Home-letting platform Airbnb has experienced rapid growth since its inception in 2008, but what do its 80 million room nights mean for the traditional hotelier’s market share? By TOM DAVIS
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In an industry as old as hospitality, it is notoriously difficult to conceive of an environment where a new disrupter truly capable of making waves will next materialise. Before the internet, no-one could have foreseen the rise of the OTAs, much less accurately predicted how entrenched their presence would become for practically every operator.
While Airbnb may not have fundamentally transformed the sector yet, some forward-thinking hoteliers are starting to see this relatively young company as a threat not just to their own occupancy rates, but particularly to RevPAR.
The peer-to-peer accommodation platform has grown significantly during its short life. Launched just seven years ago in 2008, the firm now boasts more than 60 million guests per year in 34,000 cities, across 190 countries. According to Reuters, the number of nights booked through the platform this year is set to top 80 million nights – double the 40 million reportedly booked in 2014.
Airbnb is just one of a number of leading companies in the much-discussed ‘sharing economy’, the phenomenon based on platforms which allow users and vendors to transact for services directly. Cab-booking service Uber is among the concept’s prominent success stories. In essence, a ‘platform’ firm billing itself as a logistics business, allows drivers and passengers to find each other quickly using a smartphone app.
Airbnb is similar in that it allows ‘hosts’ to let their room, flat or house through the website, and travellers can search for properties listed by these private hosts. The appeal to travellers is that they can ‘live like a local’ in any city around the world (and it is often cheaper all-in than staying in a tourist-heavy area). The appeal to hosts is that they can make extra cash by listing their property and vacating it. Indeed some of Airbnb’s own advertising points to the neat solution of letting your flat and using the money to pay for your own holiday simultaneously. Ideally in another Airbnb. Rooms and apartments are often listed at a cheaper rate than traditional hotels, and Airbnb’s ease-of-use and strong brand image have made it a popular option among leisure guests.
However the utility of the site is by no means confined to the leisure market. The firm reported earlier this year that demand from business customers is growing, with a record-number of corporate sign-ups – a type of guest with which the hotel industry has long enjoyed a functional monopoly. Within 24 hours of the debut of its new ‘corporate dashboard’ in August this year, more than 500 companies joined its ‘Airbnb for Business’ programme. More than 1,000 – including Google – from over 35 countries around the world are now using Airbnb as part of their corporate travel programmes.
Last month Hotel Owner covered a piece of analysis from hotel data company STR Global, which claims that Airbnb has a “significant” and growing share of the visitor accommodation market in London. STR used figures from independent data compiler, Inside Airbnb, and took the 25,361 units listed in London estimating that there were 11,000 Airbnb listings that were “competitive” with London’s 134,000 hotel rooms. This represents an 8% share of the market.
In essence the worry for hoteliers is that the increasing number of trips that use an Airbnb listed property rather than a hotel will either erode business directly, or perhaps a more likely scenario in the short term is that cheaper rates from properties listed on the platform will drive down average room rates for hotels. Arguably this puts the budget sector most at risk as the market evolves.
This is not to induce panic: the hotel market in London continues to grow in tandem with Airbnb. But it is difficult to tell whether this growth would be even more pronounced without the growth of Airbnb. And do services such as this appeal to a new group of consumers that otherwise would not have travelled in the first place, or is it eating into the hotelier’s traditional customer base? Airbnb is naturally reluctant to come down on either side, but says: “We strongly believe that we’re complementary to the tourism industry. We can help to grow and diversify tourism, we’re giving more and more people the chance to travel.”
THE LANDLORD ISSUE
Airbnb has come under scrutiny over the last couple of years after authorities in New York began challenging people using it as a way of becoming a ‘landlord’ without permission to do so. The city’s attorney general filed two subpoenas saying that by using the platform to rent out their homes, they were essentially running ‘illegal hotels’, and that in doing so they were avoiding paying occupancy taxes which are applicable in the state. The problem in New York is that it is illegal to rent out your home without actually remaining present in the property while the guest/lodger is staying there. For owners of studio apartments or one-beds who were letting the properties, this is obviously not a rule they were adhering to.
Airbnb has itself described this practice as akin to “illegal hotels”. Martin Couchman, deputy chief executive at the British Hospitality Association (BHA), calls it the industrialisation of short-term renting. “The issue all the way throughout this has not been the individual letting their property,” he says. “It has been the industrialisation of this.” There are some reports suggest that properties such as large blocks of flats have been functionally transformed into hotels.
It is important to stress that Airbnb does offer advice to its users on making sure that they comply with local laws, and the firm’s CEO, Brian Chesky, even wrote a blog on the matter, saying that his firm was drawing up plans for clamping down on misuse. But when speaking to Hotel Owner, a spokesman would not offer specific examples of what would constitute an offence for which a user would be barred from using the platform.
But, supporters might say, Airbnb is only a platform – the responsibility for using the platform in legally compliant ways rests with the user, right? This is of course true: Airbnb cannot be held responsible for every instance of a user cheating the system. But the criticism in the UK market comes from a feeling that the traditional hotelier carries the burden of having to be compliant with fire, health and safety legislation, and pay public liability insurance and business rates. If Airbnb users operating ‘illegal hotels’ are not facing similar obligations, then the playing field is not level.
