Revolutionizing the Hostel Experience with Oliver Winter, Founder & CEO of a&o Hostels

Think back to your youthful days of travel, hostels along the way were a hub for forging connections with fellow wanderers and were part of the adventure. If you traveled in pre-Internet days, some 20-30 years ago, you didn’t always know what you were getting. The hostel you found in a guidebook could be off the beaten path and might have been not so “hospitable.” 

Today, the landscape of hostels has undergone a profound metamorphosis. What was once perceived as budget accommodations exclusively for backpackers has now emerged as a dynamic sector of the hospitality industry, attracting travelers seeking immersive experiences at affordable prices. 

Oliver Winter, Founder & CEO of a&o Hostels, was inspired by his travels and the desire to provide people, especially students and young adventurers, with professionally managed, affordable, and centrally located accommodation. Oliver embarked on a mission to revolutionize the hostel experience. Hear how a&o Hostels grew into the largest independently owned hostel chain. 

The “Distinguished” podcast is produced by Boston University School of Hospitality Administration.

Host: Arun Upneja, Dean
Producer: Mara Littman, Director of Corporate and Public Relations
Sound Engineer and Editor: Andrew Hallock
Graphic Design: Rachel Hamlin, Marketing Manager

Music: “Airport Lounge" Kevin MacLeod (incompetech.com)
Licensed under Creative Commons: By Attribution 4.0 License
http://creativecommons.org/licenses/by/4.0

Transcript

Arun: Back in 1988, I left India on a trip around the world, Germany, France, Austria, US. But before I left, I was advised to purchase a youth hostel membership. I was able to stay inexpensively and met so many young people on the move. I still remember paying $8 per night for a shared room 50 yards from the Miami Beach. The thrill of adventure, meeting new people, navigating new cities, hostels along the way made it possible for me to travel on my budget and see the world. They were part of the adventure, particularly in the pre-internet days and well before Airbnb. Today, the landscape of hostels has undergone a profound metamorphosis. What was once perceived as budget accommodations exclusively for backpackers has now emerged as a dynamic sector of the hospitality industry, attracting travelers seeking immersive experiences at affordable prices. Our guest today, Oliver Winter, is the founder and CEO of a&o Hostels. Originally intending to pursue a career in teaching, Oliver's life took a serendipitous turn during a study break in the mid-90s. Inspired by his travels and the desire to provide people, especially students and young adventurers, with professionally managed, affordable and centrally located accommodations, Oliver embarked on a mission to revolutionize the hostel experience. Today, a&o Hostels stands as the largest independently owned hostel chain. 

I'm Arun Upneja, Dean of Boston University School of Hospitality Administration. Oliver joins us from Germany. Oliver, welcome to the Distinguished podcast. 

Oliver: Thank you very much, Arun, to have me here. 

Arun: You created a new concept for hostels. Let's start with what hostels were like when you were traveling in the mid-90s. 

Oliver: Yeah, in Germany, most hostels in this time been non-commercial places, so non-private operations like YHA, YMCA. They've been a bit, I would say, old fashioned, a bit boring. And the private owned hostels, I met in the US in Canada, New Zealand, Australia at this time. It's been all very small, cozy places. And in the 90s, in Berlin, two small private hostels existed, so there's 200 beds together. Today, just to give you a comparison, Berlin has 20,000 hostel beds. Yeah, so that was the time, no web. Let's go Europe or a lonely planet, be in our Bibles at this time to travel around. I traveled around the planet, always in the direction to the east. So first, I was in Singapore, Australia, New Zealand, and then later on the west coast of the US and Canada, and then Ireland and back to Europe. And we, my friend and I, we used hostels, say, all five, six days to, all the other days we used our tent to save money. And the hostel has been for us always a great place to, with all the nice amenities, to use the laundry, have a kitchen, to make proper food, and become in touch with all the other travelers and guests and get the best advice, the fresh advice as where to go, where to be. 

Arun: Tell us about the early days of starting this company. What inspired you to change your career track to become an entrepreneur, rather than become a teacher as you had originally planned? 

Oliver: See, I grew up in the former communist part of Germany, the former GDR that was in eastern part. And lucky wise, when I was 16, my world changed dramatically to the positive. So I could travel from one day to the other, what I did. And even I could act as an entrepreneur. What I realized at this time. And then driven by my quite brave parents, they motivated me and in this day, I would call spirit of optimism in Berlin. I was brave enough to try my steps as a founder and driven by the mission to provide affordable, safe, clean accommodation in an urban environment. I started my own career. 

