Publications

- July 1, 2019: Vol. 6, Number 7

Airbnb vs. the hotel industry

by Tommy O’Shaughnessy

More than 2 million people stay in an Airbnb every night, making it a disruptive force in the travel industry that cannot be ignored. What started as two roommates trying to earn some extra cash to pay their high San Francisco rent has turned into a travel tech behemoth valued at $38 billion.

Initially, the idea of staying in a random person’s home was viewed as absurd and dangerous, but public perception of peer-to-peer (P2P) vacation rentals has shifted significantly in recent years. A 2016 Goldman Sachs study found that, “If people have stayed in peer-to-peer lodging in the last five years, the likelihood that they prefer traditional hotels is halved (79 percent vs. 40 percent).” In other words, once travelers discover Airbnb, they hop on the P2P vacation rental bandwagon.

This same study found that P2P app familiarity and usage is increasing, particularly among younger generations. Sixty-two percent of respondents between the ages of 18 and 24 had used a P2P service in the past 12 months. That number is lower among travelers ages 45 and up (about 29 percent), but it is steadily rising.

Clearly there’s something about P2P vacation rentals that appeals to travelers once they have gotten over the initial mental hurdles of staying in another person’s home. To learn more, we surveyed 1,000 U.S. residents who have used both Airbnb and hotels in the past 12 months. Airbnb is becoming the preferred choice of many vacationers, domestically and overseas, but hotels still serve an important function for travelers who prefer more traditional and familiar accommodation options when away from home.

We also dug into the safety and privacy concerns travelers have toward Airbnb, as well as emerging competitors such as Marriott’s Homes & Villas luxury rental service.

VACATIONERS PREFER AIRBNB

Airbnb is, in many ways, a Pandora’s Box for the hotel industry: Once vacationers give it a try, it typically becomes their preferred vacation lodging option. We found that 60 percent of travelers who have used both Airbnb and hotels prefer Airbnb for vacation lodging. Despite this preference, travelers reported similar levels of satisfaction with their most recent Airbnb and hotel experiences, averaging 4.2 stars for hotels and 4.3 stars for Airbnb.

If travelers report similar levels of satisfaction for both types of lodging, why is Airbnb the preferred option? David Guttentag, professor at the Ted Rogers School of Hospitality and Tourism Management, identifies five types of Airbnb guests based on his 2016 study:

  • Money savers: Choose Airbnb because of affordability
  • Home seekers: Interested in household amenities and larger spaces
  • Collaborative consumers: Motivated by the share economy philosophy and the ability to have an authentic experience
  • Pragmatic novelty seekers: While not regular Airbnb users, these travelers are drawn to the novelty of Airbnb
  • Interactive novelty seekers: Want to interact with their host or other locals

Our research confirms these findings. Additionally, we found that affordability, authenticity, and household amenities motivate the majority of Airbnb users in 2019. The most common words travelers associate with Airbnb include “authentic” and “affordable,” and 77 percent of travelers surveyed believe Airbnb provides a more authentic experience than a hotel. “Price” also ranks as one of the top reasons travelers prefer Airbnb.

Airbnb’s competitive advantage seems to stem from its ability to provide experiences that traditional hotel chains cannot, while simultaneously offering competitive rates. Airbnb travelers get to feel like they are actually living in their destination city or town for a few days, with all of the household accommodations we have become accustomed to in our own day-to-day lives.

BUSINESS TRAVELERS FAVOR HOTELS

While hotels appear to be losing market share among tourists, they remain the preferred option for a majority of business travelers. Sixty-eight percent of businesspeople surveyed said they prefer hotels to Airbnbs or comparable vacation rental services when traveling for work.

Business travelers know what to expect from hotels, and hotels can provide services and accommodations Airbnb cannot. In fact, 90 percent of Airbnb’s revenue came from tourism and personal travel in 2017, indicating the company is still struggling to tap into the business market.

Front desk 24/7 services, on-site fitness centers, room service, complimentary breakfasts and other amenities keep businesspeople coming back to hotels. Almost half of business travelers said familiarity was an important reason they prefer hotels. These travelers are looking for reliable lodging they can trust, and hotels fulfill that need.

While business travelers are still using Airbnb for vacations, they are more resistant to change when traveling for work — much of which is based on entrenched, negative sentiments about the short-term vacation rental industry. Business travelers are twice as likely to describe Airbnb as dishonest, and they are more likely to have a negative experience at an Airbnb. Some 57 percent of business travelers reported having a negative experience that violated Airbnb’s guidelines compared to 35 percent of vacation travelers.

Keeping business travelers happy might be one of the most important goals for hotels in the coming years, as Airbnb continues to disrupt the personal travel industry. How can hotels accomplish this? It might be best to stick to the basics. We found the most important hotel amenities include wi-fi (85 percent), free parking (70 percent), complimentary breakfast (69 percent), and housekeeping (59 percent). In other words, business travelers are looking to check in and get down to business, or to relax and leave fueled for a busy day ahead. Hotels that remain focused on meeting these types of baseline expectations and needs will continue to attract businesspeople for years to come.

MARRIOTT’S PREMIUM RENTAL SERVICE MAKING A SPLASH

In late April, Marriott announced a new vacation rental service called Homes & Villas, which offers 2,000 luxury homes in more than 100 cities. Marriott will offer distinctive or eccentric rentals, such as Italian villas and Irish castles. While only 36 percent of survey respondents had heard of Homes & Villas, 50 percent of luxury travelers (i.e., those who indicated they stay at high-end hotels or vacation rentals) reported being familiar with the service. From a marketing perspective, this is a pretty impressive feat, considering our survey was conducted only nine days after Marriott’s announcement.

When asked why they would try out the new service, 63 percent said because of Marriott’s trustworthy brand, while 54 percent were interested in the potential bonus rewards and loyalty points they could accrue and use across Marriott’s hotel line.

Cornering the luxury travel market by offering premium vacation rentals — an approach Airbnb can’t easily imitate — is an intriguing move by Marriott. Many have named Homes & Villas “Marriott’s answer to Airbnb.” However, this new service does not address Airbnb’s core value proposition: affordability and authenticity.

Staying in an ancient Irish castle is a fantasy for many, but it is not necessarily going to give travelers a truly authentic and immersive experience. For many, this is the primary appeal of Airbnb, and it is unlikely that any established hotel brand is going to be able to beat them at their own game.

 

Tommy O’Shaughnessy is a research analyst at Clever Real Estate. This article was excerpted from a more extensive report, which can be read on the Clever Real Estate website at this link: https://listwithclever.com/real-estate-blog/airbnb-vs-hotels-study/

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