Looking through the recent newsletters posted on Shepherd Cox, it occurred to me that something I’d never once talked about is Airbnb. Six letters that pack a whole punch of meaning, particularly if you operate in the hotel business, which I do. So I wanted to wax lyrical about what is, without doubt, the biggest shake-up in the industry since…well there hasn’t been a shakeup like it before, so since—never.
Spearheading the seismic shift? Brian Chesky and Joe Gebbia, two US West Coast big brains who discovered they couldn’t afford to pay the rent on the accommodation they were living in and so, instead of handing back the keys, turned their minds to finding ways to monetise what was right in front of them—which meant turning their loft space into a bed and breakfast. Pretty smart.
Two million listings later, and my guess is being able to pay the rent is no longer an issue. But what Airbnb isn’t, contrary to widespread belief, is a hotel business. Airbnb has nothing to do with the hotel business, any more than Uber has anything to do with the cab business.
Both companies are tech leveraged facilitators that have taken advantage of the unrealised potential of empty spaces and cars sitting idle. Both have created jobs and additional revenue streams for millions of ordinary people, but in spite of their contribution to the global economy, these new business behemoths have not been without their detractors.
The emergence of alternatives to hotels and taxis has been fiercely disruptive and has led to protests from those communities whose profits and livelihoods have been adversely affected. Such a threat are these Unicorns to some regional and local business models that governments have even stepped in to introduce restrictive terms.
But, these things aside, the big question I have to ask as a hotel investor is, ‘does Airbnb adverselyaffect the industry I look to for a return?’ And the quick answer is ‘no’. Smart hoteliers have simply seen the ‘threat’ as they view any other type of competition—as an opportunity. What Airbnb has done, which is a good thing as far as I’m concerned, is force the hotel industry to up its game. Increased competition encourages people to differentiate through service and other offerings that Airbnb would struggle to provide. Because—and this is worth repeating—Airbnb doesn’t provide true end-user service; it merely facilitates those with empty rooms to let them out.
Some of these people will provide exemplary service, others will fail to tell you that you’ll also be sharing a room with a snarling dog and five mangy cats. In other words, barring a few online reviews, for the paying guest, it’s all a bit of a lottery with little recourse if it all goes pear-shaped.
And while Mrs Miggins or Joe blogs may provide cost-effective accommodation and initially decent service, they won’t be there at your beck and call. They’ve got lives to lead. You’re just crashing in their house for a fee. Now I don’t know about you, but when I hit zero on the phone in my room, I want a friendly voice at the other end of the line to say: ‘Can I help you sir?’ or words to that effect. When you Airbnb it, it’s unlikely you’ll even have a phone by your bed at all.
So back to the question: ‘Is Airbnb a threat?’ I’ve already said ‘no’ but here are the key reasons why.
- Room service: People want an experience, not just a place to stay, and one of the key features in hotels is room service, which you won’t get very often in an Airbnb.
- Airbnb hasn’t affected revenue per available room in hotels, highlighting that it is a complementary rather than competing element in the short-term accommodation sector
- Location, location, location: You can get an Airbnb just about anywhere, but if it’s in a prime spot you’re likely to pay almost as much as you would for a hotel, without any of the frills, and what’s the point in that!
- Space and freedom: Bottom line is, with Airbnb, nine times out of ten you’ll be staying in somebody’s house! And that means, potentially, the owner’s children, parents or pets appearing in the corridor at any time. Now, I don’t know about you but the idea of tiptoeing around a place because I might wake the folks doesn’t make me feel too relaxed. And what’s this? No lock on the bedroom door! No thanks. I value my privacy too much.
- PLUS in a hotel, there’s a restaurant with a menu and a chef, and a bar, and rooms to meet people and conduct business in. In a hotel, you feel as though you have a right to be there, and you expect certain levels of attention to detail from the trained professionals running it. When it comes to Airbnb, your host is somebody having a go at running a B&B to bring in extra money. In other words, it’s complementary to their life, not their main business.
In short, hotels are places of comfort, convenience, and swift service. And behind the scenes, there’s a team of people with one aim in mind—to make your stay as enjoyable as possible. From the food to service to the in-house amenities, such as gym and swim facilities, and business meeting rooms, great hotels in great locations deliver on experiencesthat go beyond the bare basics you’ll get at an Airbnb.
Still, hats off to Gebbia and Chesky. In just a decade they have managed to gain greater market share than any other single hotel group, and they did it by leveraging other people’s property through the power of tech, and in that sense, for all of us, there’s something to be learnt.
But for the record, I’m not about to go and book an Airbnb room any more than I’m about to open up my house to strangers. Instead, I’ll just stick to what I know and know best, and that’s hotels (in case you didn’t know!)
If you’d like to invest in realhotels, and secure excellent ongoing returns far into the future, get in touch with me at Shepherd Cox today.