As Airbnb Falters, Hostels Seek to Compete

Once a niche market for frugal, globetrotting young people, hostels are becoming a popular form of alternative lodging. No longer just rows of bunk beds, some hostels now offer private rooms and amenities like rooftop pools and spas.

Take the Selina Boquete hostel in Panama. Guests are served an evening welcome drink. While there’s a shared option called a community room, the hostel offers hotel-style private rooms and the unique option of a pod-style room made from an “upcycled” concrete cylinder. Some nights, guests are treated to live music.

“It honestly felt like a resort and was a better experience than an Airbnb,” says Melissa Middlestadt, a Canadian travel blogger who runs the website My Beautiful Passport, about her stay at Selina Boquete. “It was quiet, which is what I look for in an Airbnb, but it had more amenities and was in a better location.”

The private room she booked at the hostel was $50 to $100 cheaper per night than what she would have paid for an Airbnb nearby, she says.

Hostels evolve to appeal to more travelers

Some hostels have recently transformed to appeal to a broader demographic, such as travelers who would never consider a shared room or those who seek slightly upscale amenities.

The Grand Ferdinand in Vienna promotes poshness with its heated rooftop pool. Other hostels promote kid-friendly activities. The HI Pigeon Point Lighthouse Hostel in Pescadero, California, for example, features on-site tide pools and private family rooms.

Middlestadt says she typically books Airbnbs and sometimes hotels. She used to turn to hostels as a last resort, but if hotel or vacation rental prices exceed her budget, she’s now far more open to hostels. Her only deal-breakers are sharing rooms and loud party places, both avoidable even in a hostel setting.

Blending benefits of hotels and vacation rentals

In its early days, Airbnb sought to connect travelers with locals. The company got its start in 2007 after its founders turned their apartment into a makeshift bed and breakfast after hotels were sold out due to a local conference.

“Our guests arrived as strangers, but they left as our friends,” founders Brian Chesky, Joe Gebbia and Nathan Blecharczyk wrote in a letter attached to the company’s S-1 filing for its 2020 initial public offering.

Yet, friendships between hosts and guests are few and far between these days — and that’s hardly Airbnb’s biggest challenge. In New York City, short-term Airbnb rentals are severely restricted under regulations that took effect this year. Vacation rental sites have faced backlash for hidden costs such as cleaning fees. (It wasn’t until this year that Airbnb implemented a toggle that displays cleaning fees upfront.)

Then there are rising prices for travel lodging across the board — from hotels to vacation rentals to hostels. Prices reached record highs in June 2023, according to consumer price index data from the U.S. Bureau of Labor Statistics. While average U.S. travel lodging rates have recovered from their all-time highs, they’re still higher than pre-pandemic rates.

And hotels, specifically, have some additional drawbacks. A reduction in services like daily housekeeping, coupled with rising resort fees, has made hotels feel like a lesser value at a higher cost.

Hostels are usually cheaper than hotels. In notoriously pricey San Francisco, for example, the average daily hotel room rate in 2022 was $231, according to the San Francisco Travel Association, which is forecasting an even higher average of $246 for 2023. However, at the HI San Francisco Fisherman’s Wharf Hostel, you can find a bed in a shared room for less than $30 or a private room for less than $100 on some nights. That rate includes Wi-Fi, breakfast and luggage storage.

Hostels can combine the best of hotels and vacation rentals. Like hotels, hostels often offer central locations and on-site staff. And harkening back to the intent of Airbnb, hostels tend to provide a more social experience through common areas and group activities such as pub crawls, walking tours and cooking classes.

Business is good for hostels

Berlin-based hostel chain a&o Hotels and Hostels announced record earnings for the first half of 2023, with year-over-year sales up 47%.

Hostelling International USA (HI USA) said it has seen a 10% occupancy increase from 2022 and a 360% occupancy increase from 2021. Some locations have seen even greater increases. At HI NYC, the company’s top-booked hostel, occupancy has surpassed 2019 levels.

Airbnb has also had strong financial performance lately, including 18% year-over-year revenue growth in its third quarter of 2023, suggesting that travel is back in multiple facets.

But for price-sensitive travelers, hostels are becoming an appealing alternative.

“While I still like Airbnb, cleaning fees have gotten so out of hand,” Middlestadt says. “It just doesn't make sense to me to pay extra when I can use that money elsewhere on my trip.”

This article was written by NerdWallet and was originally published by The Associated Press.