Sunday 23 July 2017

Travel boss ready to take on the world

Hostelworld chief executive Feargal Mooney speaks to Gavin McLoughlin about his 15 years at the recently-floated business

Hostelworld chief executive Feargal Mooney maintains it has been liberating to be in charge of a public company after working under private equity ownership
Hostelworld chief executive Feargal Mooney maintains it has been liberating to be in charge of a public company after working under private equity ownership

Feargal Mooney used to tell people that the last thing he wanted to be was the chief executive of a public company. But life sometimes takes unexpected turns and he now runs Dublin and London-listed Hostelworld, a hostel-booking website.

Longford man Mooney (47) has always had an entrepreneurial streak. "My dad was an accountant so that may have influenced me in some way. My grandfather was probably also a big influence on me. He had a drapery shop ... and, from that perspective, I suppose I was always interested in the idea of buying and selling things."

When at university in Galway, he started his first business, a tuxedo rental company. "I realised that in a university all the clubs and societies that were there were holding black tie dinners, there was one black tie dinner almost every week in UCG. All the guys were going into the city and paying a fortune to rent a tuxedo.

"So I knew I could buy them relatively cheaply. I went to AIB and got a loan, bought 100 tuxedos and bow ties and started renting them out at a cheaper price on campus."

After college he went to work as a financial analyst in Pfizer in New York. A new side project followed - running party cruises around Manhattan where Mooney would charter a boat and book a band and a DJ.

Many people study a course in college that naturally leads them into a certain career. Mooney took a different route and probably more risks than most.

He left his job in Pfizer in the late 90s and came home to Ireland, deciding that he'd "move away from the corporate life".

"I thought that running a guesthouse would be an interesting and more relaxing kind of lifestyle. So I ran a guesthouse in Killarney for a year and realised that was actually really, really hard work.

"People looked at me and said: 'are you mad, why are you giving up a good corporate career to do something kind of oddball like that?'." Later, the experience would stand to him, however.

Mooney enjoyed the change but was soon drawn back into corporate life, joining IT security firm Baltimore Technologies.

Then in early 2002 he was introduced to Ray Nolan and Tom Kennedy, founders of Hostelworld. Nolan was a tech man, Kennedy was a hostels man, and Mooney had a background in finance, had worked for a tech company, and had experience of running a hospitality business - he was the perfect candidate to come on board. He thought he'd stay with the business for three years or so - 15 years later he's still there.

"It's been, from my perspective, so interesting and exciting, almost every three years the business has changed," he says.

"In the early stages - like a lot of startups - it's 10 guys in a bedroom trying to figure out if you can pay the bills, very informal, and very fast-moving. You're not very process-driven, it's all about changing and reacting fast and trying to figure out what is and isn't working.

"I had come from Pfizer, within which there was a very formal environment. Not only were there lots of processes and procedures, but even the Pfizer dress code was very formal and structured. The men could only wear a white shirt, and then I went in to Hostelworld where guys were there in jeans and T-shirts."

The company has evolved exponentially since Mooney's early days. In his first six months the business got itself to break-even point, then it did its first acquisition - rival Hostels.com - in early 2003.

Major change came when private-equity company Summit Partners took a minority stake in the business in 2004 - more formality entered the business in terms of reporting obligations and processes.

There was also change at the top. Kennedy stepped back from the business in 2005, though he remained a shareholder.

Mooney took over as ceo in 2008, replacing Nolan. His first major decision was a difficult one - pulling a planned IPO.

"The whole economy began falling apart, banks were going out of business, it didn't look like it was the best time to go to the market. As you can imagine it wasn't exactly what a new ceo wants to be doing, especially when shareholders had an expectation that they were going to get a big payout on the back of it.

"But it was the right thing to do because the markets just weren't going to support it and the recession was bedded in."

A year or so later a majority stake in the business was sold to private equity firm Hellman & Friedman. The deal meant management could give some liquidity to Hostelworld's early backers. It wasn't just Nolan, Kennedy and Summit Partners who had supported the nascent Hostelworld, there were some owners of small hostels in there too, as was the former U2 manager Paul McGuinness.

But the change to majority private equity ownership brought its frustrations with it. As Mooney puts it, the day they buy you is the day they start selling you.

"For me in some ways that was probably a more challenging period because as you went through it, the natural instincts of a ceo and management team is to run the business and grow the business and take advantage of the opportunities that are out there.

"Whereas private equity owners are constantly looking for their exit and how they make money. So that meant that quite often we were putting forward plans, taking decisions, based on what we as a management team thought made sense for the medium to long-term growth of the business, only to then find that what we'd agreed with them might change three months later because they thought that there might be an opportunity to position the business as being attractive to either a trade buyer or another financial buyer.

"There was a lot of chopping and changing, which is quite frustrating really when you want to run and grow the business."

In that context, he's found the shift to plc status in 2015 to be something of a liberation. The decision to float was in large part driven by the private equity owner's desire for an exit, but Mooney said both he and his colleagues on Hostelworld's management team were also keen to move on and gain a bit more freedom.

"People don't often think about bringing a company public as giving more autonomy. Obviously we've still got a board of non-executive directors, and we've got all the corporate compliance we've got to go through, but I think certainly over the course of the last 18 months as a management team we feel that we have more to focus on the medium to long-term of the business."

He jokes that he used to tell people that the last job he wanted was to be the ceo of a public company, but that was before he was the ceo of a company majority owned by private equity.

In this new phase, Mooney's strategy has centred on a shift from paid search marketing to brand marketing, alongside a focus on mobile, pricing, and expansion in Asia.

"We've made great progress across all of them. Mobile is over half of our bookings now, Asia is our fastest growing destination market," Mooney says.

The marketing strategy has been focused on positioning the hostel experience as fun and distinctive from hotels. Rapper 50 Cent and actor Charlie Sheen are among celebrities enlisted for campaigns. The company was even rapped on the knuckles by the UK advertising watchdog after an ad featuring skinny-dipping revellers jumping into an open water pool. The ad, the watchdog said, was likely "to condone or encourage a dangerous practice" known as tombstoning - jumping from cliffs into water.

The slightly edgy approach is redolent of Paddy Power or Ryanair, companies with which non-executive directors of Hostelworld, Michael Cawley and Paddy McCue respectively, have history. But they don't drive the marketing strategy - that's chief marketing officer Otto Rosenberger, who previously worked for Betfair, P&G and online dating company eHarmony.

Looking to the future, Mooney says the company is "certainly open to looking at acquisitions", though it is not in talks with anyone at the moment.

"We will remain very focused. We believe that key to our success is that we have been very focused on hostels and that whole social travel experience, and we'll continue to be focused on a social travel experience.

"We're not going to go out and buy some hotel-booking business or something that's kind of left-field. We want to make sure it's something that's complementary.

"That does mean that the opportunities are probably a bit more limited. There aren't any other direct hostel booking businesses out there but if there was a business that had a piece of technology or content that would be additive to our mobile app offering or a local Asian business we would look at that. Our sense is that they're probably more smaller businesses rather than big-priced acquisitions."

The business generates a sizeable amount of cash and Mooney says they would be able to fund "a lot" through that channel, despite a policy of paying out 70pc-80pc of profits as dividends. If something bigger came along, the business is debt-free and would be in a strong position if it needed to raise money that way, he added.

Hostelworld's share price was battered - falling below the IPO price - last summer on foot of terrorist attacks in Europe but the business has bounced back since then and published well-received results during the week. The shares are back above the IPO price and early in the 2017 financial year, bookings and revenue are up.

"We're pleased with where things are at but there's still a lot of work to go," says Mooney.

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