January 7, 2014
Although it's only the first week of 2014, a new enemy for the hotel industry has surfaced. While the majority of hotels are aware of its existence, most haven't realized the negative effect that it could have on hotels' revenues in the year to come (and beyond). This enemy has now grown larger than any of the international branded hotels and continues to grow even larger at great speed. This invisible enemy dramatically expands room inventory in cities worldwide and does not discriminate based on property type, star rating or geographical location.
So what is this invisible enemy?
Although I'm sure many hoteliers might disagree, I'm here today to tell you that AirBnB is your property's invisible enemy. While AirBnB has been in existence for years, initially the booking process was much too complicated for consumers so it wasn't a strong competitor (for hotels). Today, that has changed. Because AirBnB has now made it easy for consumers to book online even from their smartphones, the site is becoming more and more popular. That being said, many hoteliers still don't consider AirBnB a threat because they believe their customers are much more discerning than those who book via AirBnB. Given that line of reasoning, AirBnB would definitely not be a part of a hotels' compset, but in reality, properties listed on AirBnB presents significant competitive challenges for each and every hotel within a destination that offers AirBnB rentals.
Many hoteliers assume that only backpackers or very budget-conscious consumers will consider using these sites, but they would be incorrect. In fact, AirBnB lists and secures bookings for many luxury properties including apartments, villas, mansions and castles (there are currently 600+ listed on the site), private islands and, in 2011, even the entire principality of Liechtenstein! It also lists many unique properties to potential travelers, including yurts, caves, tepees (with TVs), water towers and treehouses. Strangely enough, treehouses are the most profitable listings on AirBnb per square foot, showing that consumers are willing to pay more for a unique, exciting experience that they can't get at a traditional hotel.
Many properties listed on AirBnB offer very attractive spaces for families - who don't want to have to rent multiple hotel rooms for privacy, and who appreciate the fact that most apartments have some sort of kitchen included (which offers significant cost savings, especially for larger families).
Long-term travelers are another very big market for AirBnB. Again, the apartment's kitchen is a huge selling point for travelers looking for a long-term rental, as is the discounted monthly rate offered by many AirBnB hosts.
In many cases, AirBnB hosts are able to create a more personal experience for their guests. From the initial online getting to know each other discussion; to meeting on-site to exchange keys; to leaving flowers, wine or cookies to welcome guests to the apartment, AirBnB hosts are able to make guests feel more welcome and appreciated, which will often translate to better ratings for the host property and a very positive experience for the consumer.
As you know, positive experiences + good value = lucrative repeat business for AirBnB hosts (and potentially less business for hotels).
Finally, AirBnB appeals to any consumers who are looking to have more control over their booking. Most hotels often have strict cancellation policies, MLOS restrictions, additional fees/charges (above the room rate), etc. but the majority of AirBnB properties have fewer restrictions and no hidden charges.
If you still don't believe how significant a threat AirBnB is to hoteliers, check out these staggering statistics from a recent Hotel-Online article:
- They created $632 million in economic activity just in New York in one year, and they supported 4,580 jobs throughout the five boroughs.
- They have 500,000 properties worldwide.
- They have found accommodation for 9 million guests worldwide (5 million in just the past nine months).
- Over 150,000 guests stay in one of its members' properties every night.
- They expect to pass InterContinental Hotels Group and Hilton Worldwide to become the globe's largest hotelier next year.
See what I mean? AirBnB definitely presents significant competition to hoteliers and should be considered to be a part of every hotel's invisible compset.
But it's not just AirBnB that is an invisible threat to hoteliers. Other similar sites like Flipkey, Homeaway, VacationRentals.com, among others are also part of a hotel's invisible compset, and should be considered when developing your revenue management strategy.
So how can hotels deal with these invisible threats?
1 Recognize the threat that these sites pose to hotels and rethink your strategy.
Hotels should be aware of all of the properties within their comp set not just a select few traditional properties when planning their revenue management strategy. Think like a consumer (who doesn't know anything about the existence of comp sets); by thinking like a consumer, you can see that all properties in the same destination, that offer similar amenities and star ratings should be included as part of a property's comp set. Do not underestimate the importance of sites like AirBnB in your online comp set.
In order to determine rates most effectively, hoteliers should recognize that the online comp set fluctuates constantly based on a variety of factors including time, booking pace of all the hotels in the destination, the general demand within the destination, etc. so revenue managers must continuously monitor the rates of the properties within their online comp set to ensure that they are able to compete, and continue to update their online rates multiple times throughout the day (as the market changes).
2 - Find inexpensive ways to enhance the guest experience.
The ability to offer personalized service is one of AirBnb's strongest features because everyone loves to experience a home-away-from-home on vacation. But hotels can recreate this feeling for their guests quite easily. A personal thank you note, fresh fruit, a local map showing the area's best attractions, a bus/train systems schedule, chocolates, etc. can make a hotel guest feel special and that their business was appreciated. Remember, when customers feel special, they are more likely to leave better reviews of your property. And better reviews mean more revenue for a property.
3 Implement sophisticated tools to help you more effectively manage your pricing.
In any property, manual pricing rates can only be determined based on the competition that the revenue manager identifies as important; if the revenue manager isn't aware of them, invisible threats (like AirBnB) will be ignored and huge financial losses could be experienced. If I had to choose a single message that I would hope hoteliers would take away from this article, it's this: pricing and online distribution is becoming exceedingly complicated, and hotels that don't use technology to manage their data collection, analysis and pricing, will fall far behind those that do. Implementing this type of technology now will create a distinct competitive advantage.
So how much longer will you wait?