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The Rise of AirBNB

Airbnb, Uber, and Lyft have quickly risen to prominence as the face of the new "sharing economy." For evidence of their influence, look no further than the taxicab industry, which has been swiftly decimated by the ride-hailing services. Uber

But the rise of this new sharing economy begs another question: Does Airbnb threaten the hotel industry?

Given its early success, it's a valid query. Revenue has soared since Airbnb's humble beginnings in 2008, and by 2013 it was clocking in around $250 million. Some estimates put the company on track for at least $1.6 billion in revenue this year, up over 70 percent from its roughly $900 million run rate in 2015.

And valuation-wise, Airbnb has already exceeded the biggest hoteliers on the planet. Its most recent funding round scored a $850 million investment from Google Capital, Alphabet's (ticker: GOOG, GOOGL) investment arm, giving it a valuation of $30 billion.

That's more than every one of the industry's biggest names: Marriott International (MAR), Hilton Worldwide Holdings (HLT), InterContinental Hotels Group (IHG), Wyndham Worldwide Corp. (WYN) and Hyatt Hotels Corp. (H).

Airbnb's 70 percent growth rates.

Revenue Stream:

Airbnb derives revenue from both guests and hosts for this service. They charge guests a 9 − 12% service fee every time a reservation is booked, depending on the length of the reservation, and they charge hosts a 3% service fee to cover the cost of processing payments.

Compared to Agoda,, Expedia they are charging 15% on gross revenue in real terms including tax on commission average hotel in Jakrta is paying Approx. 20% Commission rate.

Brian Nowak, executive director of Morgan Stanley Research, wrote in the report: “Our AlphaWise survey shows rising Airbnb adoption (now approximately 18 percent of travellers) with demand increasingly coming from hotels.” He added, “While still small, we believe Airbnb has been almost double the threat to hotels in 2016 than previously believed, and the threat is growing.”

Looking at data collected in 2015 and 2016, Morgan Stanley noted a significant increase in the number of travellers who have used Airbnb in the last 12 months. In 2015, only 15 percent of leisure travellers surveyed had used Airbnb in the last 12 months, while in 2016, that number rose to 19 percent.

Morgan Stanley predicts that number to rise to 25 percent in 2017. For business travellers, only 12 percent had used Airbnb in the last 12 months in 2015, versus 18 percent in 2016, and in 2017, Morgan Stanley predicts that number will jump to 23 percent.

HVS Consulting & Valuation on the financial effect of Airbnb on the hotel industry.

The Estimated Lost Revenue and Impacts

HVS estimated that hotels lose approximately $450 million in direct revenues per year to AirBnb. Between September 2014 and August 2015, 480,000 hotel room nights were reserved while over 2.8 million room nights were booked on Airbnb.

By 2018, HVS estimates that Airbnb room nights will reach 5 million per year. Clearly, the vacation rental site has diminished the demand for traditional hotel rooms. Additionally, many hotel employees are losing their jobs because of these decreasing demands. Airbnbs are less labour intensive than hotels because they do not require the same level of service. Over 2,800 jobs are directly lost to Airbnb, a loss of over $200 million in income for hotel employees.

With lesser demand for hotel rooms comes an additional negative effect for hotels and their employees. When guests choose not to stay in a hotel, the money they would have spent on food and beverages at the hotel's restaurant and bar is likely spent elsewhere. Therefore, the hotel loses out on the revenue they otherwise would have received from that guest. In total, over $108 million of food and beverage revenues ($88 million on food and $20 million for beverages) are lost because travellers choose to book with Airbnb.

The issue is not in food and beverage lost only, when looking one more time about the other services and ancillary revenue which can be utilized by the guest while staying at a hotel, i.e. SPA, Business center, late check out, early check in, last minute cancellation fees, no show fees, luggage portal fees, all those services and many others are also likely spent elsewhere or saved by not spending because the host would not offer such services, needless to calculate the lost revenue.

The other impact comes when those guests choose not stay in hotel, so they lose the loyalty benefits they get if they stay in chain hotel i.e. SPG for Starwood, but in the other hand hotel chains losing a loyal customer to AirBnb, so potentially hotel chains to lose customers and Airbnb might think to have its own loyal program in the near future.

Trying to say that each additional 10% increase in the size of the Airbnb market resulted in a 2-3 % decrease in hotel revenue.

Airbnb Performance vs Hotels

As per reported by STR, Inc the average rate paid for an Airbnb unit was $148.42, which is 25 percent higher than the average hotel rate of $119.11.

Another report by CBRE Hotels compiled select information for hundreds of U.S. markets to assess the relevancy of this sharing platform to the traditional hotel industry. From this data, the firm has developed an Airbnb Competition Index.

This measure incorporates a comparison of Airbnb's Average Daily Room rates (ADR) to traditional hotel ADR's; the scale of the active Airbnb inventory in a market to the supply of traditional hotels, and the overall growth of active Airbnb supply in that market, into a measure of potential competition. New York was identified as the number one domestic market at risk from the growth of Airbnb,with an Airbnb Competition Index of 81.4, followed by San Francisco, Miami, Oakland and Oahu.

By comparing hotel revenue per available room to the number of active Airbnb units in a particular location, it appears that hosts respond to market incentives, such as a higher room rental rate and excess demand. The presence of these factors causes more Airbnb units to appear in the market This holds true at the macro level–where markets with higher ADRs and occupancy have the highest number of active Airbnb units, and on the micro level–where we see a spike in the number of active Airbnb units during major events such as the Super Bowl and New Year's Eve.

