Hoteliers question effects of shared economy
10 FEBRUARY 2014 7:43 AM
Alternative accommodations sites such as Airbnb are competing with some hotels, but most sources believe the threat is minimal—for now.
GLOBAL REPORT—Hotel company executives and analysts agree the new generation of alternative accommodation services might have a long-term effect on hotel industry performance. They don’t agree, however, on the level of impact these services will have on their business.
“Airbnb and other iterations of shared-space non-lodging are here to stay,” said Jan Freitag, senior VP of strategic development at STR, the parent company of Hotel News Now. “The question is how you make peace with the thought that your competitors will have a house number, not a porte cochere.”
The traditional hotel industry has always had competitors: from cruise ships and timeshare resorts to hostels and serviced apartments. But in recent years, Internet technology, demographic trends and shifting consumer preferences to authentic and unique experiences have fueled a new group of alternative accommodations that sources say, at least, will make hoteliers reexamine their product and service offerings and might affect the bottom line of the hotel business.
“These services are serving a niche, and clearly it is a growing niche,” said David Loeb, managing director and senior hotel research analyst at Robert W. Baird & Company. “What we don’t know is how much of this demand is incremental—people who don’t want to stay in hotels or for whom hotels just don’t work—and how much of it is substitution; that is, taking demand away from hotels.”
As a byproduct of a larger cultural trend toward a sharing economy, a slew of travel-related industry Internet sites have sprung up in recent years. HomeAway is one of the largest. The service, which focuses on vacation rentals, reports 773,000 paid listings in 171 countries, mostly in the United States and Europe with growth focused on South America and Asia. Others include VRBO, Homestay, One Fine Stay, FlipKey, Roomorama and Housetrip.
San Francisco-based Airbnb is the accommodations service garnering a lot of press attention and notice from the hotel community. The company, which was founded in 2008, has listings of more than 500,000 homes, apartments and condos in 34,000 cities and 192 countries, according to its website. Since its founding, the website has completed more than 9 million transactions.
While it’s difficult to quantify the specific effects Airbnb and other services have on the hotel industry, many hoteliers and analysts agree the impact differs depending on location, types of trips, lengths of stay and demographics of the travelers.
A study published in December by the Boston University School of Management attempted to calculate the impact of Airbnb on hotel industry demand. The researchers studied more than 22,000 rentals through Airbnb in the state of Texas over a five-year period.
The researchers projected that in the subject market a 1% increase in the size of the Airbnb market results in a 0.05% decrease in quarterly hotel revenue. The study also showed that Airbnb has a disproportionate impact on lower-end properties.
A lot of the demand for sites such as Airbnb comes from younger and more cost-conscious travelers, sources said.
“It hasn’t affected us at all, at least so far,” said Charles Lagarce, president of Ohio-based Columbus Hospitality Management, operators of nine hotels. He said he first learned about Airbnb and such sites from a group of younger managers within his company. “It appears to appeal more to their demographic and more to leisure travelers. It will be interesting as time goes on and as people become more comfortable with this idea to see how it will have an effect on our business.”
Henry H. Harteveldt, travel industry analyst with consulting firm Hudson Crossing, said research conducted by his company showed that 14% of 18- to 23-year-olds have stayed in a rented condo or home.
“We have a generation coming to market that is growing up in the sharing economy,” Harteveldt said. “In 10 years or so, when these people are older and in the work environment, it’s going to have an effect on both business and leisure travel.”
Other sources questioned whether millennials will still embrace the sharing economy as they mature and change lifestyles.
“When I was 24, single and not making a lot of money, I was a lot more willing to crash on a friend’s couch for a couple of nights, but that changed as I got older,” said Douglas Quinby, VP of research at PhoCusWright. “When they get older many (millennials) will also get married, have children and want to create stability for their families. As a result, some of their behaviors may change.”
Harteveldt believes the future lies somewhere between.
“This is not binary; it’s not either/or,” he said. “Consumers will never completely turn their backs on hotels, and the home rental market will never displace 100% of the hotel market. The traveler who is a last-minute traveler who is staying one or two nights is most likely to always be a hotel customer.”
Business or leisure
Another question is whether sites such as Airbnb will be able to penetrate the business travel market.
“Right now there is a bifurcation of user between leisure and business travelers,” Freitag said. “While alternatives are open to everyone, the regular business travelers, the Fortune 1000 travelers, will probably opt for brands that give points, a certain amount of security and a predictability to their trips. A leisure customer may be willing to take a chance, but if you need a good night’s sleep, wireless Internet and a good breakfast, that’s what a hotel provides.”
Acceptance by business travelers will sometimes depend on their company cultures and travel policies, Harteveldt said.
“A lot depends on the company. If travel is heavily managed and travelers are told to do as instructed and only book preferred lodging choices through preferred intermediaries, then the travelers’ hands are tied,” he said. “And it’s also a matter of choice by the travelers. Some of them are so tied to their loyalty programs they might rather cut off an appendage than give up the nights and points.”
In general, Harteveldt said, sharing-economy services might be adopted by business travelers who are self-employed or work in industries such as consulting where their travel might be billed back to the clients.
What can hoteliers do?
Despite the growth of Airbnb and other similar services, some hoteliers believe their product has distinct advantages that shield them from this new competition. Other operators embrace some of the practices and cultures pioneered in the sharing economy.
As part of its corporate development, Airbnb last year hired hotel executive Chip Conley as its head of global hospitality to create standards and training programs for apartment and home owners who list on the service. Conley was the founder of boutique hotel company Joie de Vivre Hospitality.
“The best hoteliers I know are studying Airbnb, not as a threat, but as an educator and indicator of the shifting tastes of the traveling public,” Conley said in an email.
To better compete with these new services, hoteliers must create additional value for their customers through technology, suggested Christopher R. Hemmeter, managing director of Thayer Ventures, an investor in travel-related technology companies.
“Hotels have the opportunity to provide different kinds of information services that rental properties can’t compete with,” he said. “Some are offering seamless mobile check-in with the ability to push promotions and offers to guests through smartphones and tablets. Hotels should leverage the knowledge of its personnel to become a tour guide for guests as well as a place to sleep.”
The biggest advantage hotel operators enjoy is their ability to provide reliable, consistent and hassle-free accommodations, Harteveldt said.
“The advantage of staying in a branded hotel, or even a well-known independent, is that (these hotels) have standards for security, safety, cleanliness, design, room size, furnishings and reliability of reservations,” he said.