment, considering it to be low profitable because of low commissions and margins.
Thus, the direct competition in the industry is quite low. In fact, Hostelworld. com being a part of WRI (Web Reservations International) represents a major BYIT site providing visitors with many services from simple place booking to various information services. Therefore, it is possible to say that BYIT industry based on IT quick services (namely Internet reservations etc. ) is still developing and is dominated currently by WRI.
However, the interest to the segment will rise and thus the competition will intensify. Moreover, low entrance barriers will make the segment for newcomers even more attractive.
2. Competition Analysis There are two main competitors: Expedia and Travelocity. Expedia: Provides travel and leisure services for wide range of customers of different ages and status – students, businessmen, family trips, corporate trips etc. Company’s main brands include Expedia. com, Hotels. com, Hotwire. com, Worldwide Travel Exchange and Interactive Affiliate Network, Classic Vacations. The main product line includes: • airline tickets, • hotel reservations, • car rental, • cruises.
Expedia’s revenue in 2005 was $2. 17B with profit margin of 10,41%.
Its current ration is 0,562 indicating that current assets compose 56% of its current liabilities, which is a pretty good indicator. (www. yahoo. finance. com) Expedia’s main competitive advantage is a wide range of products and services provided. Travelocity: Travelocity is a subsidiary of Sabre Holdings – leading reservation system supplier. Travelocity. com provides travel and leisure services for business and individual travelers. Its product line includes airline tickets, hotel reservations, car rentals, vacation packages. Its main brands are Lastminute. com, Online Travel Corporation, Travelstore. com.
Travelocity is headquartered in Southlake, TX. Travelocity ended fiscal year of 2005 with its annual revenue of $829. 9 M. (www. yahoo. finance. com) The main competitive advantage of the company is its quick and reliable online services, which are greatly customized and have serious protection. Therefore, customers worldwide have substantial confidence in the company and are not afraid to use its computerized services. 3. SWOT Analysis Strong: • Wide network and substantial coverage; • Pioneer in on-line hostell reservation services; • Devoted team of professionals, who are the main asset of the company;
• Lowest commission levels; • Concern over the best quality for customer as a philosophy of the company; • Narrow specialization, which provides specific improved service focused on the current need of the customer. Thus, the core competence of the company is providing web hostel reservation worldwide ensuring the best quality of the hostel chosen. Weak: • Open circle of services meaning that customers have to turn to other companies to book flights etc. ; • Limited number of offices. It means that the company isn’t able to use full potential to monitor constantly the quality of hostel service provided for the customers.
Opportunities: • Growing interest in budget traveling; • Broader segment of potential customers (not only youth, but also families and singles); • Open foreign market where hostelling is not so popular and developed (Eastern Europe, Africa); • Licensing agreement worldwide. Threats: • Increased competition, particularly on behalf of huge travel companies which realize the great opportunities existing in the BYIT segment. Having substantially wide infrastructure and offering a wide range of services, such companies may create a serious danger for Hostelworld. com becoming one of the main competitors;
• Increased popularity of luxury vacation due to increased personal income level; • The absence of control and monitors over thousands of hostels the company works with. Thus, there is a danger that those hostels might worsen their services. 4. Financial Analysis The revenue model of Hostelworld. com is based on the economies-of scale. It means that the main profit the company gets goes not from the high margins, but from the number of reserved beds. Having low margin of around $12 per bed and ensuring full 4600 hostel reservation increase Hostelworld. com revenue substantially.
ROI=2,43, which is a great ratio. It means that each $1 invested brings the company $2,43 in revenue. 5. Strategic Recommendations 5. 1. Short-term Recommendations • Differentiate services, including nightclubbing, various entertainment packages, city tours etc; • Launch special packages including hostelling and transportation for special events (for example, sport events, great concerts etc. ); • Open new offices in Eastern Europe and South east Asia. 5. 2. Long-term Recommendations: • Diversify services signing cooperation deals with suppliers (airline companies primarily);
• Market penetration – the company needs to enlarge its current segment of customer attracting such perspective group as young families and active travelers (the ones who enjoy traveling a lot exploring new places every time). • Geographical expansion — entering new foreign markets, particularly Eastern Europe where demand for hostel services is getting higher and higher but cannot be fulfilled by existing operators; • Investing in IT as the main competitive advantage of the company.
References
1. Yahoo Finance. Retrieved Sep. 29, 2006 from http://www. yahoo. finance. com
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