Expert’s Voice: Airbnb – the big upset for hotels?
The homestay revolution has disrupted the hotel industry, but could this mean that we will witness the disappearance of hotels altogether? HASSELL’s Tulsi Grover weighs in.
Hotels started as inns in medieval Europe for travellers on religious pilgrimages. When trade and leisure travel started, these transformed into Bed & Breakfasts, which had a certain level of romance associated with the experience. This then progressed towards providing luxury and comfort to the guests, where, over time, the romance disappeared and the extravagance grew in the form of fluffy robes and marble floors. Hotels became similar to airlines, providing a means to an end, a comfortable 12-hour space for either business or leisure. What got ignored, was the need for experiences… Enter Airbnb.
Starting as an Airbed and breakfast during the Obama-era Democratic National Convention for couch-surfing youngsters to capitalise on the resulting lack of hotel space, the notion of the pilgrimage surfaced again, this time as a political pilgrimage. Through personal details, better descriptions and nicer photographs, Airbnb brought romance into play once again.
They capitalised on an appetite for distinctive experiences (not the ubiquitous hotel room) on a low budget – offering entire homes to stay in, instant restaurant bookings, and above all, the ability to live like a local. This allows for a more customised experience, whether a guest is staying in a castle in Ireland or a bubble suite in Mexico – whatever they are after, they can create their own leisure pilgrimage.
The impact of disruption
Although romantic, there needs to be some sort of regulation for home-stay models like Airbnb. If a person wants to live like a local, they must pay to live like a local. Neighbourhoods are planned to accommodate a standard amount of residents to ensure safety, security and comfort.
Then there is taxation. Trickles of homestay guests during the year do not make much of a difference. However, when you have a fully booked calendar of tourists staying for short-term visits, it changes the nature of the neighbourhood. Hotels come under specific restrictions within a city where they can open and operate, whereas Airbnb encroaches into the residential and non-commercial precincts, creating problems for urban planners and neighbourhood population alike. Of course, the local businesses get more money, the neighbourhood gets more rental initially, but in the end, this affects the lifestyle of people living in these areas. The neighbourhood baker would inevitably end up selling their business to a chain that would buy them out to cater to a growing tourist net.
Here at home in Singapore, the Urban Redevelopment Authority (URA) has changed the definition of “tenancy” based on a minimum stay of three months, effectively rendering Airbnb illegal. This is to avert the negative impact on other residents by short term rentals. As more and more countries and cities around the world enact strict regulations to keep Airbnb in check, its growth has risen exponentially.
With a company valuation of $31 billion in 2017 and 40% revenue growth rate in 2018, Airbnb has become an industry disruptor to reckon with. However, there is still a long way to go to conquer the world.
The global travel and tourism industry is booming. According to the World Travel & Tourism Council, the industry grew at 3.9% to contribute a record $8.8 trillion to the global economy in 2018, and with 2.4 billion international travellers expected to make travel plans by 2030 , travel is set to become as big as the global oil industry, if not bigger.
What is the future?
So, despite their differences (or maybe precisely because of them), there is room for hotels and Airbnb to co-exist. Like their new competitor, existing hotel businesses need to keep reinventing to stay ahead or emulate the disruptors.
What are some possible scenarios we could see play out in terms of guest accommodation in the future? Hotel mergers like Marriott becoming the largest hospitality brand operating one in 14 hotel rooms worldwide and a substantial loyalty programme with 110 million members.
Independent design-centred brands riding the agility wave and being specific to the brand promise to their tribe. Or we could see more trends like the creation of LYF and Jo&Joe, who are becoming the innovators to forge connections with thinkers of tomorrow who are free to do just as they please. And disruptors like OYO Rooms are recreating existing segments, in turn becoming the third largest hotel chain in the world by room count.
Whatever the future holds, it’s important to note that hotels as we know them will have to eventually move away from their traditional model and reinvent themselves into an amalgamation of different experiences… and not just be places to stay.
Senior Associate/Practice Leader at HASSELL