We all know the message that Airbnb is supposedly beating the hotel sector in a number of ways.
While the hotel industry is experiencing strong growth since the downturn of the economy, alternative (private?) accommodation from the likes of Airbnb and HomeAway has been chipping away at the hospitality sector’s total addressable market.
Phocuswright projects private accommodation bookings will grow from 12% to 16% of total bookings by next year.
This trend will only accelerate as new generations start booking travel and looking elsewhere from hotels. Even though the short term rental market is growing, there is a lot that hotels can do to stay competitive in the sharing economy.
NB: This is an analysis by Kyle Killion, co-founder of Suiteness.
Why are hotels letting Airbnb win?
The trouble is that the amount of pressure being felt within the hotel industry to adapt doesn’t meet the danger that faces them.
This is the opening that vacation rentals are exploiting. The response to the rise in vacation rentals falls into two extremes: denial and alarm.
The denialists argue that vacation rental companies like Airbnb serve a different customer. They point to the meticulously maintained image that Airbnb projects.
The image of the average person listing out extra rooms to travelers hungry for local flavor and authentic experiences.
But we know that this carefully crafted image is simply just not true.
So what do we know?
- We know that the majority of bookings are with hosts with more than one listing, essentially running unlicensed hotels.
- We know that travelers are also predominantly looking for entire homes or apartments.
- We know that through many bookings the two users never meet in-person, so the experience ends up being similar to a hotel without a front desk.
The alarmists correctly point out that vacation rentals are barely regulated, taxed or scrutinized compared to hotels, similar to what the livery industry faces from Uber and Lyft.
While hotels enjoy advantages like prime locations, often more desirable than the residential properties of vacation rentals, they are often outweighed by regulatory forces.
In this case, the location may be outweighed by the at least 15% price advantage of not having to pay an occupancy tax. A benefit of Airbnb’s significant lobbying investments.
How are hotels battling back?
The hotel industry has a difficult balance to maintain. They need to appear unruffled by vacation rentals to the public while appearing proactive to investors who are increasingly concerned about vacation rentals.
The playbook so far has been focused on lobbying.
We’ve literally gotten a glimpse into the lobbying strategy recently. The laws that have emerged from this activity have ranged from outright bans to simple tax collection.
I would argue that the bans are not helpful in the end because short term rentals do serve a real need, and by banning them hotels suppress innovation.
There is a balance to be struck through registering and taxing short term rentals instead of outlawing them entirely both consumers and the travel industry benefit.
Real regulatory change is just starting to happen in places like New York and San Francisco.
If hotels can level the playing field and get local governments to tax and regulate vacation rentals as hotels, it will be a big win for local communities, hotels, and even consumers who will be paying more, but getting more safety in return.
Hotels will know that they have fought their way out of this quagmire when they are on equal tax footing with vacation rentals.
The first step is happening now with municipalities setting up laws to tax individuals. The next step is when municipalities require the sites selling short term rentals to report the taxes that should be collected.
So what should hotels be doing to compete?
Regulatory changes will take years, if not decades to come. So hotels also need to be thinking about changes they can make today to remain competitive.
Focus on what it means to stay at a hotel: Location, amenities, and service. An average Airbnb host cannot compete with an established hotel in these three areas.
The hotel industry as a whole should be playing up these attributes:
- Location is consistently rated the most important factor in accommodation purchasing decisions. Most hotels have an advantage with central locations and easy access to transportation. Vacation rental maps often look like a donut around the center of the city because they are in residential neighborhoods.
- Amenities, while some vacation rentals may have a pool they definitely don’t have a spa. Hotels have great services like restaurants, spas, clubs onsite. We know that travelers want these amenities because of the companies that focus on getting vacation rental customers access to hotel amenities.
- Service is one of the hotel industry’s biggest strengths that they must use to their advantage. Vacation rentals have gotten a lot of customers in the last few years and that means more people who have had a bad experience. Broken plumbing, inoperative air conditioning, issues that would normally just result in getting a new room can’t be solved by hosts that don’t have the ability to move customers around.
The staff that sometimes is seen as a cost center is really one of the most valuable distinguishing factors in favor of hotels.
The amazing recommendation from a concierge and the attentive staff member are what travelers remember. Most Airbnb hosts don’t have the time to cater or are even in the same city as their listings.
The hotel experience is the luxury experience, with an entire staff at a guest’s beck and call.
Give the people what they want. There are plenty of hotels that have a large portion of suite inventory, most of them with the ability to convert to a multi-room suite.
And still hotels continue to lose families and group vacationers to short term whole home and apartment rentals. One big reason is that friends and families can book multi-room inventory easily.
They can have the shared kitchen, living room, balcony where they can be together.
Take the percentage of multi-bedroom inventory in Las Vegas:
- 27% – hotel websites
- 44% – Airbnb
Even in a place like New York, 35% of Airbnb’s listings are two or more bedrooms. Hotels already have the kind of inventory that can attract these customers, but most of that inventory is paid for only 30% of the time.
This is because of legacy technical reasons and because of inter-departmental turf wars.
Where do we go from here?
As an industry we need to remember that travel is about the people. Airbnb succeeded by bringing the human element back into travel, not from just “staying like a local” but by providing a space for people to stay together.
Today’s travelers want to reconnect with their friends and families. The traditional hotel mindset of one-size fits all one king, two queen hotel room needs to change.
Eventually, Airbnb will start adding hotel inventory to their site just like the major OTAs now include vacation rentals.
The catalyst here will be when short term rentals start getting taxed at the same rate as hotels.
When that happens, what it means to be a hotel will fade away unless we do something about it. For those of us who love hotels, we won’t let that happen.
Let’s get to work and adapt!
NB: This is an analysis by Kyle Killion, co-founder of Suiteness.
NB2: Hotel suite image via BigStock.