Budget accommodation firm Hostelworld has warned of a quarterly profits hit of up to €4 million due to the spread of coronavirus.

The OTA suffered a slump in bookings since late January due to the impact the virus has had on global travel demand.

“As coronavirus has spread from region to region, we have observed a material reduction in bookings and an increase in marketing cost as a percentage of net revenue,” the company said.

“This has been driven by a significant reduction of bookings from free channels, an increase in longer lead time cancellations across all channels and an increase in investment in paid channels to partially offset the bookings decline in free channels.

“Given that the depth and duration of the virus outbreak is impossible to forecast at this time, we are unable to calibrate its effect for the balance of the year.

“However, if near term trends were to persist to the end of March we estimate the impact to ebitda [earnings] to be in the range €3 million to €4 million for Q1 2020.

“With continued tight cost control and our strong cash generative characteristics, the group remains resilient in volatile market conditions.”

The update came as Hostelworld posted a 9% fall in 2019 earnings to €20.5 million, described as being in line with market expectations.

Overall net bookings declined by 5% year-on-year with net revenue down by 2% over 2018 to €80.7 million.

The average net booking value was up by 3% to €11.97.

Chief executive Gary Morrison revealed that an extensive list of potential takeover targets were under consideration as part of merger and acquisition plans.

He said: “Following the group’s return to growth in 2019, I see significant opportunities to build a broader catalogue of experiential travel products beyond hostel accommodation.

“These types of experiences may include opportunities to study, work or volunteer abroad, with hostel stays featuring as part of an extended itinerary.

“Our research would also suggest that this market is very fragmented, with many different marketplaces and business models.

“With the group’s deep knowledge of experiential travellers built up over 20 years, our trusted brand, and a loyal and relevant customer base, I believe we are uniquely positioned to help both our existing customers and new experiential travellers meet the world together with other like-minded travellers.

“To execute this strategy, the group has increased its focus on potential merger and acquisition opportunities in the past six months and built an extensive pipeline of potential targets.”

He added: “Overall, the group sees significant potential for the further deployment of capital to enhance future growth through both organic and inorganic investment opportunities.

“As a result, the Board has taken the decision to rebase the dividend policy.

“A rebased progressive dividend with a pay-out of between 20%-40% of adjusted profit after tax will enable investment in organic and inorganic opportunities which should see shareholder return increase in the medium to long term.”