Why The Hotel Industry Is Terrified of Airbnb

Why The Hotel Industry Is Terrified of Airbnb

0 Reads  By: Atreyee Chowdhury

1 airbnb vs hotelsAirbnb is currently being subjected to legal proceedings in many cities in the US for making long-term rent unaffordable and incurring economic losses to the hotel industry.

However, a new report suggests that the company is as likely to dominate the hospitality industry in the coming years as ever before. The Macquarie research concluded that the San Francisco based Tech Company, which is valued at $30 billion and still owned privately has now become second on the list of most valuable lodging enterprises.

The number of accommodations provided by the company amount to 3.1 million rooms, one of the longest listings ever.

The top lodging company on the list, Marriot, sits second on the room count of accommodations list at 1.1 million, almost 2/3rd behind the forth runner.

“It’s no secret why: As a tech company, Airbnb is able to serve as middleman for people with open rooms, making the supply seemingly infinite. For the company’s aggressive revenue goals, it’s also an auspicious strategy because there are two customers being served: the room providers and the guests. Airbnb hopes to reach $10 billion in revenue by 2020”, reports Yahoo Finance.

Ethan Wolfmann points out some important statistics:

“According to the report’s projections, Airbnb’s room supply growth will outpace the traditional hospitality industry significantly, even as far out as 2020, when Airbnb’s status as newcomer will have tapered. Currently, Airbnb’s lodging portfolio mix is mostly full lodgings, but about a third consist of private rooms. Macquarie notes that 47% of these whole-home listings are apartments, but the significant (39%) house numbers corroborate many views that Airbnb and other home-sharing companies like HomeAway and VRBO (Vacation Rental By Owner) are a whole new product, unique from hotels. You can’t rent a hotel-house and split the rooms and costs.

“In the scope of the entire market, not compared to a specific hotel company, Airbnb maintains around 3% of national room supply, and is concentrated in urban areas, though not always. While the company accounts for 7% of available rooms in New York City, it has just 1.6% in Washington, DC.

“Echoing the concerns of residents in many cities over Airbnb zapping housing supply, driving up costs, commercial Airbnb operators appear to be more threatening to the hotel industry, because they often buy a lodging for the express purpose of rental. One way to separate out those listings from rooms or full lodgings rented for supplemental income is to look at availability—which will be higher for commercial options.

“According to the report, around 17% of Airbnb listings are available 360+ days per year, 60% over 270 days, and 78% over 180 days. This suggests a significant amount of Airbnb listings, though not those figures themselves, are commercial – not individually owned – competing directly with hotels. Supplementing that data, the report found that around 40% of the listings in the 10 major cities tracked by the report have hosts with multiple listings—and 25% across the US—which similarly reflects a substantial number of properties that could cannibalize the hotel business.”

Dg-Research.com survey data reveals that mid-scale hotels are the biggest target. Airbnb has replaced 43% of mid-scale hotels, 18% of low-scale hotels and only 4% of upscale hotels. Airbnb also experiences more extended stay since most people will choose a room with a kitchen over a hotel room and mini-fridge.

The expansion of the company might have to face regulations by governments that are being lobbied by hotel owners and rental residents. The Macquarie report however clearly shows that Airbnb will experience growth despite regulations because the governments have insufficient data to implement absolute regulations.

“While data is readily available for rental availability, it becomes tougher to identify how many days accommodations are actually being rented out for…In recent months we have seen Airbnb directly ‘de-list’ hosts that offer accommodations across multiple properties but this has only occurred in NYC and SF. This supports our belief that the only way to limit commercial listings is for Airbnb to increase self-regulatory practices but this provides an obvious conflict of interest”, write the analysts as published by Yahoo Finance.

 

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