Have you ever tried to book a hotel room on a major holiday weekend such as Memorial Day, Independence Day or Labor Day, only to change plans and stay home because the costs were just too high? Those days may be over as the popularity of Airbnb as a competitor to traditional hotels continues to spread.
Home sharing or room sharing companies are breaking the stranglehold that traditional hotels have on the market for places to stay away from home. These short-term rentals offer visitors a home away from home by staying in the spare rooms, entire houses, and apartments of locals usually at a much discounted price than traditional hotels.
We’re seeing just how much of a savings this is from new reports. Apparently, Airbnb rentals are hurting hotels on their most profitable nights, the high-occupancy nights around a specific date or event. Called “compression nights” these are times when rooms at hotels are more than 95 percent occupied. According to a recent report from UBS, compression nights in two of Airbnb’s biggest markets – New York and San Francisco – declined in 2015, this is despite U.S. hotel occupancy hitting record highs.
These compression nights are pretty important for hotels. Its estimated that hotels make anywhere from 35 to 70 percent more revenue per available room during sold-out nights, so as the number of sold out nights declines as short term rentals increase, hotels will start to feel the squeeze while travelers feel relief.
Looking at an average spend per night, travelers can expect to send an average of $244 at a Wyndham Worldwide hotel, $212 for Marriott Vacation Clubs, and $219 for Hilton Grand Vacations, yet as little as $115 on Airbnb.
A different travel research firm found that one in three leisure travelers in 2015 used private accommodations compared to one in ten in 2011.
Tech website Quartz has more on this trend:
“Going forward, we do expect a continuation of that same trend: More Airbnb listings, fewer compression nights and less hotel RevPAR growth,” Robin Farley, leisure and lodging analyst for UBS, said on a call earlier this month. She said the number of sold-out nights in general is 10-15% of total nights.
Hotels have worried about Airbnb’s impact on their sold-out nights before. In July 2015, Pebblebrook Hotel Trust CEO Jon Bortz admitted during an earnings call that Airbnb was limiting what the company could charge for rooms during “leisure-driven” conventions and events. “If you look at business around marathons as an example, where we used to have really intense compression and an ability to price maybe what the customer would describe as sort of gouging rates,” Bortz said, “I’d say we’ve lost a lot of that ability at this point within the major markets where these events take place.”
More recently, Kayak CEO Steve Hafner told Bloomberg last month that “in peak periods of demand … the hotels that used to be able to gouge you by taking the price way up because of limited supply don’t have that same ability anymore because of the additional inventory that Airbnb has brought online.”
This is good news for consumers and a reminder why choice and competition offer consumers the best. While some call it price-gouging, it’s really just increasing price to decrease demand given the limited supply of rooms for people to stay.
Problems arise when traditional businesses such as the hotel industry, are unwilling to compete against new competition and seek protections from policymakers by changing the laws and rules for their new competitors. We’ve seen it with the taxicab industry battling Uber, Lyft and other ride sharing companies.
Some local governments – taking a cue from battles over ride sharing companies – have begun to assess how to regulate room sharing companies. New York and San Francisco present examples of the contentious local battles.
Perhaps the best advice comes from across the pond from the EU which warned against over-regulation of such companies:
The EU wants to encourage the growth of the sharing economy, which it sees as promoting entrepreneurship and startups at a time when the bloc is still suffering from a relatively weak jobs market.
In its statement, the EU said countries should ban a company’s activity only as a measure of last resort.
Battles over the sharing economy are even more heated in Europe, so for the commission to advise countries against added regulation is advice that our lawmakers should consider as well.
Technology’s march forward will only present new options for consumers. Instead of standing in the way of progress, industries and governments need to adapt or risk getting run over.