Morris Manning & Martin, LLP

Disruption by peer-to-peer lodging sites

07.15.2017

Hoteliers can no longer ignore this sharing economy. Despite increases in occupancy and rates over the last few years, Airbnb and other peer-to-peer lodging websites have become serious competitors in the hospitality sector. AccorHotels has responded by acquiring onefinestay. Other hoteliers have responded by developing brands that appeal to millennial travelers. But is this enough?

Airbnb has hinted that it may partner with hoteliers, but has not identified what a partnership would entail. What would these partnerships mean for hotel owners, hotel operators and hotel brands.

Online Travel Agency. If Airbnb becomes another OTA, how would they structure it? Airbnb could list all of the hotel rooms, just list condo hotel rooms or branded residences, or just list hotel suites.

Hoteliers could use Airbnb as a platform to fill unsold rooms at a lower fee than traditional OTAs. Hoteliers may be able to negotiate a lower fee with Airbnb than individual hosts pay, or at least lower than hotels pay to traditional OTAs. Currently, the Airbnb fees are about 3% for the host (6-12% to the guest), and traditional OTAs fees are roughly 15-25% for the host or hotel. However, franchisors may not allow bookings outside of the brands’ reservation system or established partnerships with OTAs. Hoteliers should confirm that using Airbnb would not violate the terms of their reservation or franchise agreements.

Listing suites on an online platform at competitive prices may reduce the amount of time the suite is unused. Platforms such as SuiteStory and Book a Suite rent out suites of hotels outside of the hotel’s reservation system. Airbnb may be selective on the type of rooms or hotels they are willing to partner with.

Platforms such as Inspirato and Exclusive Resorts, both membership-based destination clubs, incorporate hotel rooms, but only include luxury properties and vacation homes. Airbnb may hesitate to clog up its inventory with standard hotel rooms because the Airbnb brand is based on a philosophy of “live like a local” and the premise of having regular people rent out their homes occasionally to make ends meet.  Airbnb has grown away from its foundations with “professional hosts” and vacation rentals that are rented out the majority of each year.

Condo hotels typically give condo owners the option of renting out their units on their own or having the operator do it. Many condo owners are opting for the former because of the flexibility of Airbnb. Condo owners may be able to generate a greater return when they use Airbnb, but they still have to pay CAM fees to the hotel regardless of the service used to rent out the unit. Instead of making these units part of the hotel inventory, the hotel operator could partner with    Airbnb to list these units on their platform and provide co-hosting services to the condo owner.

Using Airbnb as an OTA may increase occupancy, but hotels will have to directly compete with the rates of the Airbnb hosts. Since many brands are discouraging guests from booking through OTAs, it is unlikely the major brands would participate in this partnership. However, boutique/independent hotels may benefit from participating in the highly trafficked Airbnb platform and fit in better with its culture.

Business travelers and loyalty programs. Many hoteliers have shrugged off the threat of Airbnb since the customer base is different. Hotel brands pride themselves on providing a consistent experience all over the world, where Airbnb strives to provide a unique experience at each host location. Also, business travelers book with hotels to rack up loyalty points. This cushion is shrinking as Airbnb seeks to target more business travelers.

Airbnb launched an Airbnb for Business platform which provides minimum standards for hosts. Business travelers now know that they will have the basic necessities such as WiFi and 24-hour check-in. However, as Airbnb adds standards for their hosts, it adds additional costs and decreases the hosts’ margins.

Airbnb also partnered with American Express Global Business Travel, BCD Travel and Carlson Wagonlit Travel, major travel management companies (TMCs). This allows business travelers to use these TMC to book Airbnb lodging through the same systems and use the same business expenditure reporting and travel management programs they are currently using to book hotel rooms. TMCs make it easier for business travelers to book Airbnb lodging, but Airbnb does not yet offer comparable loyalty program incentives.

Airbnb has also partnered with Qantas to add to the rewards for the airline’s frequent flyer program. Members of the program will receive points for dollars spent on Airbnb. If Airbnb is able to cater to business travelers and provide meaningful loyalty programs, would it be able to drive business travelers out of brand loyalty programs? Could these two industries partner together to provide the ultimate loyalty program?

Group sales. Hotels still have an advantage over Airbnb in the profitable group sales segment. Airbnb may try to partner with hotels to provide additional guestrooms to a group booking if the hotel is oversold or the group wants more suites than the hotel can provide, but this is typically less than ideal for the group. Hotels may have trouble walking guests to an Airbnb instead of a similar quality hotel. Airbnb may attempt to provide additional event space nearby for smaller events. Alternative but unlikely: Airbnb could host smaller groups and could even provide a platform to facilitate peer-to-peer conference space sharing.

Concierge services. Hoteliers could partner with Airbnb for Airbnb’s new experience platform as a pseudo concierge service for select-service hotels. However, digital concierge services provide little benefit to the hotels that already have them and would still need them based on brand standards. Many full-services hotels already provide them, but could partner with Airbnb to provide a more developed platform. Hoteliers should consider the cost effectiveness and the brand standards of a digital concierge and balance that with the experience they are trying to deliver.

Co-host or micro-hotel. Airbnb advertises a co-hosting service for home owners who do not want to be the Airbnb host. Operators could provide co-hosting services for these individuals or partner with a “professional” Airbnb host to provide housekeeping services. For example, onefinestay uses a standardized housekeeping team; however, this is feasible because it only has homes in a limited number of cities.

In certain markets, such as a ski resort area, an owner could own a separate villa unit that is managed by their existing third-party manager, but listed exclusively on Airbnb. The owner can seek the advantage of the synergies of the hotel nearby—think housekeepers—and increase their room count. Operators should consider what synergies they could provide.

Operators could partner with Airbnb to provide management services to “professional” hosts or multiple Airbnb units in a single building. However, many local regulations are trying to prevent unregulated “hotels” from opening without paying taxes or complying with planning, zoning, fire and health safety standards. Cities, such as Miami and New York, are enforcing the zoning codes by penalizing and fining violators. The Federal Trade Commission is investigating how companies like Airbnb affect housing costs.

In short, there will always be a need to rent guest rooms for business and vacation travel, so Airbnb will never completely replace the branded hotel industry. Nevertheless, hoteliers should keep a close eye on Airbnb and other disruptive forces in the hotel market and plan how to strategically counter such disruptions.

Samantha Ahuja and Molly Kacheris are with the law firm of Morris, Manning & Martin, which represents owners, operators and developers of hotels with a focus on hotel acquisitions, operations, development and finance, hotel management agreements, licensing agreements and commercial real estate acquisitions and sales.

*This article was originally published by Hotel Business on July 15, 2017.