Hoteliers Safe from Airbnb, For Now

NEW YORK CITY—Judging by comments in their second-quarter earnings calls, most lodging companies aren't terribly concerned about Airbnb as a competitive threat to their businesses. By and large, they see the popular website as creating new demand for travel, primarily among millennials. However, a report from Fitch Ratings describes the ratings agency's view as “somewhat less sanguine” than that of the hotel C-corps and REITs that addressed Airbnb during the Q&A segment of their recent earnings calls.

“Fitch sees the potential for Airbnb to exacerbate lodging industry downturns, in addition to the ongoing secular challenges the industry could face from lost demand,” the report states. “Airbnb listings are likely to spike during recessions when labor markets weaken, forcing some individuals to find alternative avenues to meet financial obligations. There is anecdotal evidence of this already occurring in high cost of living markets like New York and San Francisco, notwithstanding current tight labor market conditions.”

Over the past three US lodging downturns, Fitch observed “progressively more RevPAR volatility,” due to the widespread adoption of sophisticated revenue-management software, coupled with increased pricing transparency caused by online travel agencies. “Whatever the cause, lodging companies have shown a race-to-the-bottom pricing mentality—despite credible evidence of demand inelasticity—that could be exacerbated by a corresponding spike in Airbnb supply during the next downturn,” according to Fitch's report.

The report by Fitch analysts Stephen Boyd, Christopher Gallun and Michael Paladino sees the limited-service and extended-stay hotels in the lower price tier, or those that cater to leisure demand, facing the greatest risk from Airbnb growth. Airbnb listings increase the supply of lodging accommodations, despite often wide differences in hotel service and amenity levels,” according to the report. “Not all Airbnb stays represent lost hotel demand, and staying in someone else's home will not appeal to all travelers. But it is a viable alternative for some, particularly budget leisure travelers.”

Conversely, Fitch sees “an uphill battle” ahead for Airbnb if it attempts to tap into the corporate and group demand segments. “Airbnb is unlikely to appeal to travelers that prioritize consistency, reliability and safety/security over price and unique experiences,” the analysts write. In terms of business travelers, Fitch sees sole proprietors, independent consultants and small groups” as the most logical business users of Airbnb.

There's also the increasing regulatory scrutiny that Airbnb's business model is facing in several jurisdictions, related to hotel occupancy tax collection, zoning violations and public safety. “Although the state of play is in flux, momentum appears to be on the side of pushing Airbnb closer to parity with hotels, which Fitch views favorably for the industry,” according to the report. Airbnb in fact has begun collecting hotel occupancy taxes in several domestic and international markets.

Fitch continues to see growth in the mainstream lodging sector, projecting domestic RevPAR increases of 7% this year. However, the scale that Airbnb has achieved might be easy to miss in the absence of any 3,000-key resort hotels in its portfolio: Fitch notes that the company “has rapidly emerged as one of the largest global hospitality companies, with over 1.5 million short-term rental listings in over 34,000 cities in more than 190 countries. The company recently completed an up-round private equity offering at an implied valuation for the entire company that makes it the second largest US hospitality company behind Hilton Hotels Worldwide, according to press reports.”