After the recent acquisition of HotelTonight, If there were any doubt as to Airbnb's true intentions of entering the OTA space and start aggressively competing with online travel agency giants such as Booking Holdings and Expedia, they need to be laid to rest immediately.

The industry has conflicting views of the role Airbnb plays and will play in hotel distribution. Some hoteliers believe that Airbnb is not an ordinary OTA since it "hijacks" travel demand and diverts traditional hotel guest to private accommodations. Airbnb has already "hijacked" 10%-15% of the travel demand in many major metropolitan areas and leisure destinations such as New York City, Paris, and London. This affects negatively overall occupancy and hotel room pricing and hoteliers are unable to raise ADRs in periods of traditional peak demand. According to Morgan Stanley Research, 50% of survey respondents in the US, UK, France, and Germany reported that they booked an Airbnb in place of a traditional hotel. In other words, Airbnb is diverting traditional hotel guests to private accommodations.

Other hoteliers welcome the entry of Airbnb in the hotel distribution mix, since they believe Airbnb adds another option to the existing duopoly of Booking Holdings and Expedia.

What is your take on the subject?

Larry Mogelonsky
Larry Mogelonsky
Partner at Hotel Mogel Consulting Ltd.

Adam Smith (1723-1790) is known as the Father of Economics. In his book entitled The Wealth of Nations (1776) he defined the Law of Supply and Demand. In short form: Prices fall when demand exceeds supply. Now let's take Airbnb adding some (at time of writing) six million rooms into global inventory. Ask yourself, has tourism and business demand for rooms increased by this much in the past decade, noting full well that traditional room stock has also increased? The answer clearly is no. Demand has not increased sufficiently to absorb this new inventory. Therefore, following this economic theory, prices have fallen.

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