Airbnb is an online community marketplace that bridges people looking to rent out their homes with people seeking accommodation. Airbnb started off in 2008 primarily as a couch-surfing site for people to make some extra cash renting out a spare room and over the years, it has transformed and grown its appeal from budget-minded tourists to savvy business travellers. According to Airbnb, it currently has over 5,000,000 listings for lodging available across 81,000 cities in 191 countries. We note that listings can operate in so called grey areas in many jurisdictions, not least Singapore.
What is the impact?So, what has been the impact on hotel performance? So far, the evidence has been conflicting with parties putting forward reports to support their agenda. In our opinion, the impact can and will vary from destination to destination, and indeed the fundamentals of those particular markets. A good analogy will be with how ride-sharing firms have fared. Evidence suggests that in ‘imperfect’ markets that are usually union or driver led, alternatives that are more consumer friendly are quickly seized upon. Further, where there is already high demand but controlled quality supply, again this environment can be conducive for disruptors. The same applies to Airbnb and its success or not in various markets.
Although there are no available official statistics for the region of Asia released by Airbnb, multiple sources showed that a higher proportion of travellers are gravitating towards Airbnb in mature markets within Asia. In Singapore, the proportion of visitors opting for alternative types of accommodation increased from 19.0% in 2015 to 26.6% in 2017 whereas 20.4% of tourists in Japan utilised Airbnb lodging services compared to only 15.4% in 2016. It is important to note that both of these mature markets have high room occupancy and ADR year-round, and both have or are in the process of tightening legislation around the use of residential units for short-stays.
The impact on hotels in emerging markets was not as severe in comparison. In Thailand, Airbnb welcomed only 1.7 million guests, which is only a mere 4.8%, out of the total number of 35.4 million tourists in the year of 2017.
The key reason for the discrepancy for the magnitude of impact between mature markets and emerging markets is the price difference between hotel rooms and Airbnb rooms. In key mature markets such as Seoul, Tokyo and Melbourne, Airbnb listings are approximately 49% cheaper than the average daily hotel rates. For example, in Tokyo, Japan, a night’s stay at a hotel will set one back an average of US$220 per night while a comparable Airbnb room will cost less than half of that at about US$93 per night. This translates to significant savings of US$127.
The savings for an emerging market like Bangkok pales in comparison with only US$15 per night as hotel room rates are only marginally higher.
Thus, tourists are still likely to stick to traditional hotel options due to the amenities, safety, convenience as well as reputation that hotels bring about.
Apart from offering a more competitive price point, Airbnb has also been actively making its move to extend its pool of target audience to include business travellers since 2015. Its traditional target has been leisure travellers. David Holyoke, Airbnb’s global head of business travel, recognises that there is untapped potential in business travel, especially within Asia. Statistics from Airbnb show that corporate bookings within Asia grew by 5.0 times between 2016 and 2017 which is higher than the global average of 4.3 times.
It is wooing business travellers in Asia by developing a search feature that filters out accommodation that are “business travel ready”. For a property to be listed under that category, it must meet certain criteria such as having a 24-hour self-check-in system, wireless internet and a workstation.
This would be appealing to Asia’s business travellers as most see overseas business trips as a perk and will be twice as likely to extend their trips for leisure. This ties in perfectly with the whole Airbnb experience where they get to experience life like a local
How can hotels be more competitive?While it would be almost impossible for majority of hotel chains to rival the affordability and personalised experience by Airbnb, hotels do have certain advantages over a typical Airbnb listing.
One aspect that hotels have an edge over is in terms of amenities. Hotels have a wide range of amenities such as restaurants, bars, spas, gyms and function rooms onsite. The ease of access to such amenities would be what certain travellers are looking for.
However, the biggest advantage that hotels have is the structured services it provides. Guests can walk into a hotel knowing exactly what is being offered due to the standardised service provided. Hotel staff are on duty round the clock to tend to their needs and requests. Getting a fresh towel or a change of sheets in the middle of the night would not be an issue. This convenience ensures a comfortable and luxurious experience every single time. In contrast, the Airbnb accommodation quality is highly reliant on each individual host.
Apart from leveraging on their strengths, Hotels should take a leaf out of Airbnb’s book in going the extra mile to offer a degree of personalisation for guests. A simple checklist could be done during the booking process to understand the taste and preference of the guest. The room can then be customised accordingly. Insider tips should also be provided to ensure guests have an authentic and local experience.
Friend or foe, like online travel agents, Airbnb is here to stay. The advantage is knowing that its formula will only be successful in markets that are either mature or imperfect.