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Assessing Airbnb’s Impact

Lodging Industry CEOs Debate Viability Of Home Sharing During ALIS Conference

Monday, February 03, 2020
Dennis Nessler
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There is no disputing the fact that home sharing has emerged as a significant disruptor to the lodging industry in recent years, but the actual impact of companies like Airbnb and HomeAway is clearly still up for debate among lodging executives.

The potential threat posed by home rentals generated a lively discussion among a few veteran CEOs at the ALIS (Americas Lodging Investment Summit) conference earlier this week during a panel discussion entitled “Boardroom Outlook: Innovation and Distribution.”

David Kong, president and CEO, Best Western Hotels & Resorts, framed the discussion by pointing out that alternative lodging accounted for more than 10 percent of total U.S. lodging supply last year, according to STR, and he added that number is projected to grow to 12 percent this year.

“If you think about that even if they ran 50 percent occupancy that’s six points off our occupancy. If you think about the city-wide conventions or compressed periods of time, the compression rate has been greatly affected because of this new supply. Any way you think about it, I think alternative lodging has had a negative impact on our RevPAR, and worse still if it impacts our RevPAR it impacts our NOI [net operating income] and it affects our asset values,” he said.

Kong also called attention to other emerging forms of apartment-style alternative lodging models like Sonder and Stay Alfred, which he described as “even more worrisome.”

Raul Leal, CEO, Virgin Hotels, also acknowledged the impact of platforms like Airbnb, particularly with regards to today’s younger travelers.

“I think it’s scary. The playing field has changed quite a bit and today’s generations are really about choices,” he noted.

Leal went on to speculate on what all this could mean for some of the more well-established flags. “I think that the future of the industry with all this product coming on means that a lot of the brands are going to continue to have to reinvent themselves in a way to compete on some level and attract the new generations. For some legacy brands that could be difficult given that consumers today have the ability to change their minds in a heartbeat based on a review or based on something new that they want to experience in different parts of the world,” he commented.

Conversely, Tyler Morse, CEO, MCR, believes the impact of home sharing, particularly in the long term, is far less of a concern for traditional hotel companies.

“I’m not terrificly worried about alternative accommodations for a couple of different reasons. About 70 percent of the profits of our industry are from business travelers and the alternative accommodations are almost all wildly price sensitive. They’re [people] looking for a better deal. They’re leisure travelers that have low profit margins in the first place so the 10 percent that is being sucked out of the industry is not the good business, it’s the lousy business,” he asserted.

Morse further explained his reasoning.
“We’re going through a paradigm shift and the government is catching up from a regulatory standpoint. The Airbnb accommodations don’t have fire & life safety, they don’t have the human trafficking signage that we have, you quite often don’t know who your neighbors are so there is a safety component to this, the government is in the process of cracking down on this. A lot of people are putting their New York City Housing Authority (NYCHA) unit on Airbnb and then neighbors are complaining ‘you’re taking advantage of subsidized housing’ so that game is going to end. The law is going to catch up with this,” he said.

Morse summarized his outlook. “Will it have an impact? Sure, but it will be a De Minimis impact with a lousy guest.”

Kong, meanwhile, took issue with Morse’s viewpoint.
“This is precisely the challenge we have in the industry. We have diverse owners, brands and management companies and not all of us think alike so this is why we can’t solve the problem,” he stated.

Morse insisted that the lack of business travel would be a difference maker. “JP Morgan Chase is not going to pay your expenses of staying in an Airbnb when you’re traveling for business because there is a safety and security issue,” he said.

Kong, however, disputed that notion. “There are lots of companies approving some Airbnb or alternative lodging [options],” he said.

Morse continued to detail what he sees as some of the challenges for home sharing versus traditional lodging.

“It’s an unknown commodity. You stay in a Courtyard by Marriott and you know exactly what you’re getting. All this discussion of the millennials and experiential travelers, all that stuff is great when you’re 28 but then you have 2 kids, buy a minivan and get a dog you want to stay at a Courtyard. The average age of our customer is 46 years old it’s not 28,” he remarked.

Kong urged the industry to come together to continue to combat the growth of home sharing and the potential loss of business it could bring about.
“We have to think about how do we get united and how do we make our case...It’s about making the case in a salient and effective way and it’s going to have to be about them being a nuisance in the community, the zoning regulations that are being bypassed and also them not paying taxes and the like,” he concluded.

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Dennis Nessler    Dennis Nessler
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