Airbnb’s explosive growth shakes up the hotel industry

Washington: Recent study has found that the exponential growth of Airbnb is shaking up the hotel industry as it is devouring an increasing share of hotel revenues. Moreover, it is dropping down room prices and occupancy rates.

The research published in Tourism Management examined the effects of Airbnb in 10 major United States cities between 2008 and 2017.

“This is the first study confirming the negative impact on those three key metrics in the hotel industry. Increased competition from Airbnb is mainly affecting hotel prices and revenues, but occupancy rates are also down slightly,” said Tarik Dogru.

Over the past 10 years, Airbnb has grown into the world’s largest online marketplace for lodgings and now qualifies as a disruptive innovation, Dogru said.

The company’s listings have grown more than 100 percent a year- Airbnb now boasts six million listings in 81,000 cities worldwide- and that dramatically larger supply of accommodations has significantly affected hotels’ room prices and revenues.

Dogru found a one percent increase in Airbnb’s supply lowered hotel revenues between 0.02 and 0.04 percent, which he estimated in New York City alone would have amounted to a loss ranging between USD 91 million and USD 365 million in 2016. The lost revenues came mainly from economy and luxury hotel listings.

That’s a new finding for the luxury segment compared to previous research. Dogru attributed it to Airbnb’s push to offer more luxury experiences.

The company recently launched Beyond by Airbnb, a travel-planning service featuring high-end designer homes and other upscale properties, such as castles, treehouses, boats, and yurts.

Dogru also found Airbnb negatively affected midscale hotels. Past research concluded room prices were so similar between midscale hotels and most Airbnb listings that consumers were not motivated to switch to Airbnb.

The study found increasing demand for authenticity in lodging, and travelers felt Airbnb properties were more authentic than franchised hotels.

“Consumers don’t want to stay in a new city but in the same old hotel. More people want an authentic experience, and Airbnbs offer that- the chance to engage with local people and have localized experiences,” he said.

Airbnb’s business model has flourished for many reasons. Customers like having access to an enormous supply of properties and rooms at a wide variety of prices, often more competitive than hotels, and Airbnb collects commissions on every booking.

In addition, Dogru said the company does not follow conventional rules.

“Airbnb does not ensure the security of guests, it’s not taxed in some jurisdictions, and it has the flexibility to add new supply because of a lack of regulation,” Dogru said.

“Those are some reasons why Airbnb has a significant competitive advantage against the hotel industry because adding a new hotel to the market can take several years,” he added.

The lack of regulation in many Airbnb locations translates into less money for cities and local governments, and that reality raises questions for lawmakers and other policymakers because they cannot simply ban Airbnb.

“Decisions on how to regulate sharing-economy platforms will not be straightforward. The application of excessive legislation and regulation driven by the interests of incumbent industries has the potential to stifle innovation that ultimately benefits the consumer. Lawmakers are clearly still grappling with the nuances of this emerging phenomenon,” Dogru added.

Dogru believes local communities need Airbnb because it creates indirect economic benefits for restaurants, entertainment, and leisure activities.

“You need Airbnb, especially when there is excess demand for rooms, but there must be regulation without killing innovation. Airbnb is still in its infancy, and more hosts are being added to its supply every day in many markets.

Airbnb is indeed a disruptor, and it is here to stay,” Dogru said.