Hotels & Lodging

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As Hospitality Industry Feared, Airbnb is Deflating Hotel Income -- Significantly

13 Nov, 2019

By: Mary Helen Sprecher
Here's How It Will Affect Sports Travel

Those who thought the upstart homesharing industry couldn’t put a scratch in the traditional hospitality market just got a big – and perhaps unpleasant – wake-up call.

New research produced by Florida State University’s Dedman School of Hospitality shows that not only is Airbnb growing at a rate of 100 percent per year, with 6 million listings in 81,000 cities worldwide, its market share is taking over that of the hotel industry, resulting in decreased revenue for hotels as well as a decrease in room prices and occupancy rates.

Already, some sports events have gravitated toward homeshares as an important part of their lodging experience. The Minto US Open Powered by Margaritaville has long been a proponent of VRBO by HomeAway (VRBO is short for Vacation Rentals By Owner) for its event in Naples, Florida. In other cases, sports events (including the 2014 World Cup in Rio) have used Airbnb to unlock rooms when traditional lodging was full.

The blog, Mashvisor, notes that the study looked at the hospitality market in 10 major cities for travel, identifying trends between 2008 and 2017. For every 1 percent increase in the supply of Airbnb rentals in a location, hotel revenues were lowered by 0.02-0.04 percent

Okay, you’re thinking. That doesn’t sound so bad for hotels. But the dollar amount gives a clearer picture of what that means.  In New York City, the nation’s hotel capital (and perhaps the world’s as well), Airbnb’s impact was an estimated loss for hotels of around $91-$365 million in 2016. The sectors that seem to have taken the largest hit were the economy and the luxury hotel industry – although midrate hotels also suffered.

The FSU study noted that 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. It’s also quicker and easier for homeowners to align with Airbnb than it is to have a hotel built.

It’s no surprise, therefore, that various jurisdictions are trying to eliminate regulate Airbnb, either by trying to put caps on how many homeshare properties can be offered in a given area, by trying to force homeowners out of the homeshare business by attempting to create rules that would force them to put in sprinkler systems and make all properties ADA compliant or to add other restrictions that would be onerous, or in some cases, impossible, for residential properties. (Many homeshare properties respond by simply ‘going underground,’ doing business privately with previous customers and relying on word of mouth to expand their clientele.)

But, says Tarik Dogru, assistant professor at FSU, the solution is not to try to eliminate homesharing from a market; it’s trying to figure out how to work around it.

“You need Airbnb,” Dogru states, “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.”

 “Decisions on how to regulate sharing-economy platforms will not be straightforward,” Dogru said. “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 believes local communities need homeshare opportunities because they create indirect economic benefits for restaurants, entertainment and leisure activities.

While Airbnb is one of the largest platforms in the market, there are others, including VRBO (Vacation Rentals by Owner) by HomeAway, Homestay, FlipKey and WIMDU – and all are making inroads in the hospitality industry.

The fact that more travelers value the experience of a trip – including their accommodations – and consider it part of the adventure, has played into the growth of the homeshare economy. Adults traveling to other cities for marathons, triathlons, senior games and other sports events – as well as to be spectators at professional sports – are a big driver in the sports market.

But the trend is getting younger. The Millennial demographic, famous for its attention to individual interests over corporate profits, is an enormous part of that growth, and as that demographic gets older and begins having children, count on them to pass those values along.

While youth sports teams are likely to continue to use mainstream hotels (particularly in light of stay-to-play arrangements) count on Millennials who become parents to question and even to change this trend in the years to come.

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