Airbnb is a common platform that connects Bed & Breakfast lodging providers (could be homeowners subletting a room, entire accommodation, etc.) with potential customers who look for alternate lodging. It works on platform business model and derives its revenues from commission 12% from hosts and 3% processing fee to customers.
Airbnb has introduced PriceTips; works like a revenue management software that helps to increase revenues for the hosts by using inputs such as listing type, location, price, etc.
This Smart Pricing tool pulls insights from booking trends and similar listing info and allows hosts to set pricing controls that automatically adjust to demands in order to stay competitively priced. Pricing can be done day wise too. (Potential opportunity for sellers of price optimizing tools).
The present clientele of Airbnb is mostly lower end leisure travelers, who are looking for cheaper places of accommodation and want to stay and explore the city as a local (for a greater experience).
Airbnb’s facilities provide greater penetration in city center areas.
As per research from Boston University, there were findings that for 10% increase in AirBnb supply results in 0.35% decrease in hotel room revenue. It can affect hotel room prices (ARR) and eventually reduced RevPAR.
Current area of impact on lower end hotels (or even boutique hotels).
Average profile of Airbnb traveler is as follows :
- Travel in groups(mostly)
- LOS is longer (Average LOS for Airbnb traveler is 6.8 days, Average LOS for Hotel is 3 days)
- More price sensitive than typical hotel guests
Airbnb has recently come up with Airbnb for Business: this focuses on business/corporate travelers, allows corporate travelers to book and direct the costs of the accommodation to the employer directly. Hosts can identify their listing as “Business Travel Ready”. These hosts will have business friendly amenities such as : Wifi, Designated work space, Iron, Hair Dryers, Hangers, 24-hr Check-in, policy of no host cancellation within 7 days.
This model is at a nascent stage and was launched on 13th November 2015; however, has a potential of weaning away business/corporate bookings for companies, who are looking for cheaper alternate spaces for lodging; which could be substitute for areas where company guest houses are not present.
Around 1,000 companies in over 35 countries are its registered users. Blue Chips like Google, Morgan Stanley, Goldman Sachs now offer their staff Airbnb alongside the usual Hilton and Novotels.
This is targeted on long-term business travel, corporate temporary housing, and team offsites.
AirBnb’s impact on hotels could be as follows :
- In leisure destinations such as Venice, Thailand, Goa, etc. Beach towns where travelers stay for longer duration: Airbnb would provide cheaper alternatives and staying as a local; this would be a threat to leisure hotels.
- On business traveler during compression nights; who would look for alternate accommodation due to unavailability of rooms, surge prices of hotel rooms in the city; applicable in cities like Berlin, San Francisco, Manhattan, etc.
As of now, the high-end hotels are the ones which are most insulated from Airbnb. And, 2,3,4 star properties would be the ones who could face threat.
With the growing number of properties on different price points; eventually high end hotels could come under threat too. However, Airbnb currently does not segment its listings like hotels on the basis of level of service and amenities provided (something which hotels use to classify and segment themselves).
With the mushrooming potential threat from Airbnb, hotel revenue managers could educate the hotel employees of the following :
- Listings offerings: Revenue managers should apprise the sales teams of the facilities around the proximity of the hotel, their offerings and rates.
- Instant Bookings difficult: Most of the Airbnb listings cannot be booked immediately, they need to be booked in advance and post approval from the owner can user stay.
- Inconsistence and lack of quality check: The facilities and services of Airbnb are not consistent and have a wide scope of variance.
- Lack of End to End Service: Airbnb facilities are not suitable for travelers who are looking for services such as in room dining, business center, travel desk, concierge services, on-site ironing, dry cleaning, etc. This is essential for the business traveler who would want his/her chores to be done by hotel staff since they could utilize their time and energy towards their work requirements.
- Low startup cost: Airbnb facilities have negligible startup costs since the facility is already existing which gets listed by the user on their website. The hosts can easily remove their facility by few clicks from sale on Airbnb.
- Sporadic Availability and Visibility: The availability and visibility of the facility may be sporadic, which is a key differentiation from hotels. A facility once booked for a set of dates does not show up on the listings and a customer would not be able to book it or even know whether the listing still exists in the ecosystem. However, in the case of hotels they have a set of rooms available and the visibility would be greater for the customer.
- Questionable Hygiene: Airbnb hosts might use the best of cleaning agents and detergents for their facility’s and its amenities upkeep; however, hotels handle their linens, cleaning agents and methods handled by professionals who are trained to follow industry practices such as HACCP, organization’s SOPs. The food prepared by certain hotel kitchens undergoes spot checks by microbiologists and food handlers undergo extensive training to ensure a clean product delivered to the guests.
- Safety: One of the key features where hotels score over Airbnb. Despite the host taking an array of measures to ensure safety of their guests, hotels have professional security mapped with technology such as baggage scanners, vehicle scanners, metal detectors, security guards, CCTV cameras, etc.
- Meeting Rooms, Banqueting: Customers looking for holding conferences, meeting rooms will have to choose hotels. Airbnb facilities do not have bandwidth of such facilities.
With the above essentials which an Airbnb listing could not have, Airbnb still has a long way to go to tap into the Hotels market yet.