AirBnb and the Hotel Industry

AirBnB is causing problems for the US hotel industry. The big players in the sector had for a long time played down the threat which the tech platform posed, but as AirBnB profits continue to grow, a response has come from the hotel industry in the form of a calculated scheme of political pressure. Whilst the San Francisco based platform isn’t as widely used in the UK, there is still a lesson to be learnt from taking a closer look at what the friction and relationship between AirBnB and the industry means for hotels on this side of the pond.

As is examined in this Hospitality Net piece by Ahmed Mahmoud, the estimated losses that the hotel industry has made as a result of the rise of AirBnB (who recently announced profits in the region of $3.5m). For those who aren’t familiar with the platform (most within the hotel industry ought to be by now), AirBnB allows for those who have space to be rented to guests in a ‘lodging’ capacity, to find those looking to rent it out. Essentially, the way that it relates to the hotel industry is that AirBnB hosts are fulfilling the need for accommodation and they and the platform are taking revenue that in theory at least, would otherwise belong to the hotel industry.

As the Hospitality Net piece pulls out, some of the larger players in the business invested into some investigations into how much revenue the platform is taken from hotels, extrapolating from a New York sample investigation. It found that for the 10% increase in turnover which AirBnB experienced during this period, around 2-3% of this comes from the hotel industry pockets. It is no surprise then that there has been a strategic response from those big players in the lodging sector who had previously dismissed the threat of AirBnB.

Rather than an attempt to compete with the platform in a commercial sense, the tactic thus far seems to be to make AirBnB a political target. Players from the industry are believed to have instigated a greater political scrutiny on the company from the U.S Senate on the grounds that the platform was in fact leading to soaring house prices as previously residential property was being bought up and used for commercial advantage by landlords who had become hoteliers in all but name. The claim goes that the arrival of such investment had led to a greater demand for domestic property, causing a rise in house prices in some areas. Whereas as property is the cornerstone of the hotel industry, it isn’t in the market for buying up domestic residences and so isn’t in competition with the rest of the market for domestic dwellings. This is one sense in which the industry seems to feel that the sharing economy platform isn’t playing by the same rules as its competitors, not being held to the same due diligence in planning and acquisition as property for official hotel use more traditionally has been.

Another imbalance as the industry sees it, is in the way in which the platform is taxed. Because they are base located nationally, they avoid paying the same state and city level taxes, because of the nebulous nature of their assets and structure. Whilst this puts them at another advantage over the hotel industry, it also deprives local state and city resources in tax revenue.

Later last year, as this piece in the New York Times highlights, a selection of AirBnB hosts were hit with steep fines for breaking local housing rules in their use of the platform as a result of work by New York Governer Andrew M. Cuomo. This is another example of a clamping down on the platform which bears the finger prints of the hotel industry. Again, it seems to suggest that it is through political means rather than through commercial and market means that the sector seems to be intending to fight the battle with the platform.

Whilst AirBnB is a recognisable name in the UK, its impact hasn’t been as deep yet. At the start of this month it was announced that AirBnB would lose around £325m in London revenues from the enforcement of limits on the number of nights per year which can be offered through such platforms. With the San Fransisco based tech company also facing a backlash from the law in cities such as Barcelona and Berlin, it seems that this is the angle which the industry globally is taking to try and tackle the perceived advantage which the platform holds over the hotel industry, which is subject to far greater legal control and tax levels. Whether this will stem the tide of the platform’s success is still up in the air.