Arun: When I think of hostels, I immediately think about price. Young people on a budget are very price-sensitive. Second, as a young or a solo traveler and third, the communal aspect to it. You get to meet so many people, but hostels are not for everyone. So what qualities of the hostel experience were you looking to maintain and what parts needed to be updated to attract a new generation? 

Oliver: You're absolutely right. The price is king. Our focus for 23 years never changed here, so keeping costs down. Every year we are not spending, we do not have to charge to our clients. And to achieve low cost, we need scale, we need big boxes. By guest segmentation, so we figured out very quickly that the focus to backpackers and other single travelers is not enough to operate efficient big scale operations. So we added very quick student groups as our, I would say, butter and bread business to our guest segments, later families. And with these upcoming low-cost carriers over the last years, we added city breakers as well, so a couple of small groups traveling much shorter, but quite often. And so to cover all the needs of these very different guest segments, we decided to have low entrance hurdles, so easy bookings with no restrictions, no design hurdles, for example, so not too posh, not too trendy, big common spaces, easy to meet, easy to come in touch with or contact with other guests, with a lot of different functions, so playful, rocking desks, kids' areas, spa areas, all this stuff. 

Arun: I think you've got it absolutely right. I think a lot of hotels try to go overboard and then costs balloon up. Like you said, every single dollar cost saved is something that you don't have to charge. I love that. So when did you realize you had a concept that you could grow and succeed? 

Oliver: I think the seven insteps. So we had very fast success in the very beginning. So obviously we more distributed bets instead of selling them. So there was much, much more demand than supply in Berlin in the early days. Berlin was after reunification and becoming capital of this new enlarged Germany in the spotlight. And it was easy to add more bets and fill them. And very fast after the first opening, we opened the second one in Berlin. It worked. And then we stepped out to Munich, the first proof of concept outside Berlin. And already five years after we opened our first bets in Berlin, we opened a hostel in Prague, what is Czech Republic. And this was for us the initial test, if we can copy our business model outside Germany. And it worked very well. And I would say from this moment, we saw entire Europe as our possible market to operate. 

Arun: So, you know, I have kind of two things in my mind. One is youth hostels are not very popular in the United States. Just the way our country is set up, I think Europe, it's much more closely integrated. There are trains, there is buses, you know, you can easily go from country to country. Young people are on the move all the time. So, one aspect is of course to bring, you know, youth hostel to the youth of here in the United States. So, let's talk about what sets, other than the price, what sets a youth hostel apart? But, you know, for example, the socialization aspect, how does that happen in a youth hostel? 

Oliver: Our focus, if we design a hostel, if we do the layout, so let's say we don't overspend the rooms because the rooms are just for good sleep, but not to stay in the rooms during the daytime. And where we spend a lot of focus, resources, money in are these common areas. Large lobbies, multifunction, amenities like common laundry, common kitchen, it's always a place people laugh, to communicate, to interact, and of course to make their food. And I think this social impact or the social factor, that's crucial for the hostel idea. It's long before Facebook and other apps allowed us to interact with all our friends or future friends every time. So in a hostel, you can really interact with others with a very low hurdle. 

Arun: And some of the hotels now in the US have started exactly what you've mentioned. You started, you know, decades ago, they are reducing the size of the rooms, they are investing in the public areas, but they still have that cost structure. So you have a big advantage there. Obviously, when you started, were you taking bookings online or was it on the phone or on email? How were you doing the bookings or were people just showing up? 

Oliver: Yeah, that's a good question. In 2000, that's the year we started. At least we had a mail address. I think it was Hostel at web or something like that. So no website, no what we call the OTAs, these online booking channels. Definitely, the most bookings came in via fax and phone. And we had a very high percentage of bookings, what we call walk-ins. So people showing up without any notice prior arrival. I remember our second hostel was at Berlin Zoo station, A&O Berlin Zoo. And we had 300 to 400 walk-ins per day during the season. They all showed up without any booking before. And of course, this then changed dramatically. So Web 2.0, this is self-informing, self-working customer, leads today into 90% online bookings, direct OTAs like booking.com or Hostelworld. And another boost more than this rising up of the low-cost carriers, what even did not exist in 2000 when we started. 

