No one knows what Airbnb's impact is. But our contrarian take is that it's greater than what most hoteliers think -- and accelerating by the day. Yet it's manageable if hotels act strategically.
Airbnb isn’t hurting hotels today in most markets. Unless it is.
STR, the market research firm, confronts that conundrum — as does the entire hotel industry.
STR says Airbnb’s precise impact won’t be clear until the home-rental booking startup shares more of its transaction data with third-party researchers. The firm’s researchers spoke on the issue Thursday and Friday in Nashville at the Hotel Data Conference, which is STR’s annual event for trade executives.
Real or Imagined Threat?
In the absence of data, STR said it might be missing some of the impact.
Amanda Hite, STR chief executive, noted that when her firm has looked at hotel rate growth in the U.S. it has had to, in recent quarters, repeatedly revise rate growth estimates downward.
For instance, the projection it made in January for 2017 overall U.S. hotel rate growth was 2.8 percent. STR has since revised the forecast down to 2.3 percent.
“There were lots of contributing factors to that,” Hite said, “But traction from alternative accommodation has to be one of them, at least in some markets.”
Although Airbnb’s direct financial impact on hotels may be unclear, what is certain is that the company is already altering hotels’ decision-making when considering new brand initiatives, for example.
This reporter’s anecdotal guess was that only a minority of hotel executives at the STR event believe Airbnb is an imminent threat. Statements from top hotel chain executives that Airbnb isn’t having an impact seemed to have reassured most of the 626 attendees, who represented hotel ownership groups, management companies, investors, revenue managers, and brands large and small.
Yet during several panel talks, a vocal minority said they were alarmed about the long-term.
“I can’t stop thinking about Airbnb,” said Mitch Patel, CEO of Vision Hospitality Growth, a firm that owns 33 hotels.
Patel noted that Airbnb had generated as many stays last year as it had generated between 2008 and 2015 combined. Last week the company confirmed that it has notched 200 million guest stays since its founding.
“At every conference year after year you hear that Airbnb is not really impacting us and is just activating incremental demand,” said Suril Shah, a managing director and head of U.S. hotels at Starwood Capital Group. “That’s a bunch of baloney.”
Yet Hilton’s global head of All Suites Brands, Bill Duncan, said there’s no Airbnb impact for his company.
His concern was that the playing field isn’t level when it comes to pricing — a popular critique by executives.
Duncan cited studies that find up to one-third of Airbnb’s average discounted price compared with hotel rooms is due to hosts evading regulations and avoiding hotel-equivalent taxes. He urged all event attendees to join lobbying groups coordinated by the American Hotel and Lodging Association to force local efforts to constrain Airbnb.
Shah dismissed the idea that regulation is the only problem with Airbnb. “Even when it becomes regulated, it will continue to impact our business.”
“Wait until property developers start branding sets of rooms on Airbnb,” added Shah. “That will hit the industry beyond the primary market cities of New York.”
Tech Might Give Hotels an Edge
“The hospitality industry is data-rich but information-poor,” said John Fareed, managing director of the consultancy Horwath. He explained that if the industry just made better use of the data it already has it could make big gains.
On Thursday, Airbnb said it has 4 million listings worldwide. Some experts believe that means it has more active listings (or units rented at least once a month) than any of the five largest hotel brands have rooms.
Benjamin Habbel, the founder of Voyat, an ecommerce optimization platform, said: “From a technology standpoint, the number-one way to compete with Airbnb is for hotels to get their act together on design and e-commerce.”
“Nothing beats the logged in experience of using the Airbnb app,” Habbel said. “You get personalized recommendations. Pages on the app load quickly.”
“Hotels need to steal basic things out of the Airbnb and online travel agency playbooks, like making their webpages load quickly on mobile devices and reducing the number of clicks it takes to finalize a transaction,” said Habbel.
Solving a lot of basic pain points could also make hotels more attractive to the Airbnb generation, said Mark Morrison, vice president of owner strategy and services at Expedia.
Morrison gave an example of hotels being unable today to offer connected rooms via their booking sites in advance. “Families and other groups sometimes like to have rooms side-by-side. But because most hotels don’t have the technology to make it easy to book guaranteed connected room, consumers turn to Airbnb.”
Habbel said hotels also need to invest in the digital guest experience as much as the real-world one.
“The overall strategy for an independent hotel or a brand is to make the most of the thing that they have that Airbnb doesn’t have, which is they actually interact with the guest in real life,” said Habbel. “They have the opportunity to extend and amplify that interaction by using chat-based or other tools before or after a stay to communicate with a guest, for example.”
New Role for Brands
Frits van Paasschen, who was CEO of Starwood Hotels and Resorts from 2007 to 2015, told the crowd that hotels need to invest in predictive analytics to take advantage of all the data they collect based on their frequent touch points with consumers. Then they need to use that information to offer more personalized service.
People will be loyal to a brand that proves it makes an effort to offer relevant, personal services and choices to them.
He said that TripAdvisor had ruined the “signaling power to consumers” of a hotel’s quality. Consumers no longer look to whether a hotel is a, say, LaQuinta, to feel confident in its quality and instead rely on reviews. So brands have to change their purpose, he said.
“Brands are more than signs on buildings and loyalty programs. Brands are about making people make choices emotionally instead of some by-the-numbers approach.”
