The threat most hoteliers are ignoring
 
The threat most hoteliers are ignoring
27 MARCH 2015 6:09 AM
When PKF-HR’s Mark Woodworth asked 1,200 Hunter attendees if this threat was on their radar, only five raised their hands. Such hubris is even scarier than the threat itself. 
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“Is anyone worried about Airbnb?”
 
Nary a hand was raised when Mark Woodworth asked that question from the main stage at the Hunter Hotel Conference. The head of PKF Hospitality Research had to peer into the sea of some 1,200 attendees, hand above his squinted eyes like a sailor gazing into a foggy horizon, to find any. There were maybe five in all. 
 
“Well, I’m going to talk about it anyway,” Woodworth said. 
 
He was right to do so. The peer-to-peer accommodations platform is a threat to both demand and rate. We’ve documented that fact time and time again. Hoteliers just don’t want to hear it. 
 
This dismissive attitude is based on the fact that it takes a lot of Airbnb supply to truly steal share. To reach that mass, Airbnb needs a strong concentration of willing hosts in high-demand markets such as New York City and San Francisco. 
 
So yes, owners and operators in most secondary and tertiary markets are largely immune for now. 
 
For those urban players, however, Airbnb is on the doorstep, knocking on the door. The platform is growing its share at astronomical rates, nearly doubling its listings in each of the past four years, according to some estimates. In highly concentrated markets such as Austin, Texas, the resulting impact has exceeded 13% of hotel revenue, according to an updated Boston University study
 
Woodworth used a compelling visual aid to get the point across:
 
Source: InsideAirbnb.com 
 
This is what contagion looks like. The above chart (from the fascinating website www.insideairbnb.com) highlights listed rentals in New York City. Red dots represent entire units for rent on Airbnb, green dots are private rooms and blue dots are shared rooms. There are 27,392 listings in all, which is still a fraction of the total 112,801 hotel rooms in the city, according to STR, parent company of HNN. But it’s a growing fraction nonetheless.
 
As Woodworth articulated at the Hunter Conference, hoteliers are ignoring the threat because times are good. But when the next down cycle hits—the timetable for which has ranged from 2016 to 2019, according to speculation at the conference this week—it will be harder to ignore. 
 
That’s particularly true when hoteliers begin marking their competitive differentiation on price—the average price of an Airbnb listing in NYC hovers slightly above $200/night and is well below the average cost of a hotel room in, say, Manhattan. 
 
Making matters worse: Airbnb is professionalizing their offerings for corporate and business travel.
 
Hoteliers may have their heads in the sand now, but I’ll be curious to see how many more hands start to rise as Woodworth continues to ask the question. 
 
Or maybe I’m completely misguided. Let me know in the comments section below. 
 
Now on to the usual fodder …
 
What’s making me happy this week?
The Hunter Hotel Conference. This has always been one of my favorite events, largely a result of an attendee roster representing an accessible cadre of the industry’s key decision-makers. That it’s held in the awe-inspiring monolith of the Atlanta Marriott Marquis makes it all the more enjoyable. 
 
 
Stat of the week
Roger Dow of the U.S. Travel Association is back to beating the drum of infrastructure improvements in the nation’s airports. While I criticized his calling out the Big Three for not upping airlift at a pace significantly exceeding demand in my column two weeks ago, I’m willing to give credit where credit is due. 
 
His latest call-to-action accommodates survey data showing 80% of passengers are willing to pay an extra $4 per ticket to fund airport improvement projects that would enable airports to accommodate more airlines, modernize facilities or reduce delays in and around the airport.
 
While I can’t fault airlines for optimizing airlift to maximize profits, I do agree with Dow that airline infrastructure in general needs a facelift—and a tummy tuck, liposuction, you get the idea. 
 
One way to fund those improvements? Adjusting the Passenger Facility Charge for inflation, which hasn’t been done in 15 years. 
 
Quote of the week
“I don’t care about it. I know somebody’s gone out there and talked about it, and good for them.”
InterContinental Hotels Group CEO Richard Solomons when asked if he wanted to be the first hotel company to cross the 1-million-room mark. 
 
His response underscores the complexity (and absurdity) of the question of unit growth as the driving force for public hotel companies. What matters more is how the end product serves guests and owners, but Wall Street only wants to see increases on the bottom line. The two play into each other, leaving the big players in our industry battling it out to be the best (and biggest).
 
Reader comment of the week
“Great job, HNN team. A powerful report. I wish I could have been part of it.”
Former HNN Editor-at-Large and now frequent contributor, Ed Watkins, in response to “The 2015 Big Brands Report.” 
 
