Use service, high tech to beat home sharing
12 NOVEMBER 2015 9:57 AM
Home-sharing services such as Airbnb are posing threats to the hotel industry, but they can be lessened if hotel operators focus on creating service connections with their guests, sources said.
SAN FRANCISCO—It’s going to take a combination of high touch and high tech for hotel operators to compete with the growing power of home-sharing sites such as Airbnb, said a panel of hoteliers at a recent forum on disruption in the hotel industry.
“We in the hotel industry need to think abut being more like hosts, which means we need to be more relational than transactional,” said Mike Depatie, managing general partner of KHP Capital Partners and former CEO of Kimpton Hotels & Restaurants. “The increased use of technology in the business has made us more transactional, but we also must pay attention to the relational aspect because that’s what Airbnb is doing pretty well.”
Depatie was speaking at last month’s Disruptive Innovation Forum sponsored by The School of Hospitality Business at Michigan State University. While the program included discussions of other hotel industry disruptors, such as crowdfunded financing, short-term leasing of meeting rooms and online travel agencies, most of the discussion centered on home-sharing technology, for which the speakers used Airbnb as a proxy for the range of providers in the segment.
While millennial travelers are the perceived target audience for home-sharing accommodations, hoteliers can win that group over with superior service, said Jim Kauffman, who retired at the end of last year as president of full-service hotels in the United States and Canada for Marriott International.
“The guest is looking for a great experience and a great value,” Kauffman said. “This forces the (hotel) brands to be more distinctive, and millennials are forcing us to invest more in technology, which is expensive. But at the end of the day, as much as millennials want style and technology, they also want to be recognized. They want to know they are important, that you know them and their preferences, and if you do that you will get their loyalty.”
The panelists said it can be difficult for hotel operators to measure and understand the impact of home sharing on their individual properties.
“I haven’t seen any definitive data on what kind of negative impact Airbnb is having on our industry,” Kauffman said. “My intuition is there has been impact when there is (rate) compression in a market, typically in big urban areas and probably in the midscale and below segments of the market.”
Depatie said at least so far the impact of home sharing has been on leisure business.
“It’s probably 90% leisure at this point, and (Airbnb) is still trying to figure out the business piece,” he said. “It’s also a factor for extended-stay business travel. Airbnb says 20% of its business is more than 30 nights. That’s got to be impacting brands like Residence Inns.”
Not all the panelists had a negative view of home-sharing accommodations.
“I’m a fan, actually; it’s good for this industry because they’re bringing hospitality and their pricing is interesting,” said Mark van Hartesvelt, partner in GCommerce Solutions and founding principal of Gemstone Hotels & Resorts. “When the pope came to Philadelphia there was an increase in available rooms by 20,000. That was all Airbnb.”
He said home sharing also acts as a governor on hotel rates in a market, which isn’t necessarily a bad thing.
“I get upset when we as an industry start raising our rates to unreasonable levels,” van Hartesvelt said. “It makes me sick when (operators) take a $200 hotel room and charge $600 for it just because they can.”
While the panelists didn’t show much concern about immediate threats to the hotel industry from the sharing economy, several executives warned trouble might lie ahead.
“Airbnb might not be a real disruptor until perhaps 2020,” van Hartesvelt said. “When the next recession hits it could be a double whammy for us: We’ll have more supply coming online, because that’s what we do as an industry, and (home-sharing hosts) will be desperate for additional income, so they won’t have any pricing integrity.”
A recession could hurt in other ways, said Joel Hiser, principal of HTL Hospitality Advisors.
“Once the apartment market gets overbuilt and a downturn hits, those owners will try to rent out their units on a daily basis,” he said. “I know apartment owners who are doing it already, but it would only get worse during a recession.”
Like most optimistic businesspeople, the panelists believe hotel owners and operators can find ways to blunt the long-term effects of the sharing economy.
“At this point, most of the c-corps in our industry are a little schizophrenic: They don’t know whether to partner with (home-sharing companies) and develop alliances or fight them by presenting hurdles they have to overcome,” Kauffman said. “We’re probably just in the second chapter of a long book.”
Another advantage hoteliers might have is in the area of service recovery, van Hartesvelt said.
“The way we fight (home sharing) is the way I always fought the big brands, and that is focusing on first of all doing it right, but if necessary excelling at service recovery,” he said. “The worst thing you can hear is when you ask a guest how was their stay and they say it was OK. That means 70% of them are open to go somewhere else unless you make an emotional connection with them.”
Other disruptive forces
While the panelists and audience questions focused primarily on the sharing economy, they did speak briefly on a few other topics that can be disruptive to the hotel industry.
The effects of the revolution in mobile technology have been profound—and expensive—for the hotel industry, the panelists said.
“We rolled out mobile check-in for the Marriott brand in six months, which if you think of it from a global perspective, that’s pretty darn quickly,” Kauffman said. “But also it was very, very expensive. You have to make the investment because the world is moving to mobile. It wasn’t a question of if we do it; it was a question of how fast we could make it happen and what are the funding mechanisms we have to put onto place to make sure it happens.”
The executives were somewhat unsure of the impact the changing dynamics of the online-travel-agency market will have on the hotel industry.
“They’re definitely our frenemies,” Depatie said. “They’re getting a bigger and bigger share of the pie, and while commissions may come down a bit, overall distribution costs are going up for all of us.”
Kauffman said it’s imperative hotel operators find ways to maximize their relationships with the OTAs.
“On one hand, some hoteliers view them as the enemy, but on the other hand, if you have a property in a place like Hawaii, (the OTAs) are a pretty important business channel and you don’t want to give them up. It’s a complicated relationship, and it’s not just about commissions; it’s access to inventory and the rules on inventory,” he said.