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Airbnb and HomeAway: What You Need To Know (Part 1)

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Much has been written about the impact of peer-to-peer accommodation platforms, with the main focus on major players Airbnb and HomeAway. Their astronomical growth clearly justifies this attention. There is, however, very little clarity about the impact private rental platforms really have on the hotel industry. In this 2-part opinion series, the implications, challenges and opportunities offered by the rise of private rentals will be discussed, starting with contextualising the current financial power of Airbnb and HomeAway. Hoteliers might not yet be able to see the impact of private rentals on their bottom line, but rather than burying their heads in the sand, it is important that they consider the power that these platforms have to uproot and upset conventional practices.

How big are private rental platforms really?

One issue that is hindering a clear comparison between private rental platforms and hotels is the lack of transparency of private rental occupancy rates, value sales of rentals and the fees taken by Airbnb and HomeAway. While Airbnb uses a pay-per-booking system, HomeAway allows its hosts to choose between an annual fee and a pay-per-booking system. This complexity means that there is little clarity of total value sales generated by the HomeAway platform. And, while HomeAway has been trading publicly since 2011, Airbnb is a private company, which holds its cards close to its chest.

Airbnb and HomeAway Key Indicators 2014

Airbnb HomeAway
Ownership Private Public
Rental types Peer-to-peer rooms/apartments Holiday homes
Number of listings (2014) 800,000 1,043,000
Annual host joining fee - US$349-999*
Fee per booking 6-12% of the booking value 10-20% of the booking value*

Source: Trade sources/Airbnb and HomeAway company websites
Note: * Since 2013, HomeAway has allowed hosts to choose between an annual fee and a pay-per-booking agreement

According to HomeAway’s 2014 annual report, the company has just over one million listings, which is slightly more than Airbnb’s estimate of around 800,000. While a direct comparison between listings and hotel rooms is complicated because the average capacity of each will differ, HomeAway and Airbnb’s offering is still far outnumbered by the nearly 27 million hotel rooms on offer worldwide. Furthermore, according to a Hotel News Now report on the sharing economy published in 2014, private rentals’ occupancy rates are generally far lower than in hotels, as hosts pick and choose when to rent out their properties, unlike hotels, which are open every day of the year.

According to Euromonitor International research, Airbnb had total value sales worth US$2 billion in 2013. Again, however, this figure was dwarfed by the total value sales generated by the top hotel players. Marriott International took the top spot, with sales worth US$25 billion in 2013, while the top 10 players were together responsible for value sales worth almost US$135 billion in the same year. Despite this, what should turn some hoteliers’ heads is the meteoric growth of Airbnb, estimated to stand at 100% in value terms between 2012 and 2013, albeit starting from a low base. Even Hyatt Hotels, with healthy value growth of 9% in 2013, does not come close to this figure.


Source: Euromonitor International  


So how do private rentals impact hotels?

It would seem that private rental platforms are largely benefitting from changing demands from certain consumer groups, predominantly the Millennial generation. This segment consists of young adults mostly born in the 1980s who are at the start of their career and have grown up with technology. Particularly Airbnb caters to their demands: value for money, a fully digital booking system, and a more authentic offering of accommodation. Thus, Airbnb is arguably stepping into a gap left by the hospitality industry by attracting consumers who are looking beyond the traditional hotel offering.

Private rental platforms, however, are showing that they have the tools, resources and opportunity to go further by starting to affect hotels where it hurts most: the bottom line. The push by Airbnb to cater for business travellers is a prime example of this. As the Millennial generation becomes an intrinsic part of this lucrative group of travellers, more business travellers are opening up to trying new types of accommodation, which is expected to have a negative effect on value growth of hotels during the coming years.

Therefore, rather than ignoring its presence and hoping that legislative intervention will cripple the sharing economy, it is time to consider the threats and opportunities that the sharing economy and private rental platforms offer hotels. In part two of this opinion series, the ways in which hotels can benefit from the sharing economy will be discussed. It would seem to be time to move away from a discourse where private rentals are seen as a threat and start to look at the sharing economy as a challenge which offers opportunities for growth.

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