To Be Considered:

As far as hotel managers are concerned, the competition their hotels face from peer-to-peer platforms has several unique features that differentiate it from competition with other hotels . First, the Airbnb platform has near zero marginal cost, in that a new room can be incrementally added to (or removed from) the platform with negligible overhead.

Because of this, Airbnb can scale supply in a near frictionless manner to meet demand, even on short timescales. By contrast, increasing hotel room supply involves buildout, causing significant marginal costs for hotel chains. Second, Airbnb offers a much wider range of products and services than hotels: Airbnb users can rent anything from an apartment to a yurt. More importantly, because Airbnb leverages existing housing inventory, it can potentially expand supply wherever houses and apartment buildings already exist.

This is in contrast to hotels, which must be built at locations in accordance with local zoning requirements. Therefore, competition by Airbnb is potentially harder for incumbents to adapt to, compared to competition by other hotel firms.

Turning to consumers, we show that hotels in areas where Airbnb has an established presence have responded to increased competition by lowering their prices, which harms their revenue, but benefits travelers, even those who do not use Airbnb.

In addition to reduced prices, consumers also benefit from increased variety provided through peer-to-peer platforms. Furthermore, consumers on the supply side benefit through additional income generated by providing goods and services via peer-to-peer platforms.

Half of those who used Airbnb last year used it to replace a traditional hotel stay, according to the Morgan Stanley report. But this is where Airbnb’s efforts to attract business travelers

— including partnering with large companies to accommodate their employee travel needs and surfacing “Business Travel Ready” listings — matter even more. Approximately 70 percent of room nights for the U.S. lodging industry are business stays.

In terms of awareness — represented here by Google search trends — Airbnb is already approaching the same frequency as mainstream hotel and travel-booking brands, such as Expedia and Marriott.

AirBNB Search Traffic Trends Compared to Leading OTA and Hotel Chains:

AirBNB Search Traffic Trends Compared to Leading OTA and Hotel Chains:

Not only does Morgan Stanley believe the number of Airbnb users and room nights will continue to grow, but it also estimates that Airbnb will have a direct negative impact on hotels’ ability to maintain the same levels of occupancy and nightly rates that they have in the past year.

Morgan Stanley forecasts that in 2016, Airbnb will have decreased U.S. and European hotels’ revenue per available room (RevPAR) by nearly 1 percent, and that in 2017, that dent will rise to 1.8 percent, and it will be 2.6 percent in 2018.

Airbnb Guest Arrivals

Its growth rate remains impressive. So far this year (July 2017) it has already accommodated more than 50 million “guest arrivals” — a term the company uses to measure each trip by each guest, regardless of length. This puts the company on track to likely pass 100 million this year, up from about 80 million in 2016.

*Source STR

*Source STR

*Source STR

*Source STR

*Source STR


Airbnb’s announcement of its entry into tours and activities and news reports of its foray into flights followed by adding an independent hotel tab. Will put AirBNB on track to go ahead to head with the other OTA’s.

Interestingly enough Airbnb biggest investor google that owns the internet highway this is how customers engage with Airbnb. Will google have the power to put Airbnb on the top of all their pages??? Defiantly

For OTAs, however, 56 percent had used an OTA in the past 12 months and 54 percent plan to use one in the next 12. For Airbnb, 19 percent had used Airbnb in the past 12 months, and 25 percent intend to use it in the next 12 months.

Another clear indication that Price line AKA Agoda & see this a threat is that they recently added the ability for individuals to list their apartments and houses similarly to AirBNB.

The No. 1 reason why respondents are using Airbnb still relates to price (53 percent), followed by location (35 percent), authentic experience (33 percent), and “easy to use site/app” (28 percent). The fact Airbnb’s site and app were noted as one of the top reasons why people choose to use Airbnb is a good sign for Airbnb as it evolves into a company that is more than just a marketplace for places to stay.

Demography of AirBNB Customers

It was thought that AirBNB users where backpakers and students. Evidence shows this is far from the truth and is urban myth.

Many Airbnb users turn to Airbnb for lower prices, Morgan Stanley found that 71 percent of U.S. respondents who use Airbnb earn an annual income of $75,000 or more, which is up from 66 percent in 2015. This suggests that while Airbnb users do tend to be younger (51 percent of respondents who used Airbnb were under the age of 35), not everyone who uses Airbnb is a millennial, student, or someone who has a lower income. Only 39 percent of non-Airbnb users earned annual incomes of $75,000 or more.

For now, Airbnb users also appear to be using Airbnb for longer stays as opposed to one-night stays. In its survey, Morgan Stanley found 6 percent of Airbnb stays are one night and 22 percent are for six nights or more. Twenty-six percent of hotel users, by comparison, stay for just one night.

In Summary:

We can see that there is significant compelling evidence that AirBNB is on a positive trajectory to become a significant threat to hotels. Particularly hotels that are geo-located close to Residential Apartment areas or mixed-use buildings.

We can also see that the myth of Airbnb, catering for budget travellers is not true as the average ADR of AirBNB is in-line or in some cases higher than five-star hotels as an aggregate.

We predict that in the next 6 to 12 months AirBNB will continue to increase its market share and customer reach as evident by the google search data presented here.

For the time being we can ignore AirBNB but AirBNB will erode our market share and will have a 1% to 2% impact on revenue.

The positives moving forward when AirBNB adds the hotel tab to their booking engine Q2-2018 this will be an opportunity to add an additional another channel with a significantly cheaper acquisition costs of around 3% as compared to 20% now with other OTA channels.

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