First Free Story (1 of 3)Join Skift Pro
But for one hospitality CEO, Airbnb isn’t a foe — it’s a partner, and a crucial key player that can help him and his industry — the serviced apartment sector — continue to grow.
Larry Korman, president of Philadelphia-based AKA and co-CEO of Korman Communities, described his own brand, AKA, as one that “balances the intimate services of the boutique hotel with the spaciousness and comfort of a luxury condominium.” But he said it can often be challenging to not only distinguish the differences between serviced residences and other types of accommodations, but to also have consumer awareness of the category.
“People in Europe and Asia understand that [serviced residences] concept, but Americans really want two, three days to a place,” Korman explained. “They’ll stay at a Four Seasons or a Marriott and then they’ll come home. Whereas Europeans, they’ll go to a place and stay for two weeks, or stay for a month, to get to understand the spirit of the neighborhood, of the culture, and live like a local.”
That whole concept of living like a local, as Airbnb and other platforms have so heavily marketed, is what makes the serviced residence business so well positioned to take off, Korman said. “I think what Airbnb has done that has helped is, sort of, introduce Americans domestically to the advantages of a residence versus a room,” Korman said.
To that end, Korman said, “Let’s embrace Airbnb, not battle them. Let’s acknowledge that there was a disruptive element. And let’s see how we can make it a positive.”
In fact, privately held AKA is Airbnb’s founding partner for serviced residences in North America in the upscale/luxury segment.
Skift recently spoke to Korman to discuss the serviced residence sector, from the influence and impact of Airbnb on the business, to the challenges it faces in terms of perception and distribution. Here’s what he had to say:
Airbnb’s Influence on the Serviced Apartment Sector
In 2008, the global economy crashed and, coincidentally, Airbnb debuted — two developments that initially had a negative impact on serviced apartments.
“We got hit very hard as a segment,” Korman said. “But I think AKA got hit even harder in some respects because if somebody was looking for a residence, they’d consider both of us,” he said, referring to AKA and Airbnb. “In some ways, maybe they didn’t go to Google and search us, so they never even considered us. And they went right to Airbnb because they just assumed that’s the way to get a residence.”
While Korman, like many other hoteliers, lamented the lack of “a consistent playing field” when it came to traditional hospitality providers competing with Airbnb in the same market, he said “Airbnb did do good for our industry,” even if hoteliers didn’t think they did at the time.
“It’s obvious that [Airbnb] lowered occupancy and therefore, lowered ADR [average daily rate] at the same time OTAs [online travel agencies] were taking increasing expenses and taking away from that smaller revenue,” Korman said.
“So, our industry was hit hard for four years. But I think what came out of it that was great is Americans understanding the value of having a residence, a residential experience versus a room, and that is going to have a ripple effect for us going forward.”
Why AKA Is Partnering with Airbnb
That ripple effect includes making it possible for consumers to book stays at AKA via Airbnb.
“We’re now partnering with Airbnb, who is also looking for a higher-end option for people who have said, ‘Never Airbnb,'” Korman said. “This is a segment that they’ve recognized, people who would never stay at Airbnb [before]. So, they’re going to partner with like-minded people that all have these residences, the services and the amenities, and the excellent reputation for cleanliness and security.”
Korman said AKA’s listings will eventually become a part of Airbnb Plus, a new category of vetted accommodations that Airbnb initially debuted in February with non-professional hosts. At the moment, Airbnb hasn’t yet officially added professional accommodations providers like AKA to Airbnb Plus, but they will eventually. AKA’s listings for its 11 properties are currently being tested out on the platform.
Being a part of Airbnb Plus achieves objectives that Korman has not only for his own business, but for the serviced apartment sector as a whole.
“Our goal in today’s world is how can you better communicate what we are,” he explained. “Because we have to educate people as to what we are. If we’re just a standard hotel, it’s very easy to explain everything, play the game on Booking.com where you raise the rate, lower the rate, keep a certain ask fee. With our business, it’s much more of a push versus pull strategy. So, any help we can get to explain and educate and communicate our offering and then connect with people around the world, I think Airbnb affords us that opportunity to cast a wider net and explain our option, our alternative offering to a wider cast of characters. Because of Airbnb’s unique reach, they have that ability to communicate with new markets.”
Will this new audience carry over its own perceptions of what an Airbnb is when they consider booking an AKA, however, especially when it comes to price?
Korman admitted, “It could definitely taint the AKA brand” to have people assume that, because these listings are on Airbnb that they’d be more affordable than a hotel. But he added, “You have to be willing to try new things, go beyond the normal box of operating norms. And you have to be willing to collaborate.”
