Airbnb, originally a short-term rental listings platform, may become a direct threat to hotels, according to some asset managers and chain executives.
The alarm was heightened when the San Francisco startup said it had signed 500 companies within one day of opening its travel management tool to businesses worldwide -- bringing its total client list to more than 1,000 companies, such as Google, TBWA, and Salesforce.
The revamped tool will expand over time to let Airbnb share information with companies on length of stay, dates and location so that travel managers can track their corporate travelers and integrate reports into their systems.
Business traveler sub-brand?
As Tnooz was first to report, Airbnb has also quietly started a pilot for listings exclusively for business travelers. The trial could be a prelude to a sub-brand of listings within Airbnb, one industry insider told Tnooz on the condition of anonymity.
The startup might set a criteria of business traveler amenities, such as an ironing board or high-speed Internet access, and give a branded mark of approval to properties that met those criteria and that also have received a certain threshold of positive reviews from corporate travelers specifically.
Last month, Airbnb also hired away the CFO of Blackstone, a financial services firm that owns many hotel chains, among other businesses. That hiring move shows that the startup is serious about building out the business travel market, executives said.
Mark Carrier, president of B.F. Saul Company Hospitality Group (which owns many business-class hotels), said at the recent Revenue Strategy Summit in Washington DC:
“I’m warming to the idea that Airbnb is a structural threat to our industry in a way that perhaps many of us don’t realize….
They intend to go after our seed corn. our midweek profitability for hotels….
If you think Airbnb has the ability to turn up, on a dime, inventory that can dwarf of growth rates of new hotels in a way that can be dynamic, it concerns me greatly.
I go to the math. We have 5 million hotel rooms in the States. We grow roughly 2 to 3 percent max annually….
My worry is about the potential for Airbnb to generate inventory that responds dynamically to demand in peak periods. That would knock the edge off hotels’ ability to drive profitable RevPAR.
When supply and demand balance gets out of line, we see oftentimes a diminution of profitability….”
The threat goes beyond the fight worldwide over whether it should collect taxes on its stays.
Mark Morrison, vice president of corporate strategy for Hilton Worldwide, acknowledged at RSS that Airbnb has a cost advantage relative to hotels that won’t disappear even if it resolves its ongoing issues with states and municipalities about sales tax and lodging and occupancy fees — which can account for as much as 18% of a differential between its prices and hotel prices.
For instance, a private residence advertising on Airbnb can pay lower private water, gas, and electricity rates than a licensed B&B or hotel that has to pay commercial rates.
The tax issue may be resolved by 2020 in most US municipalities, said industry experts. Accommodations booked through hosts on Airbnb will be charged taxes in some cities in programs that could be imitated nationwide.
The tax issue is slowly being settled worldwide, too. For example Airbnb agreed yesterday to add a tourist tax on rentals 0.83 euros ($0.95) per person per day in Paris, its most popular city -- with about 50,000 listings -- as of 1 October 1.
The on-demand mobile user experience
Compared to hotel chain apps, Airbnb's app and mobile web interfaces are far more intuitive to use, worry some industry insiders. Ethan Hawkes, associate principal for McKinsey & Company, said at the same RSS event:
"Airbnb is not just using underutilized assets, they’re delivering better customer experience for people who are mobile connected and you are used to on-demand services and social aspects to travel."
Combating hotel loyalty
If Airbnb could provide a consistent experience with a sub-brand of listings (see top of article), the other major impediment it would need to overcome would be luring corporate travelers away from the loyalty programs that make stays at global chains personally rewarding to them.
The rise of startups like Rocketrip, which rewards business travelers who comply with corporate travel policy, might create a set of incentives that corporations, travel managers, and Airbnb could use as an alternative to compete with loyalty programs. Dan Ruch, CEO of Rocketrip, said by email:
"Year to date, 10% of Rocketrip users' hotel nights have been booked at Airbnb. Travelers save an average of 40% compared to their hotel budget, or $110 per night.
Anecdotally, the typical Airbnb user has a profile similar to the corporate travelers who save the most through Rocketrip. We've even seen entire teams of c-suite execs share an Airbnb property during a corporate retreat)."
Gauging the threat
Today, the overall hospitality booking market is about $1 trillion. Expedia and Priceline have roughly 5% of those hotel transactions going through their funnels. About 20% of that hotel revenue goes through the major hotel chains's direct channels.
In comparison, Airbnb is small. Last year it generated only about $7 billion in bookings, or about 1% of the market, estimated Hawkes, the McKinsey consultant, when speaking at RSS.
But small today can become big tomorrow.
Looking toward 2020, Hawkes estimates that Airbnb will take over 9% of the leisure and business hospitality market, meaning about $10 billion of revenue for it on the processing of $83 billion in bookings.
That scenario could mean a loss of relative share from the major chains's direct channels.
The corporate travel market is a subset of those numbers -- less than a third of the total hospitality spend. But it is much more important to the hotel industry as a generator of net margin.
Already last year, one out of every 10 of Airbnb's guests traveled for business. That's more than 1 million business trips out of 16 million total guests for the year.
That trend is accelerating as travel and expense management specialists make it easier for corporate travelers to book Airbnb stays.
One corporate travel solution provider, Certify, reported a 143% increase in Airbnb expenses in early 2015.
Within the past year, Airbnb bookings became manageable through many travel manager systems thanks to an integration with Concur, a software maker owned by tech giant SAP. Concur CEO Steve Singh said:
"I think Airbnb is going to be one of the biggest hoteliers in the world."
Chip Conley, head of hospitality and strategy at Airbnb, told Bloomberg News that Airbnb's initial landgrab will be on extended-stay business travel and team off-sites.
The globals begin to stir
Hotel chains are beginning to recognize to the potential threat. Airbnb's recent funding round placed a valuation on the company of $25.2 billion, which is more than the public company market capitalizations of a few global hotel chains such as Marriott ($18 billion) and Hilton ($23.6 billion).
Rather than heed Airbnb's intentions (which the startup insists are focused on leisure travelers), chains are looking at its capacity to steal corporate travel share in the years to come.
For example, last month Hyatt took a stake in Onefinestay, a competitor to Airbnb.
Meanwhile, Airbnb will continue to expand its reach into the business travel ecosystem. In a Tnooz interview last month, Marc McCabe, head of business travel for Airbnb, said that, for those that don’t use Concur, many companies are already using corporate tracking codes to book accommodation for business travel on the peer-to-peer site.
But, he said there’s a job to be done in making the process more seamless, more robust, by making the tracking more automated, getting travellers to identify themselves and learning about their habits along the way. (See the full McCabe interview.)
ANALYSIS from Phocuswright, the market research firm: The slowly evolving Airbnb – is it a distribution or hospitality company?
This winter, Kalibri Labs, a consultancy, will release a distribution channel analysis with data on how Airbnb is affecting hotel distribution and rates in key US markets.
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In July: A Tnooz FAQ with business travel head Marc McCabe -- Airbnb quietly starts a pilot for listings exclusively for business travelers
Pivotal moments – when Airbnb got in bed with Concur
NB: Image courtesy Manoir de La Boirie, a hotel-style property available on Airbnb and located in Sarthe, Maine, France.