Arun: Your average daily rates are much below hotel rates. So how do you keep up with the standards? Obviously, people want safety, they want cleanliness, they want location. You still make a profit. 

Oliver: It is a challenge. And as you mentioned, the hotels are doing it even smarter these days and becoming more hybrid. They even have these more cooler lobbies. They are not so boring anymore as before. So for us to keep costs low, I would say there are three columns we are standing on. So first is size of our operations, big boxes. Our average size is 800 beds. Standardization of our processes and hardware. And the third one is really we love to adapt really early tech and automation what is even quite important to keep our costs on a low level. But we are not skipping our services. As you said, cleaning is crucial. Safety, we can't reduce anything of this. And even some services have to be better. For example, we spend thousands of euros each month to have the fastest Wi-Fi in the industry because it's so important for our guests. 

Arun: Can you sort of describe the structure of a hostel? So what kind of rooms are there? Are there shared rooms, shared beds? Are there bathrooms shared? So how does people have never stayed in a youth hostel? They have no idea what a youth hostel is. So let's, you know, what is a youth hostel? 

Oliver: Yeah, we have different types of rooms. And what makes us to a hostel are all the rooms, what we are calling dormitories. They have more beds than just what you know from a hotel, like a single or twin bed, what we have as well. But the majority of our rooms are four bedded, six bedded or up to eight bedded rooms. And this four, six and eight bedded mostly have bunk beds in. And the idea of a hostel is that you just can pay a book and pay just for a single bed in these six bedded or four bedded dormitories. And this brings the price low, because you just pay a fourth of six of a room rate. And all the services and everything you need; you find in common spaces. Like I described before, if you need laundry to wash your clothes, or if you need, of course, a bar is centralized, if you need the kitchen to make your meal, you find all the things in the common spaces. 

Arun: Oliver, I don't know what's happening in Europe in terms of dormitories in the universities, but in the United States, the dormitories are becoming more like luxury hotel rooms with one or two beds, very, very rarely three beds, climbing walls and all kinds of different luxuries. So the young people even who are in college are not used to eight-bedded rooms unless they have been done camping or so forth. So I don't know it's going to be a big climb for you to convince Americans to adopt the hostels. But how about young people in Europe? Are they much more used to this idea of being in an eight-bedded room? 

Oliver: Arun, I think in general it's different if you stay there for half a year, a year or longer. Of course, you may be looking for a room with just one or two roommates. In a hostel, usually you stay just for a few days. What makes it easier to share this more personal room? And of course, people are asking today for guests, asking for more services. So as I described, for example, proper Wi-Fi everywhere, maximum eight bedded. So in the very beginning, I remember this hostel I mentioned at the A&O Zoo in Bergen, we operated 16 bedded dorms. This would not work anymore. I remember that I stayed in a 36 bedded dorm in Vancouver Island, Victoria. Every second the door opens, someone is going in or out. So I think we see the rooms becoming smaller, but our guests absolutely accept four or six bedded or eight bedded dorms for a stay from, let's say, Monday to Friday maximum. 

Arun: Well, I mean, if you have to stay with strangers in one room, then I guess there might be some safety numbers that it's better to have eight beds rather than two or three beds. And you don't know who your other occupant is going to be in a two bedroom. In a two bedroom, you don't know who the other occupant is going to be. But if you have eight beds, I guess there is some safety there, right? 

Oliver: This is a point of safety. But what I have to add, what we offer for our female guests are female dorms. So what even higher the level of safety, that all our female guests have this opportunity to, a possibility to book a female-only dorm. 

Arun: Okay, so now I know that you also have, we've talked about the kinds of rooms, so you have two beds, four beds, six beds, eight beds, but you also now offer hotel-style rooms. I'm assuming those have built-in bathrooms or toilets in the room. So you're trying to reach a larger audience than before. Price-sensitive consumers, students, business groups, families, or even grandparents. So tell us about that side of the business. 