“I went to see the then minister responsible for fire over a year ago,” says Couchman, “to raise this point that there were properties that should have had fire risk assessments but it was simply not happening. His answer, and the answer of the fire and rescue people was simply, ‘the problem is that we don’t know who these people are or where they are, we can only deal with it when we get a complaint’, and of course that doesn’t happen very often.” Whether it is Airbnb’s responsibility to share the details of the owner or not is a debate within itself, but that does not help the hoteliers being affected by these issues.
The problem was exacerbated earlier this year when the government changed the laws allowing London homeowners to rent their properties on a short-term basis. Previously people renting out their properties risked a £20,000 fine as under the 1973 Greater London Council Act they needed planning consent for rentals that were fewer than 90 nights. The government mentioned that this was a chance to access a ‘£9bn sharing economy’, although Elizabeth Winkle, managing director at STR Global, says: “I don’t see aside from the guest spend in London and the money that’s going to the host, I don’t see that coming into the UK economy in the way that it does with a traditional business, which is paying its business rates, employees, national insurance and paying all the appropriate taxes.”
Airbnb’s Chesky wrote that the firm is taking steps to ensure its community pays its fair share of hotel and tourist taxes in each of the cities in which it operates. The company has also released a ‘Community Compact’ which nominally addresses some of these issues. Though in the absence of a publicly available sanctions list, it is hard to interpret this as anything more than lip service and good PR.
To get an (albeit anecdotal) view from the independent sector, we spoke to one hotelier who has palpably noticed the impact of Airbnb. Serena von der Heyde, owner of the Georgian House Hotel near London’s Victoria Station, says: “We have had long-term bookings cancelled. One was a regular client for many years, a group booking for more than a week totalling more than £4,000 of business.
“He apologised for [taking his custom] to an Airbnb apartment, telling me it was almost half the price.” She adds that if the supplier of that flat had to pay business rates, tax, VAT employment costs for staff, fire, health and safety risk assessments and quality assessments like her business does, then she suspects her own offering Georgian House would have been the less expensive option.
Naturally, such a scenario plays into the hands of Airbnb. If the regulator requires the individual rather than the platform to be legally compliant, it would be counter-intuitive for Airbnb to aggressively track down such practices and eject them from the service.
As previously stated, however, this is anecdotal. Look at a major hotel chain and the attitude is different. Speaking at the Confederation of British Industry’s (CBI) Annual Conference last month, Andy Harrison, CEO of Whitbread, which owns Premier Inn, said that there has been no noticeable impact on the company’s revenues as yet. He said: “There are no signs that it has damaged our business, but we’re watching those changes carefully and investing heavily because we have to compete online with those new players.”
However, he notes that technology is moving faster than the regulators, a problem he claims is damaging even the possibility of a level playing field. “We write to the government, we’ve written letters to the House of Lords, we talk to the CBI. We’re not looking for special favours, we just want to make sure that regulation keeps up with technology.
“We point those things out [to the government] – it is a fact that national and local government are not keeping up with technology, they’re not requesting the information that is already available.” Harrison does not believe regulators are putting a “sufficiently strong” requirement on new players to follow the same regulation that hoteliers do. If the regulators do not request this information from Airbnb, and Airbnb doesn’t put pressure on the hosts to share this information, it seems unlikely that the playing field between hotelier and private-host will level out in the near future.
ROUTE TO MARKET?
For some, Airbnb is not a threat to their business, but rather a way of expanding the client base. “It is ultimately a route to market,” James Foice, managing director of the Association of Serviced Apartment Providers (ASAP). “It’s only an agency and there are many agencies that are operating in the sector.
“We see that our members that we represent are either considering it or are actually doing it. I don’t see any reason why hotels don’t follow suit.”
Couchman concurs that some of the more enterprising small hotels are also either considering it or doing it already. “We are told with no specific evidence,” he says”, “that they’re a number of B&Bs that have now gone on Airbnb because it is a cheaper commission rate than what they would be paying to OTAs. Instead of paying 15% to 20% they are paying a lower percentage so you can understand why some might list themselves on there. In that sense, they might actually be taking some of the market back from Airbnb properties,” he says.
If hotels start to consider Airbnb as a route to market as opposed to a threat, it could potentially be the OTAs and not hoteliers who will begin to see the accommodation-sharing platform as a threat to business. Most OTAs charge commission of around 15% to 30% while Airbnb charges a mere 3% – a significant difference to the bottom line for family-run and independent hotels. Foice adds: “I think the main threat is to the likes of Booking.com and TripAdvisor and those OTA types of routes to the market.
“There are only so many customers out there and Airbnb aren’t generating any more customers, but are taking them, I suspect, not from hotels, but from routes to those hotels.”
No matter what your particular axe to grind may be, the fact of the law is that it is incumbent upon the Airbnb users to play by the rules. One might argue that Airbnb could stave off any ire by being more pro-active in ensuring its users are compliant, but this is ultimately Airbnb’s choice rather than its legal obligation. A platform for others to share their properties and rooms, the firm cannot declare its users earnings to HMRC for them. Not least because automatic exposure to the taxman would probably result in a large-scale exodus from the service by hosts.
And with London’s hotel market still growing, it’s hard to conclude or even estimate whether Airbnb or other sharing economy models will ultimately have a negative impact on the independent hotel market in London.
We’re yet to see just how disruptive this particular disruptor will be. But in the meantime this will do little to stave off the concerns of those anecdotal examples, of which one can be sure there will be more. As von der Heyde says: “It’s absolutely wrong to think that Airbnb visitors are all backpacking students – far from it. There are high-spending visitors choosing Airbnb instead of a hotel stay.”