Hotel Revenue Management in the Age of Airbnb

By Will Song Co-Founder & Vice President of Revenue, Lights On Digital | October 22, 2017

Understanding Airbnb’s Relationship to the Hotel Industry

Hoteliers today have a similar fear to that which the large hotel owners had just a couple of decades ago when OTAs arrived on the scene. With OTAs, it suddenly became possible for smaller, independent hoteliers to compete with the big guys. With Airbnb, it has suddenly become possible for single individuals who aren’t even in the business to compete with actual hotels. Airbnb is to hotels as Uber is to taxis.

This prospect can seem a little worrisome for hotel owners who have worked tirelessly to distinguish themselves and attract guests in an already highly competitive and fluctuating market. In reality, Airbnb still only accounts for about 4% of total demand and 3% of total revenue market-wide. So it’s not quite the apocalyptic threat as some would lead you to believe. However, it’s still growing and worth watching if only for the market segments they are penetrating. Those include:

  1. Leisure guests travelling in larger groups
  2. Guests with longer lengths of stay ( averaging 6.8 days compared to hotels’ 3 days )
  3. Price-sensitive guests

With listings offering daily rates that are, on average, $16 lower than hotel daily rates, it’s no surprise that the more price-sensitive customers are opting for Airbnb. However, Airbnb’s market penetration is not strongest among only the price-sensitive. Here are some of the key Airbnb trends:

  1. Urban centers have more competition from Airbnb than suburbs and rural areas
  2. Boutique & lifestyle hotels are more directly impacted than corporate or traditional hotels
  3. A growing number of millenials are choosing Airbnb over hotels for the “authentic experience” of staying in a local’s apartment
  4. Competition from Airbnb peaks on high compression dates

Despite this competition, hotels still dominate when it comes to occupancy rates. This is primarily due to the instability of Airbnb’s supply. That instability is due to the fundamental nature of Airbnb.

New listings tend to flood the site right around peak demand dates. If there’s a major festival or event happening in the area, locals will use the opportunity to make some extra cash by putting their apartments up on the site. A significant number of those listings are then abandoned once the event has passed. This means the website is pretty well saturated with inactive listings. Moreover, many of these units will never actually rent, active or otherwise. Supply fluctuates rapidly and there is, as of yet, no meaningful way of regulating availability or standardizing quality so that customers can be assured of a consistent level of cleanliness, safety, and service.

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Coming up in January 2018...

Mobile Technology: Relentless Innovation

Technology has become a crucial component in attracting and retaining hotel guests, and the need to enhance a guest’s technology experience is driving a relentless pace of innovation. To meet and exceed guest expectations, 54% of hotels will spend more on technology in 2018, and mobile solutions in particular will top the list of capital investments. Many hotels are integrating mobile booking, mobile keys, mobile payments and mobile check-in into their operations. Other hotels are emphasizing the in-room experience, boosting bandwidth and upgrading flat screen TVs to more easily interface with guest mobile devices. And though not yet mainstream, there are many exciting technology developments on the near horizon. The Internet of Things (loT) is taking form in some places, and can be found in guest room control systems, voice activation systems, and in wearable sensors that can be used for access and payment options. Virtual reality headsets are available at some hotels so guests can enjoy virtual trips to exotic locations or if off-property, preview conference facilities and guest rooms. How long will it be before a hotel employs a fleet of robots for room service, or utilizes a hologram as a concierge, or installs gesture-controlled walls that feature interactive digital displays? Some hotels are already using augmented reality for translation services, or interactive wall maps, or even virtual décor. This pace of innovation is challenging property owners and brands to stay on top of the latest technology trends while still addressing current projects. The January Hotel Business Review will explore what some hotels are doing to maximize their opportunities in the mobile technology space.