Oliver: Yeah, so you're right. And our claim says everyone can travel. Of course, not everyone can. We know this, but we try to reach out to as many guest segments as we can. And this is a fantastic wide portfolio we have on room times, like these single-twins, what are more hotel rooms, private bathrooms, even dormitories, they all have even private bathrooms, by the way. So this gives us a very flexible product. And by the way, I would say today in the newer build assets, we have 50% of our rooms are twin rooms, and the other 50% are these multi-bedroom rooms. And what we did in 18, 19, we decided really to spend a lot of money, it was about 40 million euros, to invest in a brand consistent look and like, a better look and feel. And this on the one hand, to have a much nicer product, then we try really to have no hurdles by easy access to book us. So we are easy to book, we are affordable, and we try to be really reliable in our services or consistent, so that the guests in Venice, exactly gets the same service like in Edinburgh, same amenities, same services, same breakfast buffet, for example. And this is helping us to attract more and more different guest segments, like families, for example, that's really important. The families, they love our four-bedded or six-bedded, because as a family, at least if you travel with younger kids, you don't like to have your kids next door. You like to control your kids and have them with you in the same room, and that's a perfect example, for example, for multi-use of this four-bedded room. So for a student group, it works, for backpackers, it works, and for a family, it works even. 

Arun: So even the four-bedded rooms have bunk beds? 

Oliver: The four-bedded rooms, what we try, if we have enough space, we have two single beds in and one bunk. And this gives us the full flexibility, because then the parents or grandparents can sleep in the single standing beds, and the kids using the bunk beds. You know, 20 years ago, I went to Florence with my family, with two kids, and the reception escorted me to the room, and we walk in, and there are four twin beds. And I looked at the receptionist, and I said, four twin beds? He said, oh, of course. And he took two beds and combined them together, and I was just so excited. There were two boys with their own beds, and me and my wife in one large bed. So it was amazing. I hope hotel owners are listening, hotel developers are listening, and they're going to be more flexible in the US. Okay, so now let's, your locations are primarily in Europe. And you said that most of your guests come from within Europe, but I know that a lot of Americans are traveling. More of them have passports. So in 1990, for example, only 5% of Americans had a passport. Today that number is 48%. So more Americans can travel abroad than anytime in our history. So there are now 160 million valid US passports. With this increase in American travelers, do you think there is a challenge to attracting American travelers because we don't have hostels here and we kind of don't have this tradition of these kind of rooms here? 

Oliver: Yeah, that's an interesting question. So we have first, yes, we see even today that we have much more American visitors in Europe than 10 or 20 years ago. So, for example, last year I checked the number, I have this in mind from last year, 4% of our overnight, what is 240,000 overnight in total coming from the US. So you see even the US guys are open to use hosts, at least in Europe. When I traveled around the world 25 years ago, I stayed in small hostels in Seattle, all around Washington state. And 25 years ago, the situation was quite similar like in Europe. So few small independent providers and also a lot of non-commercial providers exist in this time. And nobody started to roll out the U.S.-wide hostel chain like in Europe. I just can guess, but I think there are two things in my mind. So one is I think there's a very different and challenging situation about legal requirements for the operation. And the other one, I think that US customers in general have higher requirements in safety during their travels. And I think for the US customers, it's more challenging to explain that a hostel product is really a safe, a great alternative to stay. That's for a European customer that's more obvious and already learned, so to say. This lesson is already learned. This lesson is not teached to the US guests today. 

Arun: So who do you see as your competition? I know that hotels continue to add rooms at a more inexpensive price tier. Marriott has gone and Hilton and many other chains have really tried to add rooms at a more inexpensive level. So at some point, they're competing. And then you also have Airbnb. So if you had a family of four or six or a group of friends, you now have the option of going into Airbnb as well. Who do you think is your best, is your competitors? 

Oliver: Yeah, first of all, I think that as you said, totally right that hotels become even more hybrid. But what we also can observe, or monitor is that the customers are doing the same. The customer is much more hybrid today or more fluid. So by which brands are using, which standards are accepting, it's more the customer decides today by occasion, which product, customer he or she is using. And for this reason, I think we all, that means what you mentioned, Airbnb, budget hotels, even for us 10 sites, we all fight for the same guests. In Italy, for example, it's very used that even the big cities like Florence, Venice, they have very, quite central campsites. And Italian families love to travel with a tent. Even this is competition for us. But of course, even every budget hotel, every Airbnb guest, and it's more about the purpose of travel. And what speaks for a hostel is easy to meet, get in contact with other guests easily. And different stations, for example, to Airbnb, this is 24-hours reception and 24-hours available service. 

Arun: So in terms of developers, is this a profitable business? Is there a lot of commensurate return on assets as opposed to building a hotel? 

