Hoteliers react to sharing-economy competition
 
Hoteliers react to sharing-economy competition
02 SEPTEMBER 2014 9:00 AM
Many hoteliers believe Airbnb and other sharing-economy sites are affecting their business, but they find it difficult to quantify the impact.

GLOBAL REPORT—Hoteliers’ reactions to the effects on their business from Airbnb and other sharing-economy travel websites range from outrage to guarded admiration. Some operators cannot quantify the dollars-and-cent impact of these services on their hotels.
 
“We have not seen a direct effect in any of our hotels,” said Richard Jones, senior VP and COO of Hospitality Ventures Management Group, an Atlanta-based hotel owner and operator. “We don’t feel it’s having any impact on our results or that it has hit our radar as of yet.” 
 
Robert Habeeb, president and COO of First Hospitality Group and an HNN columnist, assumes Airbnb and other services are stealing business from his hotels, but he is unable to quantify the effects. 
 
“If you look at Airbnb’s $10-billion market cap, then you must assume they are running some significant volumes,” he said. “We just don’t have statistics for our hotels, but anecdotally a lot of people are talking about (Airbnb), and while we may not be seeing it in markets like South Bend (Indiana), it’s become quite popular in Chicago.”
 
Habeeb said Airbnb’s penetration into urban centers rather than secondary or tertiary markets has created additional disadvantages to owners and operators of traditional hotels in large cities.
 
“Doing business in Chicago is very expensive and very regulated, and all of us competing here have the same cost burden, whereas those folks who are renting their apartments on Airbnb have none of those costs,” he said.
 
Bashar Wali, president of Portland, Oregon-based Provenance Hotels, is more sanguine about the sharing-economy phenomenon and its effect on the industry.
 
“The sharing economy is here to stay, and no matter how much we fight it and cry about it, for the millennials it is a way of life,” he said. “Our belief is if you make the playing field level—such as the payment of taxes—then we’re OK with it.” 
 
Wali believes regulations passed by the city of Portland will help mitigate problems with Airbnb and similar sites. 
 
“The city is doing a lot of the right things. They’re collecting taxes, and they’re making (hosts) apply for the permit and submit to inspections,” he said, adding the proposed legislation will require hosts to live in their residences at least nine months of the year and that apartment and condo units cannot be rented through Airbnb.
 
“That’s a particularly important part of the regulation,” he said. “Otherwise, apartment owners would stop leasing units and instead rent them on Airbnb, and the unintended consequence would be the apartment buildings would become quasi-hotels, which would push rental housing into the suburbs, making it harder for employees who work in the city to find a place to live.”
 
Direct effect on rates
Vijay Dandapani, president and COO of Apple Core Hotels, is more certain about the threat the sharing economy poses to his company’s five hotels in New York and to the industry.
 
“The effects of Airbnb are pervasive and have deep consequences to our industry,” Dandapani said. “And while some (executives) at the national hotel chains finally see the problem, there are many people in our industry who haven’t woken up to it yet.”
 
He said New York tourism arrivals are on a steady upward climb, but the increases haven’t translated into higher hotel rates. He said revenue per available room is forecast to grow between 2.5% and 3% this year for all hotels in the city, but so far this year his hotels have seen increases of between 1.5% and 2%.
 
“There has been continual growth in tourism arrivals, both international and national, while RevPAR growth has been moderate at best, and more like flat,” he said.
 
Other hoteliers are less concerned about the increasing visibility and popularity of these sites.
 
“They’re a competitor, but what we have in common with them is that guests are experiencing our cities,” said Gül Heper, commercial manager for Stockholm-based HTL Hotels. “There’s always going to be a different way of doing it.
 
“It depends on the guest. And since the new travelers value personalized, unique experiences, they will sometimes opt for Airbnb, but there will be times they need security and a trusted place to stay,” she said.
 
Will Loughran, president of Richfield Hospitality, said while his company hasn’t been able to statistically uncover an effect on its business, he believes the Airbnb concept will create other entrants into the field.
 
“It is a smart and clever approach to a business they essentially pulled out of thin air,” he said. “It is intriguing to watch it play out.”
 
Loughran said these services also are creating new travelers who might not be able to afford traditional hotels, an assertion Dandapani disputes, at least from his experience in New York.
 
“That argument doesn’t hold water,” Dandapani said. “Go on their website and you’ll see listings for Times Square and the Upper West Side at rates higher than Hilton Garden Inns and much higher than my hotels.”
 
Habeeb also is worried about the long-term effect on the hotel industry, particularly when and if the current up cycle turns downward.
 
“We’ll be dealing with a lot of (hotel) development in the coming years and will be forced to contend with oversupply, and services like Airbnb will exacerbate that problem,” he said. “As this trend spreads and proliferates it could have a meaningful effect on our business, especially during off-seasons when we’re all fighting for every roomnight as it is.”
 
Solving the problem
Several hoteliers took issue with the disparities in operating models for traditional hotels versus Airbnb and hosts.
 
“Airbnb customers are very rate-oriented, so it’s difficult to compete except by discounting,” Habeeb said. “People who rent their product on Airbnb can have very low rates because they have zero cost.”
 
Habeeb said while local governments can attempt to regulate sharing-economy services, they generally don’t have the mechanisms to enforce these laws. He said the same is true for state governments, which should be concerned about losses in tax revenues.
 
“The federal government isn’t bashful about the regulations they impose on our industry—pool lifts, (Americans with Disabilities Act regulations) and others—so you would think if the feds are truly concerned about these issues they would extend enforcement to (Airbnb),” he said.
 
Taxes are a key issue for Dandapani. He said the differences in taxation on buildings zoned commercial versus residential can be significant.
 
“Here’s a simple example: Take a 60,000-square-foot building with a $100-million market value. If it is a hotel, the assessed value is 40%, or $40 million, and that’s what’s used to calculate taxes. If it is a residential building with the same market value, the assessed value is 6%, and the tax is figured on that amount. The disparity is huge.”
 
Dandapani said even if Airbnb and others pay occupancy taxes on their transactions, the playing field will still not be level.
 
“What about the rest of the taxes we pay?” he said. “There are mortgage recording taxes and other transactions taxes we pay when we buy and sell hotels that are completely different for residential transactions.”



 

1 Comment

  • Jim C March 28, 2016 10:10 AM

    I'm a big lover of airbnb and use it regularly for domestic and international travel. Last week, however, I spent a week in Norway and Stockholm with my son and I opted to stay in hotels the entire trip (including HTL in Stockholm, coincidentally). It was somewhat of a whirlwind - 4 cities in 7 days - and I opted for hotels for the convenience and to save time. I didn't want to spend precious time searching for airbnb host addresses and I wanted a 24/7 front desk to help with directions and with airport transportation and I wanted to be able to check-in baggage at any hour and leave baggage till late afternoon departures. The point is hotels have certain advantages for certain trips and certain travelers. There are times airbnb will work and times hotels are better. I'd recommend the hotel industry study cross-over travelers like myself to better understand the decision-making process between airbnb trips and hotel trips - it is not just price.

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