Airbnb presents a growing threat to hotel industry
Friday, July 25, 2014
The hotel industry can no longer ignore the Airbnb phenomenon and write it off as a wannabe competitor. One simple reason is that Airbnb has not disappeared from the scene as yet another new fad that bites the dust. Another more important one is that Airbnb's popularity and sales both seem to be rising too fast for comfort.
Airbnb.com is an online platform for short-term rentals that offers travelers and vacationers feasible and comfortable lodgings across locations. In the process they have become the best place to look for affordable alternatives to hotels whose prices have seen meteoric rise (over 20 percent) in the last four years. In a recent faceoff, New York hotels and New York's attorney general called listings on the site as "illegal" hotels, while Airbnb called the officials' efforts a "government-sponsored fishing expedition."
Perhaps the worries are justified since more and more industry reports are pointing to the fast rise of Airbnb's revenues and the basis of its success: the new "sharing economy" as a veritable business opportunity for the future. Fast Company ranks Airbnb sixth in its list of the world's most innovative companies of 2014. They have also said that "Airbnb will usurp the InterContinental Hotels Group and Hilton Worldwide as the world's largest hotel chain — without owning a single hotel."
The San Francisco-based company lists rentals in more than 34,000 cities around the world, and travelers view it as a savior for popular destinations like New York, where the average cost for a hotel room is around $700 a night — and that's putting it mildly. Compare that to booking through Airbnb, where one can get more-than-decent accommodations in coveted and pricey NYC locations for just $100 a night or less.
It's not just New York, but also other cities like Portland and San Francisco, where a major storm is brewing over the "sharing economy" concept. As mentioned, lawmakers in these cities are calling Airbnb listings illegal hotels that are costing the states millions of dollars in unpaid sales taxes.
For hotels, these listings are impinging on their bookings and resulting in lost revenue, not to mention job losses in the tourism industry as well. But for homeowners who are looking for extra income, this is a great way to supplement theirs and also keep a strong hold on their properties.
Everything is transparent with Airbnb, from the details and features of the properties listed to the firsthand reviews from past guests. For a city like New York, where the occupancy rate has risen from 87.6 percent in 2012 to 91.9 percent in just a year, according to Crain's New York Business, services like Airbnb might just be the right solution for the public.
Rentals are not a new concept, but the way Airbnb has designed the service, it has become easy to connect guests and homeowners. Two things that has aided in this spectacular success — the advent of smart technology that lets people connect so easily, and the economic downturn that forced hosts to look for extra income to ease their burdens and guests to look for cheaper accommodations. When these unused rooms from the listings are booked and used, Airbnb gets a transaction fee.
The first reactions from hoteliers like Marriott, Four Seasons, Ritz-Carlton and Hilton were to ignore the wannabe in their midst. Then they said that there was no threat since Airbnb customers are not in the same league as their high-end and business travelers. A recent study by Boston University shows that this may be true for now, but the small ant that is nibbling at the hotel industry's lunch today can turn out to be a Goliath that gobbles up big business tomorrow.
At the rate at which Airbnb is growing, the listings are doubling each year and by 2016 it will put at least a 10 percent dent in hotel revenues. The threat could be growing as these services can turn out to be a boon for business travel, which forms a major part of travel and hospitality revenues today.
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