Founded less than eight years ago, Airbnb is young but mighty, having established an impactful presence in the sharing economy. Their success has raised an important question: What effect will Airbnb have on the hotel industry?
Their success has raised an important question: What effect will Airbnb have on the hotel industry?
The answer? A smaller impact than you might expect—for now.
On a fundamental level, Airbnb puts a roof over guests’ heads and a pillow under them—no different from a hotel. But beyond those basic lodging essentials, in many cases Airbnb represents a much different experience than that offered by hotels. The peer-to-peer platform offers lodging options that are often the very reason a guest chooses to travel in the first place. With 74 percent of Airbnb properties located outside the main hotel districts, the platform serves up housing options that cater to more of a local and less of a tourist-type experience.
There are even extreme examples of Airbnb locations that are quite literally the very sights that travelers want to see. For example, the website boasts more than 1,400 castle listings, and other Airbnb options extend to booking everything from a private island to a ski lift to an igloo.
Airbnb’s Impact on Hospitality
Today, the impact of Airbnb on the hotel industry is small, because the way both operate is different enough that there’s room for both as long as they’re after different consumers.
And, for the most part, they have been. According to Slate, “For the 12 months ending in April, hoteliers had hit all-time highs in occupancy, average daily room rates, and the money made off each room.” Good news for the hotel industry. But they also mentioned the good news for Airbnb too: “Late last month Airbnb … closed a $1.5 billion funding round at a towering $25.5 billion valuation.”
Overall, it seems to be a win-win for both the sharing economy and the hospitality industry. But it begs the question: “What comes next?”
A Question of Scale
Professor Cathy Ann Enz of the Cornell School of Hotel Administration brings up a few important questions for Airbnb’s evolution as a business, which will determine how much or how little the hospitality industry will need to adapt: “Can it scale? What are the implications for supply and demand? And who is the evolving host?”
The big question: Can it scale?
Enz acknowledged Airbnb’s benefit of creating a sense of community and allowing guests to feel like “locals,” admitting that she herself passed up the opportunity to reserve a hotel room for her upcoming trip to Arizona, because the Airbnb alternative afforded her more living space, a kitchen, room for guests … and that opportunity to feel like a “native.”
“But what happens when people buy into residential real estate and run it as a property management business for which they are, in a sense, selling on Airbnb through a real business model, a host of properties that were never really anyone’s home,” questioned Enz. “Now, the competition not only looks different and is more threatening for the hotel industry, but the notion of peer-to-peer is altered, as in distorted and not really true.”
The Importance of Business Travelers
Jamie Lane, a senior economist at PKF Hospitality Research, a CBRE company, reflects on the current scale of Airbnb and its potential to successfully expand from the leisure division, capturing the interest of those traveling for business.
“Airbnb will occupy a niche to a growing portion of the population as a legitimate alternative to traditional lodging options. It will expand into business and group travel, but will never capture a meaningful portion of demand like it will for leisure travel.”
And a recent report published by Boston University corroborates Lane’s proposition through examining the proliferation of Airbnb in Texas as it impacted budget, economy, mid-price, upscale and luxury hotels, pinpointing “lower-end hotels, and hotels not catering to business travelers, as those that are most vulnerable to increased competition from rentals enabled by firms like Airbnb.” Chain hotels rest on safe (but shifting) ground, for now.
Here’s where the shifts come in to play: Back in May, Hyatt made the move of purchasing a stake in home-rentals firm onefinestay. While this collaboration is still new, both the actions of Airbnb and other hoteliers suggest that the lines between hotels and shared spaces might become a bit more blurred as the partnership suggests.
Enz, intrigued by the anticipated changes we’re seeing from both sides, rests on one final truth for both Airbnb and the hotel industry: “Generally speaking, the consumer wins.”
22 November 2017 by Daniel Rosen