Conversations with Airbnb’s strategic advisor for hospitality and leadership, Chip Conley, and the director of multifamily housing partnerships, Jaja Jackson, convinced Korman that Airbnb is looking at the upscale space, and seeing how Airbnb really can be for everyone, no matter the price point or what they happen to be looking for in their accommodations. He’s also keeping an eye on what develops with Airbnb’s acquisition of Luxury Retreats, and the anticipated launch of Beyond by Airbnb.
Korman also favors the lower commission fee that Airbnb extracts from accommodations providers, or hosts and, at the same time, he is working on building up more direct business.
He also added, “I’ve been disappointed with Booking.com.” He said that while the channel is good for weekly business, it hasn’t been good for booking monthly business.
“But the problem with Booking.com or any of the OTAs is there is a price perception in mind,” he said. “And it hasn’t allowed us to spread our wings by building and operating and justifying higher rates that are needed for those great locations and those great suites and with the great furnishing. So, Booking.com, I think, ultimately, has limited our growth to continually evolve our offering to the next level.”
While Korman admitted a similar situation could potentially arise with Airbnb, he said he’d rather work with Airbnb over the other online travel agencies.
“Airbnb has the platform to explain here’s why you’re paying $150 but this is $350 or why this is $550, but look what you’re getting. They’re pre-qualifying people, whereas I think Booking.com is still everything for everyone.”
He added that on other online travel agency sites, “You’re ranked at this price, and you’re all the way number 87 where you’re not going to pay them a 27 percent fee, so you’re ranked at the very bottom. So, I’m not thrilled with any of the OTAs.”
“In many ways, I think the OTAs, more than even Airbnb, hurt our industry, the overall hospitality industry because there was lower occupancy, and there was lower ADR,” he added. “And so much of what little was left on the bones or the meat that was left on the bones was going to these OTAs for exorbitant, exorbitant commissions. So, I think Airbnb is going to give them a little run for their money in terms of what rates ought to be charged, whether it’s through the 5 percent or 10 to 12 percent. It’s not going to be 15 to 30 percent.”
As for the perennial battle between accommodations providers and online travel agencies goes, Korman said, “I think we’ve made progress in the last two years with OTAs. But we still have a distance to go. They have not lowered their rates yet, and I think they have to come down or Airbnb will gobble them up.”
And what about Google or Amazon?
“We’ve been asking for years to let us be their first serviced residence provider,” Korman said of both. “I think for Amazon, it’s natural for them to get in. I think they’ll pretty much conquer the world soon enough.”
He also noted that AKA is testing out the placement of voice assistants in a few of its suites now, and that he sees “great potential” for the technology going forward.
The Perception and Awareness Problem with Serviced Residences
The serviced apartment sector is a relatively small part of the lodging business, but it is growing quickly. Worldwide, there are 826,759 serviced apartments, representing an increase of 10.5 percent in the past 18 months, according to the 2016/2017 Global Serviced Apartment Industry Report by The Apartment Service.
But, as Skift has reported previously, the biggest obstacle to even more growth for these types of accommodations is that few people even know what a serviced apartment is, or the fact that they offer additional amenities, such as concierge services and 24/7 guest support.
“The word ‘serviced’ is very complicated,” Korman said. “We have a lot of work to do. But you can’t argue with the fact that the Four Seasons is getting into [this space], the Marriotts are getting into it.”
When asked if “serviced apartments” could benefit from a name change, Korman said, “I think the answer is an absolute yes.”
“It’s such a small segment, yet within that segment, there’s corporate housing, furnished apartments, apartment residences, serviced residences, and what I consider us to be, more like hotel residences. I’d like us just to be able to say AKA and it have the connotation of what we are, like CNN or ESPN or Tesla, without having to explain it.”
He said one of the biggest challenges the sector has is explaining the difference between extended stay hotels and serviced residences and because many well-known extended stay brands aren’t necessarily luxury ones, it can be a confusing marketing exercise.
And the fact that more traditional hotel companies are entering the space is also complicating things.
“I think there is a confusion and a blurriness by Marriott, Four Seasons, by everybody getting into everything,” Korman said. “And you end up having every major company offering everything to everyone. They want the Millennial segment. They want the serviced residence segment. They want this segment. And it does blur the lines a little.”
However, he said, all of these moves are “an acknowledgment that the consumer is growing in their understanding of what is a better fit for their stay” and that consumers are “more sophisticated.” Korman also added he intends to keep running AKA independently.
“The world is changing, and it’s harder and harder to communicate and reach people today,” he said. “You have to really think of what ultimately your clients, of who you want to be. And how you want the consumer to perceive you. And who you want that consumer to be? And what’s the best way to reach them? What’s the best way to service them once they’re there? And what’s the best way to maintain that relationship?”