Oliver: Yeah, that's a very tricky question. Because we are becoming bigger here in Europe. We want to be on this stage, on the edge, to work more with developers than we did in the past. Because a developer is a middleman more in your chain to open a hostel. And that's increasing costs, of course. But here and there, we're working with developers, and we have to work even more with developers in the future if we like to cover more broad over Europe, because we are not firm and we can't on our own make control of all the constructions in Sweden, and then Italy or Spain. And so taking this and seeing what our peers are working, operating, they're working much more with developers already since a long time. So I would definitely say, yes, a smart developer, if you find the right asset, it makes absolutely sense. The most hostels I see from peers are conversions. Conversion means former office buildings or department house. And this kind of buildings, it's quite open. A developer always prefers to tear down something and build something new from scratch. That brings costs very high and increases costs. So if you find a developer who is happy to do or run for you a conversion, it absolutely could be a great opportunity. And I know, for example, that in the US, you have what you call office crisis right now. And this office crisis would even give developers a big opportunity to think about convergence of this existing office buildings into hostels. And that could be absolutely profitable because today the entrance price to purchase and distressed office building is so low that it absolutely could make sense for a developer to think about to convert something into a hostel. 

Arun: Right, and many cities are actually giving a lot of incentives to repurpose these office buildings that are not in use. So I know that you're expanding in Europe. What are your plans to expand in the United States? And is this a good time? Like you said, office buildings are available at a very low price in the US. 

Oliver: Yeah, I think by opportunities, it would be a perfect time to go to the US. For us, on the other hand, we just identified 20 more cities we'd like to go in Europe. And for us, it's, let's say, easier doors to open right now in Europe. So that's why we decided for the next five years, at least, we're not looking to the US, even knowing that maybe we're missing a big opportunity. But we have a similar situation here. So we have a lot of distress opportunities even in Europe. And so I say it's easier doors to open right now. So we will first finish this for the next five years and then maybe US is the next. 

Arun: So I hope the developers in the US that are listening come to you with very interesting propositions that can even leverage your company into expanding in the US. But I look forward to that time when you're expanding here. So a couple of things I want to ask you. One is our school strongly supports innovation and entrepreneurship. So what's the best piece of advice that you would give, or you often give to be helpful to the students and young professionals as they dream of founding a company or making their mark in the hospitality industry? 

Oliver: I think what you always need first and what is quite obvious is you need passion and patience. And what I found out, your biggest enemy is not money. The biggest enemy is time. Because you can raise money or found money, but you're fighting always against time. Everything needs much longer. Every task, every needed license or every hire or every result, what you need needs longer than you expect. If you have an idea, I would say take care really that your idea is changing something, changing, of course, to make something better for the guests, easier. The service is maybe better or usability is better or price is better. So it has really to be something what makes a difference by why your future customers should use your product. I had in, I remember, 20 years ago, I joined a conference where a very successful entrepreneur spoke. And he said, if you have a business plan, calculate that it takes double time to achieve it. And it would take double cost. And if it still works, go for it. Yeah, so very drastic. But don't make too optimistic assumptions and be critical to yourself. 

Arun: Have a range of assumptions and make sure that you give it plenty of time and patience. Very good. So Oliver, for a little fun at the end, we wrap up each episode with a speed round of questions. So very quickly, what is your favorite travel destination? 

Oliver: Depends on the occasion, but with my family, I would definitely say Mallorca, this famous Spanish island. And if I travel with my older kids, I really love to do camping in Sweden, to hiking and just go like in the old days with a rucksack, with a backpack, and discover the nature.  

Arun: What's your best travel tip?  

Oliver: I would say start always with a compliment to the service crew. So if it's the check-in, the ticket counter, whatever is it. So say something like this place was recommended to me because of this brilliant service. And I'm quite sure by now, even from my own experience, this opens a lot of doors, and this litigation will absolutely pay off. 

Arun: So I was going to ask if you prefer the beach, mountains or cities, but you've already made your preference clear that you want to go backpacking. So it's mountains, it's hiking. Is that correct? 

Oliver: That's correct, but I would even never say no to a nice beach. 

Arun: So, and here is another interesting question for you, which is that when you go to a hotel, particularly luxury hotels, four or five star hotels, they have their qualities, you know, they have their luxuries. But why would someone stay in a hostel? Give me one, the best reason that you can think of, why would you stay at a hostel? 

Oliver: It's much more easy to have fun and be connected to others. 

Arun: That's outstanding. That's what we all want to do. Well, thank you very much, Oliver.