To start, I have zero relationship of any type with Airbnb, and I do not even know any of its executives. This is an industry issue I am dealing with. PKF Hospitality Research provided a good amount of information at the Lodging Conference, which for the first time put some facts on the table and some better true perspective.
Airbnb and its close competitors are now well-established but just beginning to penetrate the market. Airbnb has a market value greater than any hotel company. It has more rooms available worldwide than any other hotel company. It has been reported by PKF-HR to have a U.S. potential room count of 400,000 or more—and on any given night closer to 250,000 and growing. Yet it is not even counted by the data providers as new supply, which it is. In fact it doubles the reported new supply available in the U.S. market despite what is reported at conferences and by data sources.
The point is not only do the data sources make believe there is no Airbnb, but the industry thinks it can beat them by pushing for more regulation in the hopes to level the playing field. That is pure nonsense and shoveling sand against the tide.
AH&LA and the industry need to have a completely opposite approach and deal with reality. They need to embrace Airbnb and its competitors because they are not going away, and they will continue to grow exponentially no matter what AH&LA tries to do.
Changing life in the real world
The sharing economy is part of life in the real world today. It is disrupting many industries and will eventually change many other industries like it has records, book publishing and taxis, among several others.
Even deposit banking and money transfer are in the early stages of being totally transformed by a new technology. In five years it is possible worldwide banking will be conducted in a very different way.
The rationales put out by the hotel industry as to why Airbnb is not really competing or why it needs to be regulated, are simply just that: wishful thinking.
Reality is, Airbnb has approximately 10% of its guests as business travelers. Leisure travelers are using Airbnb instead of your hotel room. It is not extra demand. It is not unmet resort demand. It is a head in another bed.
Even though one rationale is that average daily rate ramps up on citywide sellout nights so Airbnb is not a factor, what the hotel industry is missing is the opportunity cost of how much higher it could have been if not for Airbnb. When the Pope came to New York City, Airbnb sold 20,000 rooms. Just imagine where ADR might have been if those 20,000 people only had a hotel choice to stay in.
No excuses
Ancillary service companies are springing up to service and manage Airbnb rooms for the hosts. Security is quite good, and guest satisfaction is generally excellent—better than many hotels by far.
There is a required reporting system for the hosts and the guests. If a host does a poor job for the guest, they are kicked out of the program almost immediately. If a guest acts badly, they will never get another room on Airbnb. No brand kicks out poor quality hotels quickly.
I would bet there are more safety issues in the hotel industry than in Airbnb. There are hotels where crimes have been committed, drug deals and other illicit acts go on. For the hotel industry to spread false gossip about safety and similar charges is totally disingenuous. I am certain there are some bad incidents with Airbnb, but I am told they respond quickly to resolve the issues. Much more quickly than the brands.
All the supposed excuses and rationalization will not change what is happening. Hotel industry pundits sound just like the record people before they succumbed and the New York City taxi owners before they got crushed. The taxi owners even paid NYC Mayor Bill de Blasio to try to put in new regulations to stop Uber. When he tried, he was obliterated in three days and crawled away utterly defeated by the social media and the Uber users.
Instead of coming up with ridiculous and wasteful attempts to make Airbnb hosts comply with all sorts of unenforceable laws like those outlined by the Americans with Disabilities Act, life safety regulations and lots of other intrusive and burdensome rules, the AH&LA should instead embrace Airbnb and quietly sit and negotiate a modus vivendi.
Airbnb rooms are not hotel buildings with 120 to 300 rooms. They are a room in someone’s house, an apartment or a cottage. To claim someone who periodically rents a room in their house to others needs to comply with ADA, or install sprinklers, or exit signs or whatever other silly thing is utter nonsense and simply magnifies the desperation of AH&LA and the industry, to grasp at dead straws because they cannot figure out how to compete effectively.
You can’t beat them, so join them
Instead the industry needs to accept that the real world is changing rapidly, and you cannot stop the sharing economy with silly regulations that are completely unenforceable. Trying to do so is always the go-to action for desperate people who do not have the smarts to deal with the changing world. All you would do is burden the consumer with higher costs and to create more useless regulations to try to squash a truly successful entrepreneurial company, which is the kind of innovation America needs to build the economy.
The AH&LA and local municipalities are pushing for higher taxes to try to get more revenue for cities and more cost to the consumer. In the end it is higher taxes on the consumer. No matter if you get room taxes, Airbnb does not have all of the cost of a hotel with a brand. That is the whole point. Airbnb can still outcompete you no matter what you try to do. The AH&LA is acting just like President Barack Obama and Elizabeth Warren who want to regulate every aspect of your life and in the process kill the economy.
Small boutique hotels are quickly learning they can list unsold rooms on Airbnb instead of the online travel agencies and save 20% to 22% on commissions, and get better effective room sales and yield without all that fee cost. This will be another fast growing trend that will impact the industry. Airbnb figured out how to beat the OTAs, but the hotel industry has not yet figured it out. That should wake you up.
AH&LA should instead work with the CEO of Airbnb and maybe they will join the industry and pay dues to AH&LA. Maybe they will agree to a basic set of guidelines, and maybe some sort of room tax that is uniform.
I have no idea what might be possible, but a peace treaty is far better than a war the hotel industry is going to lose, just as the taxi industry and record industry already have lost. Airbnb and others like it are just starting out, and already they are larger than anyone. The public barely knows they exist. In a few years, once they get well-known, they might be so big that they can outspend and out-lobby the rest of the industry, and they will win just as Uber has, just as iTunes did, and just as other innovative companies are doing.
If you can’t beat them join them.
Joel Ross is principal of Citadel Realty Advisors, successor to Ross Properties, the investment banking and real estate financing firm he launched in 1981. A Wharton School graduate, Ross began his career on Wall Street as an investment banker in 1965. A pioneer in commercial mortgage-backed securities, Ross, along with Lexington Mortgage, and in conjunction with Nomura, effectively reopened Wall Street to the hotel industry. Ross also was a founder of Market Street Investors, a brownfield land development company. A member of Urban Land Institute, Ross conceived and co-authored with PricewaterhouseCoopers The Hotel Mortgage Performance Report. Ross served two tours in Vietnam with the U.S. Navy.
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