The Sharing Economy – How AIRBNB is Affecting the Hotel Industry

Kurt Nishimura – AREAA Global Board of Directors and 2018 AREAA National Commercial Chairman,  weighs in on the effects Airbnb has on the hotel industry within the Sharing Economy.

Much has been made of the new Sharing Economy on how it has harmed certain industries. What do I mean when I refer to the Sharing Economy? It is companies like Uber, Lyft, Turo, and AIRBNB where a company uses a technology platform to allow individuals use their asset to become an entrepreneur. While it has hurt certain parties, I would argue it has helped level the playing field within to the benefit of the consumer. It has successfully diverted a portion of the demand from one party to another party. Technology has allowed a way of lowering the cost structure so consumers have a lower priced alternative to the status quo. It is giving power to the single entrepreneur a way of competing against larger companies where initial capital requirements used to be a huge barrier to entry. The sharing concept has made it possible to lower costs and increase the utilization of assets and spawn new companies like work staff (TaskRabbit), taxi services (Uber and Lyft), car rental (Turo) or hotels (Airbnb and VRBO).

The most successful sharing companies are in the transportation industry due to companies like Lyft and Uber. Their platforms have been a game changer in how we view driving and owning your own car. Airbnb is starting to have a similar effect on the hospitality industry. This has made hotel owners and union leaders (formerly opposition parties) to start working together to try to put legislation to restrict the use of this popular alternative to renting a hotel room. Many cities are looking into legislation to curb the ability for homeowners to rent out their property because the cities have seen declines in the bed taxes the cities receive from the hotel industry. It is much easier for cities to collect from a few hotels than it is from thousands of homeowners or investors who are more difficult to track down and remit bed taxes back to the local municipalities. In New York, the city is cracking down on illegal AIRBNB listings according to the watchdog group, Inside AIRBNB, however, the city still has over 30,000 listings but is down approximately 20% from a year ago. Just how big is the impact AIRBNB is having? According to a report in 2015 from the New York City Hotel Association that has over 270 member hotels, the city had lost over $2.1Billion in gross revenues in sales which translates into 450 Million in bed taxes costing the city over 2800 in hotel jobs. Airbnb has made significant inroads into the hospitality industry to the extent that major hotel consulting firms now try to measure the impact it has and will continue to have in the industry. Does this spell doom for the hotel industry? Probably not but AIRBNB certainly has created a niche in the market where the small entrepreneur can thrive if they know how to deliver service that is on par with major hotel companies.

One area where the hotels still hold a significant advantage is they have two very well established independent rating systems which let the consumers know what the service levels and amenities they can expect before a consumer picks a hotel. One rating system is the Diamond created by AAA and the other is the star rating system by Mobil. The diamond rating system focuses more on the experience expectation of a group or corporate traveler versus the star system which focuses more on the leisure traveler. While Airbnb tries to establish some consistency in their rating system, the ratings are based on the individual hosts and travelers who rate one another. This is an area where AIRBNB really needs to improve upon in order to effectively compete and be seen as an equal to the hotel industry. It cannot rely solely on individual owners and their guests to properly rate themselves. This is probably one of the key measures needed where consumers who have been reluctant to try AIRBNB to try the service and compare.

The full effect of AIRBNB’s impact on the hotel industry is still being played out but the initial impact is certainly having an effect worth noting. In the next couple years, we will know if AIRBNB is simply a fad of the new sharing economy or a real player in the hospitality industry.

This article originally appeared in the 1st Quarter A/R/E Magazine. Some of the content was updated related to some of the impact figures and projections in the previous version.

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