Industry Update
Opinion Article 5 June 2019

Is Airbnb Taking Over The Hotel Business?

Here’s the latest on Airbnb’s three-pronged battle against municipalities, hoteliers and housing advocates.

By Bob Rauch, President of RAR Hospitality and Sarah Andersen , Business Development Manager at RAR Hospitality

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Bob  RauchBob Rauch
Sarah  Andersen Sarah Andersen

In 2008, when Airbnb was founded, the company's platform was based on offering peer-to-peer room, apartment and home sharing as a way for people to earn extra cash.

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The company's rapid success came in part from the fact that it operated in an unregulated arena, able to avoid many of the legal requirements placed on hotels. However, there has been a shift over the past few years as the platform continues to face increasing regulation and scrutiny by municipalities, hoteliers and housing advocates around the world. Although perception might lead some to believe these regulations are being driven by hoteliers, restrictions are mainly supported in the name of protecting affordable long-term housing.

A study last year from McGill University estimated that Airbnb and similar nightly rental companies increased long-term rents in New York City by 1.4% over the last three years. The study found that Airbnb has removed between 7,000 and 13,500 units of housing from New York City's long-term rental market. Additionally, worldwide short-term rentals grew more than 80% from $46 billion in sales in 2012 to $83 billion in 2017. Now we can't sensibly attribute that yearly increase entirely to Airbnb, but it has been identified as a major influencing factor.

How cities are responding

Major cities around the world such as Los Angeles, Amsterdam, Paris and Vancouver have already all passed laws restricting Airbnb rentals. Earlier this year, Detroit instituted a new ordinance that bans short-term rental of rooms in single family and duplex homes, though the ordinance is currently under legal review and is not yet being enforced. Last July, Palma de Mallorca became the first city in Spain to ban Airbnb. The company took arguably its biggest hit when San Francisco put strict rules in place for short-term rentals this year to deal with too many rental units being turned into hotel-type rooms during a severe housing crisis. Airbnb listings fell by almost half when the rules went into effect.

Now, in most American cities, short-term rentals to tourists are illegal in residential neighborhoods. Dale Carlson, who founded ShareBetterSF, the coalition that pushed to regulate Airbnb and make it remove listings that aren't registered with the city added, "As more and more cities crack down on them, the home sharing that they grew up with is going away and is less and less profitable."

How Airbnb is fighting back

Earlier this year, Airbnb CEO Brian Chesky announced company plans to broaden its appeal by highlighting hotels on its website, creating a loyalty program and matching guests with accommodations that fit their budgets and tastes. They are following through on this promise with the recent launch of a new program called Airbnb Plus, which features a selection of homes verified for quality and design. Another new offering is Beyond by Airbnb, which will offer custom-designed trips in what the service touts as "the world's finest homes." It comes after Airbnb last year acquired Luxury Retreats, which offered professionally inspected villas across the globe aimed at high-end travelers.

Creating these loyalty programs will be difficult because the Airbnb platform is not a frequency-based business, which makes incentivizing guests a feat. The majority of guests use the platform a few times a year, so it will be interesting to see whether Airbnb can create a meaningful program that drives increased bookings.

How the hotel industry is responding

It's been made clear that Airbnb aims to enter the hoteling business and take market share from the industry. Some feel that this is further supported by the company's recent acquisition of HotelTonight. Brian Chesky said the purchase of HotelTonight was a key component in Airbnb's desire to become a comprehensive travel marketplace. The American Hotel and Lodging Association continues to take a clear opposing stance on this evolution. Troy Flanagan, AHLA's SVP of government affairs and industry relations, said: "Whether it's called Plus or Boutique program, Airbnb's latest scheme is just further proof the company is trying to play in the hoteling space while evading industry regulations."

The truth is, while we should continue to be diligent in raising awareness about issues brought about by Airbnb's arrival, OTAs are likely more concerned about Airbnb than we are. Think about the 3% commission model Airbnb has versus OTA commissions of 10%, 15%, 18%, 20% and more. The acquisition of HotelTonight might kick Airbnb into an OTA transition strategy.

Bob Rauch

Bob serves as CEO and President of RAR Hospitality. He is an internationally recognized hotelier with over 40 years of hospitality-related management experience. Recognized by his “hotel guru,” moniker, Bob shares insights and industry trends at www.hotelguru.com. He has held nearly every position in the hotel business including General Manager of full-service four Diamond hotels for Hilton and Embassy Suites.

More from Bob Rauch

Sarah Andersen

I'm a Master of Management in Hospitality graduate from Boston University with a concentration in Real Estate Development and Marketing. As a former student athlete on the D1 women's lacrosse team at Boston University, I have had the opportunity to develop leadership and time management skills, along with hard work and dedication.

More from Sarah Andersen
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