Self-serving? Sure. But I’m not passing up an opportunity to highlight a compliment from the dean of hotel industry trade journalists himself, Mr. Ed Watkins. 
 
Email Patrick Mayock or find him on Twitter.
 
The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Bloggers published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.
 

3 Comments

  • Anonymous March 27, 2015 10:55 AM

    It would be foolish to think that the goal of AirBnB to penetrate into the hotel shares will simply subside with the initial challenges they are facing in markets. There is so much potential and resource-backing at this point that they will continue to chip away and eventually make further inroads in the long term.

  • robertkcole March 28, 2015 8:21 AM

    The hotel industry has a proud tradition of dealing with disruption using a simple five stage process: 1) Ignore - Because it is simply too small to make a difference 2) Ignore - Because the millions in investment and billions in market cap are an aberration. 3) Block - Try to establish laws, tax policy or business processes to thwart the disruptor. 4) Panic - When the step #3 doesn't work. 5) Accept - Normally accompanied by whining, or reminiscing about the "good 'ole days." We have seen it before with merchant/opaque distribution models, vacation rentals, hostels, room occupancy taxes, last-minute booking, free wifi/personal hotspots, rate parity, meta-search, etc. Currently, hoteliers are feeling less threatened due to the recent Resonance study that asked millennials about preferences regarding various forms of accommodation. Airbnb came in last at 11%, following full service hotels (58%), staying with friends or relatives (37%), camping (24%.) However, two major factors are being overlooked: first, the question asked about hypothetical vacation preferences - normally a longer term length of stay; the results may have been very different if asking about a leisure trip. Also, hotels do not normally consider staying with friends or relatives or camping as strict competition. However, when looking only at full service hotels and Airbnb, the ratios shift to 17% of millennials prefer owner-shared accommodation. How old is the sector? This is starting to mirror OTA adoption. The key statistic that the hoteliers should be focusing on in the Resonance study is that 40% of Millennials use owner-direct services like Airbnb regularly or occasionally. THAT is a huge, disruptive number, because according to Chip Conley, "Airbnb guests already score their Airbnb experience higher than the average score of global hotel chains (based upon Net Promoter Score)." Large scale trial + high satisfaction = something that deserves attention. However, the real key to Airbnb is one key area where the hotel industry has huge challenges: Personalization. Airbnb is built for personalization - matching the right guest to the right host/unit. We are not discussing segments or demographics here. We are talking about individual people - and their differing needs for different itineraries. Hotels frequent guest programs are still largely treating guests like numbers, grouping them into tiers, and using points as bait to discourage defections to competitors. Instead, Airbnb is focused on the guest experience and creating value. Airbnb measures its success in economic, environmental and social terms. Hotels groups are focused on unit growth, RevPAR and investor returns. For Airbnb, the host-guest relationship reigns supreme. Chip Conley is the modern day Ellsworth Statler when it comes to evangelizing the changing hospitality industry - Statler's sayings "Life is Service" and "The Guest is Always Right" resonate with Airbnb hosts that know their guests' positive reviews generate higher utilization and pricing opportunities. Airbnb is also using Big Data much more effectively than the hotel groups to facilitate that personalization (as are the OTAs.) In short, hoteliers are being disrupted by personalization - of both the old school and new school varieties. Airbnb possesses all the traits of a successful, highly disruptive firm. It looks like we are in Stage 3 of disruption right now, and with Airbnb happily embracing the payment of occupancy taxes, Stage 4 should hit when the next downturn arrives - as Mark Woodworth suggests. That was pretty much the pattern with the OTAs as well (remember September 2001 & September 2008?) In 1Q 2001, Priceline's market cap was less than $100 million. In 2009, the hotel industry had its worst year since the Great Depression, while the OTAs sported record profits - sourced predominately from hotels. The sooner the industry accepts it, the sooner they can figure out how

  • JAM April 10, 2015 8:24 AM

    Just about complete silence met my query about Airbnb to a panel at Hunter. My Q was what lessons are hotels taking from Airbnb, given that there are a whole mess of travelers who prefer this mode of over-nighting. No answer, just shrugs and one fella saying it's not an issue in smaller cities, secondary and tertiary markets ... it's an NYC problem. Hmmm, we'll see. The Gen Y travelers created couch surfing, finding via the Web open sofas at homes around the world for cheap travel; and they prefer that method because the "sleep technology" is not what they're seeking; it's all about the destination. When I was a kid my family took trips to seaside towns, never stayed in a hotel, always in a rented residential apartment or rooms with a shared bathroom. So it's an industry that has long existed and now with the Net, it's gaining a whole new life. Keep an eye on Airbnb in Cuba ...

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