Is Airbnb beating hotels? Most definitely.
While the hotel industry is experiencing strong growth since the downturn of the economy, alternative accommodations like Airbnb and HomeAway have been chipping away at their total addressable market. Phocuswright projects private accommodation bookings will grow from 12% to 16% of total bookings by next year. This trend will only accelerate as new generations start booking travel and looking elsewhere from hotels. Even though the short term rental market is growing, there is a lot that hotels can do to stay competitive in the sharing economy.
Why are hotels letting Airbnb win?
The trouble is that the amount of pressure being felt within the hotel industry to adapt doesn’t meet the danger that faces them. This is the opening that vacation rentals are exploiting. The response to the rise in vacation rentals falls into two extremes: denial and alarm.
The denialists argue that vacation rental companies like Airbnb serve a different customer. They point to the meticulously maintained image that Airbnb projects. The image of the average person listing out extra rooms to travelers hungry for local flavor and authentic experiences. But we know that this carefully crafted image is simply just not true. What do we know? We know that the majority of bookings are with hosts with more than one listing, essentially running unlicensed hotels [1]. We know that travelers are also predominantly looking for entire homes or apartments [2]. And we know that through many bookings the two users never meet in-person, so the experience ends up being similar to a hotel without a front desk.
The alarmists correctly point out that vacation rentals are barely regulated, taxed or scrutinized compared to hotels, similar to what the livery industry faces from Uber and Lyft. While hotels enjoy advantages like prime locations, often more desirable than the residential properties of vacation rentals, they are often outweighed by regulatory forces. In this case, the location may be outweighed by the at least 15% price advantage of not having to pay an occupancy tax. A benefit of Airbnb’s significant lobbying investments.
How are hotels battling back?
The hotel industry has a difficult balance to maintain. They need to appear unruffled by vacation rentals to the public while appearing proactive to investors who are increasingly concerned about vacation rentals. The playbook so far has been focused on lobbying.
