Airbnb gives hotels competition with lower costs, fewer regulations

For the upcoming summer vacation season, travelers have an array of choices: Beach or mountains? Fly or drive? Hotel or Airbnb?

It’s that last choice — between traditional lodging providers and upstart short-term rental services — that has upset the hotel industry, which claims Airbnb and similar operations unfairly cut into its market share with unregulated accommodations and unlicensed vendors.

But the effect of Airbnb on the hotel industry — measured with a variety of metrics — is difficult to gauge. Assessments offer differing views of the situation.

The American Hotel and Lodging Association says competition is a healthy part of business and expresses confidence that hotels still have a lock on the travel market.

Nonetheless, the financial services firm Morgan Stanley reported in November that Airbnb poses a growing threat to hotels because more travelers than estimated have used the service. Nearly 20 percent of business and leisure travelers had used Airbnb at least once in the previous 12 months, and nearly one-quarter of all travelers expect to use the service by the end of the year, says the report, which is based on a survey of lodging customers.

Morgan Stanley predicts that a decline in nightly lodging occupancy rates will continue, forcing hotels to lower rates to attract more travelers. In that scenario, Airbnb will increase its share of the lodging market, the report says.

“While still small, we believe Airbnb has been almost double the threat to hotels in 2016 than previously believed, and the threat is growing,” Morgan Stanley says.

Morgan Stanley has invested in Airbnb. According to a Bloomberg Technology report in December, Airbnb bought back $94 million of its stock from Morgan Stanley.

Meanwhile, Airbnb says it occupies a unique corner of the market and is “growing the pie” rather than cutting into hotel profits. A report by the hotel industry research firm STR confirms the service’s claims.

“There is room for both hotels and home-sharing. And we really believe we’re growing the pie,” Christopher Nulty, public affairs director for Airbnb, told The Washington Times.

The rental platform company, along with others such as HomeAway and VRBO, has been growing at a furious rate over the past 10 years, but it says reports showing that it cuts into hotel business are meant to strap the upstarts with untenable regulations meant for big commercial operators.

“This is all happening as hotels are having some of the best years on record,” Mr. Nulty said. “This part of the economy just continues to grow. Neither home sharing nor hotels need to lose for the other to win.”

The STR report studied the short-term rental economy from in 13 global markets from Dec. 1, 2013, to July 31, 2016. It didn’t offer any dark predictions and said that of Airbnb’s estimated 3 million listings, only about 1 million were comparable to traditional hotels. Marriott International holds more than 1 million hotel rooms.

STR also said that Airbnb excels in cities where the hotel business is booming. Airbnb occupancy generally was the highest in markets where hotels had high occupancy rates.

“Hotel occupancy was significantly higher than Airbnb occupancy,” the STR report says. “While Airbnb’s share of total accommodation supply was growing, its share of market demand and revenues still was generally below 4 percent and 3 percent, respectively.”

The report also pointed out that a review of compression nights — when more than 95 percent of hotel rooms are occupied in a city — showed no noticeable impact of Airbnb within the seven major U.S. markets.

But a third report prepared by HVS Global Hospitality Services for the Hospitality Association of New York City — the city’s main hotel lobby — said hotels there lost a combined $450 million from September 2014 to August 2015 to Airbnb.

During that period, Airbnb accommodated nearly 2.9 million room nights at an average rate of about $157.00 per night. Even with the demand for Airbnb starting to level off, the report projects that the short-term rental service will have taken about $800 million in profits from hotels in the city by next year.

“This share is considered strong; it is growing and is an important market dynamic that all NYC lodging-market owners and managers must consider,” the report says.

Airbnb rebutted the HVS report, saying it is intended to push lawmakers to impose more regulations on short-term rental companies and their users.

“This is a group that has spent millions of millions of dollars attacking Airbnb and the home-sharing industry,” said Airbnb’s Mr. Nulty.

Short-term rental services have some advantages from the start. It costs nothing for Airbnb to add inventory to its ever-growing listings, but hotel companies must either buy out other hotels or pay for construction.

Also, short-term rental services don’t face the same regulations and fees as the hotel industry in some cities, though that is beginning to change.

“Zoning, safety and health codes exist for a reason,” said Troy Flanagan, vice president of state and local government affairs for the American Hotel and Lodging Association. “A growing chorus of voices are troubled by short-term rental companies like Airbnb letting commercial operators use their websites to ignore the law, dodge taxes and run multiple full-time rental properties in residential buildings or neighborhoods.”

Airbnb rejects that sentiment, saying it has no problem with some regulations but calls some requirements such as those passed in New York untenable. It said the company already is cracking down on commercial users.

One the other side, Airbnb has accused the hotel industry of price gouging — the practice of spiking rates beyond fair market value.

“Consumers have long been accustomed to paying exorbitant rates for hotel rooms when trying to visit a community for a big event or during a popular weekend or holiday,” Airbnb said in April. “While some price fluctuation can be attributed to basic supply and demand forces and is appropriate, there have been countless examples of hotels engaging in blatant price gouging.”