It wasn’t long ago when colleagues in the industry thought, “It’s just going to be a fad. It’s not going to last.” If you recall from 2001 to 2003, booking engines were the industry hot topic, but ultimately emerged as what we today call online travel agencies. Clearly, the innovation of nearly two decades ago has become a significant element in the revenue generation of hotels.
Another “fad” was the once ground-breaking concept of MySpace, a digital “meet-up” platform. While MySpace may not have survived in its original format, the evolution of social sites has brought them into the mainstream. Social media is here to stay. It’s not a fad, but rather an integral part of our communications and even our brand visibility. It will continue to adapt and remain an element of our culture.
Similarly, to believe that an Airbnb-like model or home sharing in general is “simply a phase” would be a significant misconception. In a 2018 Forbes article, Harvard Business School faculty member Dina Gerdeman explores the “Airbnb effect” or how the existence of Airbnb-like products increases the availability of affordable rooms for travelers—thus siphoning revenue from hotels and ultimately the bottom line. She shares how Airbnb has “revolutionized the lodging market by keeping hotel rates in check and making additional rooms available in the country’s hottest travel spots during peak periods when hotels often sell out.”
In a 2017 study, STR revealed Airbnb’s market share to range between 1.8% and 8.9% in top hotel markets around the world. And it is certainly growing. In his research published in the academic journal, “Tourism Management,” Makarand Mody of Boston University’s School of Hospitality Administration and his co-authors studied the effects of Airbnb supply on key hotel indicators: revenue per available room, average daily rate and occupancy in 10 major U.S. hotel markets from 2008 to 2017. As Mody explains, “alternative accommodations are increasing in supply and increasing rapidly. It’s exponential.”
Our industry and the landscape are changing faster than we could have imagined. Mody’s study shows the number of listings on Airbnb—from its inception in 2008, through a period ending in 2017—increased “remarkably.” In fact, the number of active listings “increased by more than 100% year over year.”
AirDNA, the monitoring platform for alternative accommodations, reports that 2019 is pacing to generate more than $5.58 billion in revenues in its “hotel comparables” segment, a vast rise from $900 million (Airbnb only) in 2015. The 2019 data reflects that Airbnb, VRBO and HomeAway revenue growth increased by more than 16% from the $4.8 billion in 2018. AirDNA co-founder and CEO Scott Shatford said, “The lodging industry is being forced to evolve because of advancing technology and changing guest expectations. Hotel companies know that fighting home sharing is a losing battle. Some have failed to take the time to fully understand the nuances between hotels and vacation rentals—and what drives travelers to choose one over the other.”
I agree.
In STR’s Airbnb and Hotel Performance report, it was noted that while demand for this alternative accommodation was generally below 4% for Airbnb units, the Airbnb share of total accommodation supply was still growing. Compared to hotels, Airbnb also has more room to grow in many markets. (STR is the parent company of Hotel News Now.)
Evidence of this new lodging landscape continues to appear. In December 2018, corporate travel management company BCD Travel shared results of surveys indicating that millennials and their younger Gen Z colleagues are increasingly choosing “non-traditional” stays. Corporate travel programs have had to respond to the demand, and now agency and corporate travel management company Hickory Global Partners will also provide its members access to more than a million serviced apartments around the world.
Additionally, according to an Accenture survey of 2,500 travelers in five countries, it’s not uncommon for travelers outside the U.S., particularly from Europe, to book independent and alternative properties.
Just recently, Travelclick has responded to the rapidly increasing, diversified hospitality offerings by incorporating a report for Alternative Accommodations as part of its competitive research. Finally.
The landscape of lodging is transitioning quickly. As traditional hoteliers we need to recognize that this injection of supply is more readily available to our existing customers. It is increasing daily. Therefore, we need to change our way of thinking.
Kurt Furlong, 2019 Chair of the IHG Owners Association, is Chief Revenue Officer and Partner with Genuine Hospitality, LLC. He specializes in hotel asset management, bottom-line enhancement, revenue generation and revenue management. He previously served with management companies as a partner, overseeing revenue generation and strategies. With more than 30 years of industry experience, Kurt has worked in all phases of hotel and restaurant operations.
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. Columnists 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.