Hotel Revenue Management in the Age of Airbnb

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

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.

Step 1: Data, Data, Data

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