Airbnb's explosive growth jolts hotel industry's bottom line

Airbnb
Credit: CC0 Public Domain

Hospitality service Airbnb is fast becoming the 800-pound gorilla that's shaking up the hotel industry and forever changing it.

New research from Florida State University finds Airbnb's exponential growth worldwide is devouring an increasing share of revenues and also driving down room prices and occupancy rates.

"This is the first study confirming the negative impact on those three key metrics in the hotel industry," said Tarik Dogru, an assistant professor at FSU's Dedman School of Hospitality. "Increased competition from Airbnb is mainly affecting hotel prices and revenues, but occupancy rates are also down slightly."

Over the past 10 years, Airbnb has grown into the world's largest online marketplace for lodgings and now qualifies as a disruptive innovation, Dogru said. His research, published in the journal Tourism Management, examined the effects of Airbnb in 10 major U.S. cities between 2008 and 2017.

The company's listings have grown more than 100 percent a year—Airbnb now boasts six million listings in 81,000 cities worldwide—and that dramatically larger supply of accommodations has significantly affected hotels' room prices and revenues.

Dogru found a 1 percent increase in Airbnb's supply lowered hotel revenues between 0.02 and 0.04 percent, which he estimated in New York City alone would have amounted to a loss ranging between $91 million and $365 million in 2016. The lost revenues came mainly from economy and luxury hotel listings.

That's a new finding for the luxury segment compared to previous research. Dogru attributes it to Airbnb's push to offer more luxury experiences. The company recently launched Beyond by Airbnb, a travel-planning service featuring high-end designer homes and other upscale properties, such as castles, treehouses, boats and yurts.

Dogru also found Airbnb negatively affected midscale hotels—another new finding. Past research concluded room prices were so similar between midscale hotels and most Airbnb listings that consumers were not motivated to switch to Airbnb.

Not anymore. The study found increasing demand for authenticity in lodging, and travelers felt Airbnb properties were more authentic than franchised hotels.

"Consumers don't want to stay in a new city but in the same old hotel," he said. "More people want an authentic experience, and Airbnbs offer that—the chance to engage with and have localized experiences."

Airbnb's business model has flourished for many reasons. Customers like having access to an enormous supply of properties and rooms at a wide variety of prices, often more competitive than hotels, and Airbnb collects commissions on every booking.

In addition, Dogru said the company does not follow conventional rules.

"Airbnb does not ensure the security of guests, it's not taxed in some jurisdictions, and it has flexibility to add new supply because of a lack of regulation," Dogru said. "Those are some reasons why Airbnb has a significant competitive advantage against the because adding a new hotel to the market can take several years."

The lack of regulation in many Airbnb locations translates into less money for cities and , and that reality raises questions for lawmakers and other policymakers because they cannot simply ban Airbnb.

"Decisions on how to regulate sharing-economy platforms will not be straightforward," Dogru said. "The application of excessive legislation and regulation driven by the interests of incumbent industries has the potential to stifle innovation that ultimately benefits the consumer. Lawmakers are clearly still grappling with the nuances of this emerging phenomenon."

Dogru believes local communities need Airbnb because it creates indirect economic benefits for restaurants, entertainment and leisure activities.

"You need Airbnb, especially when there is excess demand for rooms, but there must be regulation without killing innovation," he said. "Airbnb is still in its infancy, and more hosts are being added to its supply every day in many markets. Airbnb is indeed a disruptor, and it is here to stay."


Explore further

Airbnb buys HotelTonight app to broaden travel offerings

More information: Tourism Management, 72, 27-38. Dogru, T., Mody, M., & Suess, C. 2019. "Adding evidence to the debate: Quantifying Airbnb's disruptive impact on ten key hotel markets."
Citation: Airbnb's explosive growth jolts hotel industry's bottom line (2019, April 19) retrieved 20 July 2019 from https://phys.org/news/2019-04-airbnb-explosive-growth-jolts-hotel.html
This document is subject to copyright. Apart from any fair dealing for the purpose of private study or research, no part may be reproduced without the written permission. The content is provided for information purposes only.
4 shares

Feedback to editors

User comments

May 02, 2019
I am an Airbnb host (among other things). My wife and I have two small apartments attached to our house which were formerly "granny flats". There is one hotel within a two kilometre radius, it does not offer accommodation. (Its a pub with great comedy nights every week.) About half of our guests are visiting family who live within walking distance. These are people for whom the hotel industry has nothing to offer. We are not competing with hotels because there aren't any.
We are not disrupting anybody's business, we are providing a service which was otherwise unavailable and bringing business to our local shops. (And the federal government takes about 20% of our revenue as tax.) If Airbnb hurts large hotel chains in the bigger picture, it more than makes up for this with the services it provides to smaller communities, both guests and hosts alike.

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more