The Future of Revenue Management in the Age of Airbnb

By Tammy Farley Co-Founder & President, The Rainmaker Group | July 31, 2016

Co-authored by Mr. Skodol, Vice President, Revenue Analytics, The Rainmaker Group

The rise of Airbnb and other peer-to-peer hotel alternatives has shaken up the hospitality industry. While the long-term impact remains to be seen, this new breed of short-term rental providers is proving to be agile competition to traditional hotels, with inventory and pricing adjusting quickly to fluctuations in demand. How can a hotel's revenue management team effectively respond? Do they treat local Airbnb inventory as a competitor in their market? Shop Airbnb pricing as they do their traditional hotel competitors? This article explores the issues revenue managers must address as they navigate this latest threat to revenue growth.

When Airbnb launched in 2008, its purpose was to fill demand for alternative lodgings during major events that cause hotel inventory in a particular market to sell out. Since then, its portfolio has grown from air mattresses in shared spaces to a 2.3 million global inventory encompassing a wide range of lodging types, including private apartments and homes that directly compete with traditional hotel offerings. Airbnb has opened the hospitality market up to private residences much like OTAs opened the market to independent hotels.

While Airbnb remains the largest and best known of the pack, its meteoric success has given rise to a new breed of short-term rental providers; others include Home Away and One Fine Stay, to name a few. Together, their long-term impact on the hotel industry remains to be seen, but what has become emphatically clear is that the market for Airbnb and its ilk is far from limited to travelers priced out of traditional lodgings. Rather, it's being driven by Millennials who seek the more authentic local experience they get from an Airbnb stay. Furthermore, the concept has not only caught on among leisure travelers but is gaining acceptance on the business travel front as well. Morgan Stanley and Goldman Sachs are among the major corporations that now allow their employees to book Airbnb accommodations when they're on the road. And lending further legitimacy is the growing number of markets in which Airbnb collects hotel occupancy taxes from its hosts.

With McKinsey & Company projecting twelvefold growth for Airbnb from 2014 to 2020, it's time for the hotel industry to acknowledge the reality that the peer-to-peer lodging model is here to stay. So how can revenue managers effectively respond to this new breed of competition?

First Step: Assess the Impact

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Eco-Friendly Practices: Corporate Social Responsibility

The hotel industry has undertaken a long-term effort to build more responsible and socially conscious businesses. What began with small efforts to reduce waste - such as paperless checkouts and refillable soap dispensers - has evolved into an international movement toward implementing sustainable development practices. In addition to establishing themselves as good corporate citizens, adopting eco-friendly practices is sound business for hotels. According to a recent report from Deloitte, 95% of business travelers believe the hotel industry should be undertaking “green” initiatives, and Millennials are twice as likely to support brands with strong management of environmental and social issues. Given these conclusions, hotels are continuing to innovate in the areas of environmental sustainability. For example, one leading hotel chain has designed special elevators that collect kinetic energy from the moving lift and in the process, they have reduced their energy consumption by 50%  over conventional elevators. Also, they installed an advanced air conditioning system which employs a magnetic mechanical system that makes them more energy efficient. Other hotels are installing Intelligent Building Systems which monitor and control temperatures in rooms, common areas and swimming pools, as well as ventilation and cold water systems. Some hotels are installing Electric Vehicle charging stations, planting rooftop gardens, implementing stringent recycling programs, and insisting on the use of biodegradable materials. Another trend is the creation of Green Teams within a hotel's operation that are tasked to implement earth-friendly practices and manage budgets for green projects. Some hotels have even gone so far as to curtail or eliminate room service, believing that keeping the kitchen open 24/7 isn't terribly sustainable. The May issue of the Hotel Business Review will document what some hotels are doing to integrate sustainable practices into their operations and how they are benefiting from them.