It’s finally time to stop worrying about the home-sharing phenomenon because it’s just another distribution platform.
After all the hand-wringing hotel executives did when Airbnb first hit the marketplace, I think it’s time to stop worrying. We need to embrace it for what it is: It’s not a disruptor. It’s an augmenter. It’s reshaping the overall lodging industry, and opening up other business models, even for us traditional hoteliers.
In fact, I see elements of the Airbnb model converging in our industry—and vice versa. After a pilot program, industry giant Marriott International launched this April a home-sharing reservation service, Homes & Villas by Marriott, for some 2,000 luxury homes in the U.S., Europe and Latin America. The company hopes the combination of its rewards program and upscale accommodations will lure travelers.
This was preceded by Accor, who entered the home-sharing space with its acquisition of Onefinestay in 2016. It’s still to be determined whether the brands’ plunge into home-sharing will pay off, given they’re up against a major player in Airbnb.
Yet at the same time, Airbnb may be morphing into a hotel ownership company. In April, Airbnb announced a partnership with a New York City real estate developer to convert 10 floors at 75 Rockefeller Plaza into 200 upscale apartment-style suites. Check-ins are expected to start in 2020. It’s my understanding that this would be operated by a third party.
Then there are the hybrid home-sharing platforms and hotel operators, such as startup Lyric Hospitality and Sonder. These companies lease blocks of apartments and manage the units as a hotel management firm would. The units are properly zoned for hotels, and the ownership entities pay taxes. In other words, they operate a legal hotel.
It’s a distribution channel, not a hospitality company
When Airbnb emerged on the scene, there was a public perception it was a “brand” of sorts, and therefore, would compete with the major hotel brands. But Airbnb isn’t a brand; it’s a distribution channel, just like all the other online travel agencies. As such, it faces stiff competition from Expedia, Booking.com and other home-sharing apps (HomeAway and VRBO, to name two), where consumers can book home-sharing accommodations if they prefer.
Private hosts and lodging servicing companies such as Lyric and Sonder might list on multiple distribution sites, the way hotels do with OTAs. As we move forward, more and more hotels will actually list product on home-sharing sites (condo/vacation type hotels); some do already. A great example is the Grove Resort & Waterpark in Orlando, managed by Benchmark. Airbnb charges significantly less than Expedia, so hotels will generate more reservation revenues from an Airbnb referral.
Interestingly, Airbnb also needs to expand its inventory, especially after states, cities and municipalities, including New York City, have cracked down on hosts listing unoccupied apartments for short-term rentals. In my opinion, these regulations are needed to ensure Airbnb hosts do not skirt the law and follow the same rules as legal hotels.
Yet these regulatory moves by cities have cut into Airbnb’s inventory, so the company must find new ways to expand. One way to do that—besides developing an actual hotel, as it proposes in New York City—is by stretching its distribution and becoming more like an OTA.
The millennial attraction to Airbnb—and why it doesn’t matter
There’s no denying the appeal of Airbnb to Millennials. Even though my children grew up in the hotel industry and lived in hotels, they’re Airbnb junkies now. They love the ability to stay within a residential neighborhood and soak in the local culture. They also appreciate not having to pay for services they don’t use, such as a hotel pool or spa.
They tell me all the time the hotel industry will be obsolete in ten years. I don’t believe that. The rise of lifestyle boutique hotels was propelled in large part by the desire of millennial travelers to stay in a hotel reflective of the city and surrounding community. The hotel industry isn’t as staid as millennials believe; it can change with shifting consumer tastes.
The thing to remember is Airbnb isn’t going away, but neither is it going to make the hotel business model obsolete. My prediction is that all these different operational models and distribution modes will continue to converge. I wouldn’t be surprised if we see one of the larger hotel companies at some point introducing another brand that is more like Sonder or Lyric. After all, the Sonder/Lyric model can rapidly adjust to shifting market dynamics. It can lease another location or switch to monthly residential apartment rentals from daily rentals.
I view Airbnb and all these other new innovations as part of the overall lodging industry landscape. For the past century, the hotel business commanded the largest portion of the lodging industry, and it’s easy to see why. Simply, hotels were easily accessible and bookable, as compared to a vacation rental or a room in a bed and breakfast. Airbnb enters the field, and almost overnight the home sharing economy became a fierce competitor.
It leveled the playing field for all the different factions of the lodging industry. With Airbnb, bed and breakfasts and condo hotels at resorts could hop onto their platform and attract customers. These competitors to the hotel business were always there, but Airbnb elevated their presence through technology and developed an ease of booking.
So stop fretting over Airbnb and the home-sharing phenomenon. In reality, those platforms are simply an extension of the lodging industry. Airbnb will never replace the hotel business as long as the industry keeps innovating.
Gary Isenberg is President of LW Hospitality Advisors Asset & Property Management Services. With more than 30 years of diversified hospitality experience in Hotel Management, Finance, and Asset Management, Gary’s expertise includes third party asset management, serving as an owner’s representative, due diligence for real estate investors, and development services to negotiate management or franchise agreements. His asset management specialties include, among other services, capital budgeting and PIP costing as well as internal control and accounting.
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