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Don’t Underestimate the Airbnb Threat

by Ed Watkins, Contributing Editor |

If you’re like me, you’re probably a little sick of hearing about Airbnb and its cohort of sharing economy accommodations sites. Of course, I only write about the hotel industry, and you’re probably charged with maximizing revenues, occupancy and profits at your hotel or hotel company. So, as such, you need to keep tabs on any and all potential threats to your business.

Again, if you’re like me, you’re still not sure what is the actual threat the hotel industry faces from Airbnb et al. Is it poised to completely disrupt the hotel industry as we know it? Is the threat overblown, and will the fad pass? Or is the depth of the threat hyper-localized?

There’s a lot of new evidence showing Airbnb (which I use as a proxy for all similar sharing economy sites) may not be as powerful a threat as some feared, or it’s a lark which many people try once or twice but eventually reject and return to being frequent hotel users. STR recently drilled down into the depth of Airbnb’s penetration in the New York City market and concluded the effect on the city’s hotel industry is somewhat benign.

On the flipside, a new survey from Goldman Sachs Group shows that once travelers give Airbnb a try, they don’t go back to hotels. The survey of 2,000 U.S. consumers had some pretty troublesome findings for the hotel industry.

“If people have stayed in peer-to-peer lodging [P2P] in the last five years, the likelihood that they prefer traditional hotels is halved (79% vs. 40%),” the data showed. “We find it interesting that people ‘do a 180’ in their preferences once they use P2P lodging. They move directly from preferring traditional hotels to preferring P2P accommodations.”

It hurts the industry even if one traveler to New York decides to stay in an Airbnb apartment rather than a hotel room. Multiply that by hundreds, more likely thousands of people, and it’s putting a dent in hotel bottom lines. No one can tell me it’s not having an effect.

The sharing economy represents a real and present danger. Click To Tweet

As STR’s study showed, New York’s hotel industry has been on an upslope for six or seven years and should continue to be—as long as the U.S. and world economies hold up. What happens, however, when (not if) an economic downturn, either sudden like 9/11 or more gradual, hits the hotel industry? Hotels have high fixed costs that can’t be readily reduced in bad times, and nowhere is that more pronounced than in a market like New York, where organized labor has a grip on most industries, including hotels.

So during a downturn, hotels can only afford to cut rates so much in order to retain profitability, or just to pay the mortgage. Airbnb hosts are in a different and more enviable position. Their fixed and variable costs are significantly lower, and they will be able to radically cut their rates in times of economic upheaval. To them, $75 a night is better than nothing at all, and probably still represents a healthy profit. At the Marriott Marquis in Times Square, a $75 rate would barely cover the cost of cleaning the room.

In addition to the STR study on New York, other street-level data seems on the surface to show the threat from Airbnb might be overblown. A study commissioned by Travelex showed 4% of Americans are considering Airbnb for their next vacation. That doesn’t sound like much until you do the math. Last summer between June and September, there were 192 million airline passengers in the U.S. Obviously, a lot of business travelers took multiple flights during the period and not everyone who flew stayed in a hotel. But if 100 million of those passengers did seek accommodations, 4 million of them would have considered Airbnb over a traditional hotel. That’s a lot of roomnights, enough to put a dent in hotel occupancies and profits.

According to press reports, a lot of potential Airbnb hosts were disappointed with business during Super Bowl 50. The San Jose Mercury News said a few days before the game that 60% of the 10,000 active Airbnb hosts in the Bay Area still had available accommodations. Post-weekend reports said 15,000 people ended up staying in Airbnb accommodations, which represented 57% occupancy for those homes listed on the site.

As I said initially, the numbers surrounding the sharing economy can be dizzying and skewed in a variety of ways to prove Airbnb is either a threat or not, depending on your viewpoint. However, for revenue strategists, their marketing colleagues and hotel owners, the sharing economy represents a real and present danger to their businesses. The threat isn’t spread evenly throughout the industry, or specific markets or segments, but it behooves everyone in the business to pay attention as more research and anecdotal evidence comes to light.

 

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Ed Watkins, Contributing Editor

Ed Watkins, Contributing Editor

Contributing editor at Duetto
Ed has been covering the hotel industry for more than 40 years. He was editor-in-chief of Lodging Hospitality from 1980 to 2012. He then joined Hotel News Now as an Editor at Large, until his retirement at the end of 2014. Ed still contributes to several publications and is a member of the advisory boards for the hotels schools at Michigan State and Penn State.
Ed Watkins, Contributing Editor

Latest posts by Ed Watkins, Contributing Editor (see all)

Ed Watkins, Contributing Editor

Ed has been covering the hotel industry for more than 40 years. He was editor-in-chief of Lodging Hospitality from 1980 to 2012. He then joined Hotel News Now as an Editor at Large, until his retirement at the end of 2014. Ed still contributes to several publications and is a member of the advisory boards for the hotels schools at Michigan State and Penn State.