Growth brings with it many challenges for publicly listed accommodation providers and distributors. Chief among them: As you get bigger, you need a lot more incremental units to move the needle.
A thousand new rooms for a company with 10,000 in the portfolio represents massive growth. That same thousand rooms for a company with 750,000 rooms in the portfolio? Wall Street is going to start asking questions.
That’s why you’re seeing public companies steering down new avenues to ensure expansion. For hotel chains, that’s best represented by the two-pronged approach of lifestyle brands and independent/boutique collections.
Distributors are piggybacking off of that growth, signing on more hotel units as they become available. They’re also wading deeper into the alternative-accommodation waters, netting vacation rentals and residential properties at a faster clip.
In Priceline’s first-quarter earnings call last week, President and CEO Darren Huston boasted of the ground gained by this second pursuit.
“Vacation rentals nearly doubled year over year to 275,000, instantly bookable and confirmable properties including villas, chalets, apartments, aparthotels and other self-catered products,” he said.
When asked later to provide more color, he said, “I’m very happy with the progress there.” He also noted that those 275,000 properties represent a million rentable units. “So, we actually have a very competitive supply relative to others in the market,” he said.
What Huston failed to acknowledge is just how competitive that space is.
That alternative-accommodation sector is fragmented at best, with as many booking platforms as the hotel sector with even more property managers who offer listing services with a much lower take rate (10% or less as compared to the 15% to 30% commissions of some online travel agencies).
Demand within the sector is historically lower than hotels, too. According a research note from Janney, the occupancy rate for Airbnb in most major markets is close to 40%. The U.S. hotel industry average for the week ending 9 May, on the other hand, was 67%.
Last but not least, unit growth within the alternative-accommodation sector is misleading at best. Yes, Priceline has signed 275,000 properties, but that available inventory flexes considerably more than hotels as private owners take their product on and off the market. A person who lists his two-bedroom condo in Cabo on Booking.com one weekend might delist it the following three weekends as he plans his own sunny sojourn to the Mexican resort city.
The sum of those parts is less than what Huston is letting on. Janney thinks so, at least, giving PCLN a neutral rating while warning “the Street could again find its estimates too optimistic, particularly in 2016.”
Now on to the usual stuff …
What’s making me happy this week?
Listening to some of the smartest minds in the business talk development during an HNN roundtable that was held at Best Western International’s HQ in Phoenix. The full report, which tackles everything from construction costs to wish list items for brands, will be out 1 June. We’re also throwing in boatloads of data and infographics compliments of HVS’ development survey and Almanac info from our sister company STR Analytics. (That we were able to attend a Diamondbacks game at Chase Field the night before—my first ever trip to the ballpark—made the experience all the more enjoyable.)
Stat of the week
$1.15 billion: The amount of economic activity generated by Airbnb in New York City, according to a study from the alternative-accommodations provider. The study found 90% of Airbnb hosts in New York share their primary residence, and 72% use that money to help pay the bills, make ends meet and stay in their homes. The typical host in New York earns about $640 per month sharing their space for five nights.
Quote of the week
“The quality of projects are much better than they ever were in the past. We’re very hot on modular.”
—Dave Walsh, senior director of new-build project management for Marriott International, sharing his thoughts on modular construction.
Modular might well be the way of the future. The cost benefits and speed to opening are well documented. Less so has been the quality control that on-site, Ford-esque assembly line construction can bear.
Reader comment of the week
“what's up with the biased opinion expressed in this 'article'?! ‘These people should be able to share their space...’, seriously though.”
—Reader “jbarrett,” who took onus with a news release announcing the Airbnb study mentioned in the Stat of the Week above.
Please don’t confuse this news release with an HNN-bylined article, jbarrett. In our effort to provide you with all the news that’s fit to print (online), we sometimes post such news releases to supplement our unique reporting. The “HNN Newswire” tag at the top of the article is the key differentiator.
To be honest, though, we need to do a better job providing visual cues to indicate the difference between such releases and our original reporting. (That’s all in the works.)
Email Patrick Mayock or find him on Twitter.
The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Bloggers published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.