Is Airbnb really a threat to the traditional lodging industry?
Thursday, March 17, 2016
As a model of sharing economy, Airbnb started off from the idea of letting travelers rent an "unused" bed, a bedroom or an entire suite/house from a host. When consumers make good use of other consumers' unused or underutilized resources, the society as a whole can gain extra value.
Currently, Airbnb has more than 2 million listings in 34,000 cities in 190 countries, among which 1,400 are castles. More than 60 million travelers have stayed in an Airbnb before. The company is now valued at $25.5 billion, as suggested by The Wall Street Journal.
Meanwhile, the world's largest lodging company (Marriott and Starwood combined) only has 5,500 owned or franchised hotels with 1.1 million rooms around the world, according to The New York Times. It is thus not a surprise to hear hoteliers sharing their concerns about the threat created by room-sharing websites such as Airbnb and Homeaway.
Indeed, hosts on home-sharing websites have many operational advantages over the operators for traditional lodging products. To name a few examples:
- Hosts on Airbnb do not need to attain a license before they open for business.
- Many hosts on Airbnb do not pay tourist or even income taxes (even though Airbnb plans to apply tourist taxes to its listings in more locations in the future according to the Forbes).
- Most listings on Airbnb do not carry a comprehensive insurance plan as hotels do.
- Hosts on Airbnb need not abide by the same rules and regulations as hotels do.
- Hosts on Airbnb need not to hire full-time staff to provide 24/7 service, and there are no administrative costs in dealing with unions and other human resource issues.
While the list can go on, the scariest part is more travelers are choosing Airbnb over traditional lodging products. Even Beyoncé, for instance, rented a $10,000 Airbnb apartment over the Super Bowl weekend. In summary, hoteliers are feeling the threat from Airbnb because (a) hosts in Airbnb operate their business with much lower costs and (b) Airbnb is "stealing" business from hotels.
Based on the performance data of hotels, however, it does not seem Airbnb has created a direct and significant threat to the industry. For example, there are many listings on Airbnb in New York City, but the occupancy and average daily rate for the hotels in NYC have not shown any signs of decline in the last five years.
As compared to a hotel stay, I actually see some pros and cons of renting a place on a home-sharing website like Airbnb (as summarized below). For travelers, I think the decision really depends on what they want for their stay. It is difficult to say one option is necessarily better than the other.
Renting on Airbnb
- Usually cheaper
- Some hosts are super nice
- Chances to experience a destination as a "local resident"
- Possible to meet new friends or to become friends with a nice host
- Possible to stay in some exotic places, such as a castle or a luxury home
Staying in hotels
- Consistent service as determined by brand standards
- 24/7 customer support on site
- Reservation is easy and can be confirmed with a few clicks
- Standard hotel amenities are provided
- Easy to solve a service failure issue unless in a hotel with poor management
- Easy to make changes on a travel plan
- Perks for frequent travelers such as upgrades and late check-outs
Renting on Airbnb
- No established service standards
- Reservation process is not as straight-forward as all requests must send to hosts for approval
- Once a reservation is made, it could be difficult to make changes
- Finding a nice place on AirBnB could be time consuming
- Not all rental places are as safe as hotels, and there are no background checks for the hosts
- Availability for a nice place could be limited on the desired days of travel
- Finding a resolution for a service failure issue could be challenging as there is no standard
- In case of accidents or damage, it might be difficult to claim a loss from the insurance company as most listings are not intended to be rented out for commercial purposes
Staying in hotels
- Could be more expensive
- Many hotels only offer standardize service with few customization, yet those providing customized service could be very expensive
- Could be boring as everything is put in place according to the brand standards
- Guests may need to obey more rules and regulations in hotels
- Guests may not be greeted by a local resident. Instead, they will be greeted by hotel staff in uniforms with their "standardized" smiles
Because Airbnb has some pros that hotels cannot offer, I can see why Airbnb may appeal to certain groups of travelers. Yet, at the same time, I believe hotels have more to offer. If hotels can learn from Airbnb by providing customized guest experience with local flavors, they will be able to win the competitions against Airbnb.
In the future, it is possible that these two types of products both become an essential part of the "new" lodging industry, where each provides a unique experience for travelers.
What do you think? Is Airbnb a threat to hotels or not? If is a threat, what should hotels do to deal with it?
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