There is no doubt that Airbnb, Inc. is one of the most successful pioneers of the sharing economy and that it has shaken up the hotel industry. It revolutionized the lodging market by providing a platform connecting hosts who are willing to rent out their private properties to guests. By providing free access and easy-to-use platform, Airbnb was able to overcome the entry barriers and quickly gained popularity. The platform typically provides users with more affordable prices than the traditional accommodations and local experiences with hosts. Now, after roughly 10 years of the foundation, the revenue of this online rental platform has surpassed that of Hilton, one of the top worldwide hotel chains. Then how big a threat is Airbnb to hotel chains?
Figure 1: US consumer lodging sales
The Figure 1 presents the remarkable increase in sales of Airbnb, but, it does not present the sales reduction of the incumbent hotel chains. In fact, though at lower rates, they are also rising. In terms of market value, the stock price of Marriott is skyrocketing by recording roughly 8 times of that compared to 2008 (from US$ 16 to US$ 120) (Figure 2). Also, Hilton’s stock price has steadily grown over the past five years (Figure 3). So, what is the counterstrategy of hotels against Airbnb that has realized their growth?
Figure 2: Stock price of Marriott International Inc.
Figure 3: Stock price of Hilton Hotels
According to a report by Grand View Research, the global luxury hotel market size has gradually increase over the past five years and it is expected to grow even further within the upcoming five years (Grand View Research, 2018) (Figure 4). The report explains that the rise of purchasing power and the standard of living across the world has a positive impact on the demand for luxury hotels and it will continue. Major players in the market are investing large amounts of upgrading infrastructures to enhance the aesthetics and comfort of customers. Hotel chains like Hyatt and Accor moved into the luxury home-sharing segment. In 2016, Accor hotel acquired the luxury short term rental “Onefinestay” brand, and in 2018, Hyatt hotel invested in the Oasis platform.
Figure 4: US luxury hotel market size, by type, 2014-2025 (USD Billions)
Aside from the luxury segment, hotels are innovating their business to fight against Airbnb targeting budget-conscious travelers. The growing trend in the hospitality market includes smaller yet more efficient design of rooms and more emphasis on communal and social spaces. They are also moving away from the provision of full-service to limited-service at a lower cost. In addition, hotels are introducing new technologies to enhance customer experiences and cut maintenance costs. They include a customized mobile application that allows pre-arrival, self-check-in services, reward loyalty programs.
The advent of Airbnb has shaken the lodging industry, but it appears that it was not the doom’s day for hotel chains. Airbnb led to the rise of the total supply of lodging market by attracting in the different tiers of travelers who would not have traveled before due to the higher accommodations costs. In other words, the rise of Airbnb does not necessarily mean the fall of hotels, but the overall growth of the accommodation busienss. Hotels may not be able to offer as low price as Airbnb hosts do, however, the hotels are innovating to provide better overall comfort of the travelers at lower prices while keep targeting the demand for luxury accommodations.
Bibliography
Mirza, M. (2019). A New Era of Lodging: Airbnb’s Impact on Hotels, Travelers, and Cities. Harvard Real Estate Review. Available at: https://medium.com/harvard-real-estate-review/a-new-era-of-lodging-airbnbs-impact-on-hotels-travelers-and-cities-de3b1c2d5ab6
Gerdeman, D. (2018). The Airbnb Effect: Cheaper Rooms For Travelers, Less Revenue For Hotels. [online] Available at: https://www.forbes.com/sites/hbsworkingknowledge/2018/02/27/the-airbnb-effect-cheaper-rooms-for-travelers-less-revenue-for-hotels/#3b4a77e1d672
Market Research Report (2018). Luxury Hotel Market Size, Share & Trends Analysis Report By Hotel Type (Business, Airport, Holiday, Resort & Spa), By Region (North America, Europe, Asia Pacific, MEA, Latin America), And Segment Forecasts, 2018 – 2025. [online] Available at: https://www.grandviewresearch.com/industry-analysis/luxury-hotels-market
Molla, Rani. (2019). American consumers spent more on Airbnb than on Hilton last year. [online] Available at: https://www.vox.com/2019/3/25/18276296/airbnb-hotels-hilton-marriott-us-spending
