Airbnb and Revenue Management: Hotels Still Maintain Upper Hand
February 27, 2018 10:34am
by Jeanine Panzica
We all know Airbnb is great for travelers, and within that statement are countless illustrations and some one-ups over hotels. Who doesn’t love personal amenities left by actual home/apartment owners, even if it is a cat? Ultimately, Airbnb can insert a traveler into their destination in ways a hotel cannot and all for a relatively agreeable price. But when asked if the hotel industry is under threat of Airbnb, the answer is no.
A plus for travelers, the bulk of the cost of an Airbnb stay is set by the host, they oversee nightly price, cleaning fees, and have discrepancy over extra guest and other fees. This limits the revenue management (RM) strategy capacities of Airbnb, who control only service fees. Airbnb charges guests a fee 5% - 15% of the subtotal. “The more expensive the subtotal, the lower the percentage the service fee” - https://www.tripping.com/industry/rental-companies/airbnb-fees and a 3% service fee is charged to each host.
Airbnb recommends hosts make an informed decision when setting nightly price and to research comparable properties in the area market, essential RM tactics. However, you need only compare nightly rate between similar accommodations offered on Airbnb and competing hotel sites to realize hosts are not nearly as price aggressive, and ultimately as price strategic as hotels. This is a huge competitive advantage hotel firms have over Airbnb, and one that is working.
Hilton brand is currently more valuable than Airbnb, and other hoteliers, despite ranking behind Airbnb have lately been producing record growth and revenues, last year saw the best ever for hotel occupancy rates in the U.S. - https://www.theatlantic.com/business/archive/2018/02/airbnb-hotels-disruption/553556/. Hotel companies have also been developing procedures to maximize strategic RM of their inventory. Placing emphasis on adaptability to grow revenues and tying product optimization closely to customer satisfaction. Airbnb, which assumedly practices RM, is disadvantaged to not control its own inventory’s “room rates,” unable to wholly participate in this applied practice.
It’s worth stating that ultimately the consumer is responsible for setting the price of any product, RM strategies aid in reaching the customer with our product, and as applies here optimizing the price of rooms in hotel distribution channels. Pertinent to distribution channels, and as was recently announced, Airbnb partnered with integrated cloud platform system SiteMinder. Airbnb connectivity is being extended to thousands of SiteMinder’s boutique hotels and B&Bs. Awesome for these hotels is Airbnb will charge significantly less service fees, in the 3% - 6% range, which is highly competitive to an OTAs’ usual fees ranging from 20% - 30%.
It seems Airbnb is operating in ways more and more in sync with hotels and away from an identity as a startup company within the hospitality realm and the future may see Airbnb shifting its perceived threat onto OTAs. To compete with Airbnb’s broad exposure and minimal fees, OTAs may want to consider expanding RM services for their hotel partners in the coming years. Such services can be looked at as a prospective tool for elevating hotels' perceived value of their OTA partnerships.
hotel revenue management,
conrad n hilton college of hotel and restaurant management,
Jeanine Panzica is a Masters student focusing on revenue management at Conrad N. Hilton College at the University of Houston, with industry experience as a hotel sales manager for a Choice Hotels International Ascend Collection Hotel and a luxury boutique hotel, both serving the Buffalo Niagara International and region.
Contact: Jeanine Panzica
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