Hostelworld cancels dividend as it counts coronavirus cost

Online accommodation booking platform Hostelworld has revised the impact of the coronavirus outbreak on its business, saying it would now hit earnings by up to €5 million in the first quarter of 2020.

The company, which focuses on the global hostel market, had originally predicted lost revenue of €3 million to €4 million as the virus took hold in Europe in February and March.

In an update to the market, Hostelworld said booking trends had continued to worsen since the start of March, as Covid-19 spread to more countries. The outbreak now includes thousands of cases in the US, which is a major market for the company.

Earning before interest, taxation, depreciation and amortisation were €8.5 million in the first six months of 2019.

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Although it is too early to predict the final impact Covid-19 will have on the full-year revenue, Hostelworld said it had taken a number of steps to mitigate the financial impact of the outbreak. It has cancelled its proposed final dividend of 2.1 cent per share for 2019 to conserve cash, and was looking at ways to cut costs. The company also said it had €2.5 million in deferred revenue, which is generated by customer deposits made under its free cancellation booking option, but it is offering credits to travellers as an alternative to a cash refund.

"The Covid-19 outbreak has had an enormous impact on the hostelling industry, the wider travel market, and the communities we live in. Right now, the Hostelworld team and I are fully focused on supporting our employees, our customers and our hostel partners; just as we have done so over the last 20 years and will continue to do so for the next 20 years to come," said chief executive Gary Morrison. "Given the strength of our balance sheet and the initiatives we have taken in recent weeks I am confident that when this crisis passes, as it inevitably will, we will emerge stronger than ever."

In a note, Davy said Hostelworld was entering the crisis from a position of relative strength, with a well-capitalised, net-cash balance sheet.

“Nonetheless, impactful measures - cancelling the 2019 final dividend, reducing variable and fixed costs - are required to support cash conservation and ensure that the company emerges from this period without lasting damage.”

Davy said it believed the company could survive for a year without drawing debt, even if revenue only matched marketing costs and card processing fees, with staff/administrative costs cut by 15 per cent.