“Brands have made a lot of catching up to do,” Van Paasschen added. “Maybe we’re at 2005-level tech innovation now, while retail and other verticals and even airlines are in 2017. Hotels need to catch up.”
He gave as an example getting room keys on smartphones that work with keyless entry room doors.
Hotel executives are traditionally reluctant to make tech investment. When tough budget decisions have to be made in every typical September budgeting season, data investments often get short shrift.
Dustin Bomar, Google’s Atlanta regional head of travel, and previously Hilton Worldwide’s vice president and global head of digital marketing, said: “With a few exceptions when I worked at hotels, I never heard hotel owners say to brands, ‘We need to invest in a data strategy.’ But I absolutely heard hotel owners complain about brands telling them to install new locks without paying or subsidizing them.”
“That’s why the burden should be on the chains — who can afford to take a different, big-picture perspective and can look up from day-to-day for the long-term potential benefits of a decision.”
Soft Brands as Soft Power
Rather than talk tech as the answer to Airbnb, many hotel executives would rather talk about so-called soft brands.
Conventional wisdom at the STR event seemed to be that Airbnb has succeeded by offering unique and semi-unpredictable “experiences” and that hotels need to respond by making their properties more interesting.
For chains, the recent spread of soft brands is an answer to Airbnb’s “experience” edge — though it’s not the only explanation for soft brands.
At soft brands, such as Preferred Hotels & Resorts, lobbies and guest rooms differ widely to appeal to niche tastes while otherwise maintaining standardized service, booking tools, and loyalty programs.
Hilton’s Duncan, said his company had done an analysis and broke up its guest segments into about 60 types of travel occasions.
“Not that we’re going to go after them with 60 brands,” he added in a joking tone. But he implied that the market might support that many soft brands from all the hotel players.
For owners of small hotel portfolios, the equivalent strategy to soft brands is to invest in independent hotels that have some of the quirky decor of boutiques but that are priced less expensively.
Patel, whose Vision Hospitality Group owns 33 properties, said Airbnb’s rise has prompted him to move into this type of property which he wouldn’t have otherwise for a significant share of the 16 properties his firm has in the pipeline.
Tech is also a turn-off for many executives because of the potential costs.
The calls to invest more in tech may prompt the common retort that hotels ought to stick to their competency, which is creating good experiences for guests on their physical properties.
Yet new tech could also level the playing field when it comes to many activities directly driving the bottom line, such as revenue management.
Already, Airbnb may have an impact in “surge pricing” situations.
For example, the hotel real estate consultancy CBRE Hotels tracked rates in Austin during the annual South by Southwest festival for the past decade. Since 2014 rates hotels have charged have come down. Competition from Airbnb units may have been a factor.
Forecasting tools and revenue management software would cost less than one-tenth of one percent of annual revenue for the typical hotel, claimed Apo Demirtas, owner of a software vendor that sells such tools, Intelligent Hospitality. “You probably pay more on toilet paper for your guests every year.”
But some executives said that many independent hotels don’t have spare money to invest more in technology despite record high occupancy rates.
Wendy Ferrill, vice president of worldwide sales for Best Western Hotels & Resorts, said that hotels will have to be creative to find the money to invest more in technology right now because costs — such as rising labor expenses due to record-low unemployment — are eating their budgets.
Hug Your Frenemies Closer
If hotels can’t afford to ramp up their tech spending to compete with Airbnb, they may be able to lean on solutions from tech companies like Expedia and Priceline to fill the gap.
Besides acquiring HomeAway, a vacation rental booking marketplace, Expedia has attempted to move closer to hotels by offering more services to help them grow their businesses.
On Thursday, for instance, Expedia officially began to market a series of new tools for hoteliers that it has been adding to its extranet for hotels in the past couple of years.
The suite of data analytics tools, called Expedia Powered Technology, includes a free tool that aims to help hotels set their rates to command the most revenue and Expedia’s first meetings-and-events booking tool to help hotels automate requests for proposals — which today is still largely a manual process.
For its part, Priceline’s BookingSuite division has also been rolling out tools for hoteliers.
The online travel giants are not making such moves out of selflessness. They may want to outmaneuver Airbnb’s likely switch into being a full online travel agency, said Jan Freitag, a senior vice president for STR.
“If I were an Expedia, I’d be very worried about Airbnb,” he said. Coincidentally, late last week, Hilton’s CEO welcomed the prospect of Airbnb challenging the two online travel giants.
In short, opinions are split.
Earlier this year, Skift covered the conflicting analyses about Airbnb’s impact, such as Morgan Stanley’s analysis (“Watch out!”) and Goldman Sachs’s one (“Watch out!”). Earlier this month we covered why investors think Airbnb is a $31 billion company — worth more than Hilton or Expedia.
On the other side, we also covered STR’s parsing of the the smattering of transactional data that Airbnb has selectively released to it (“Chill out!”) and the statements of major hotel chains (“Chill out!”)
Perhaps the best sign of whether hoteliers decide Airbnb is dangerous will be if they boost their tech spending during budget season next month. Or if they don’t.
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Photo Credit: Hoteliers may try to counter the growth of Airbnb with enhanced digital services. Pictured is keyless entry with a mobile phone at an Aloft property. Starwood Hotels & Resorts
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