Investors have been consumed with the notion that Airbnb is gunning for the online travel agencies and that it will eventually turn from apartment rentals to hotels and steal those big, fat hotel margins and profits from Expedia and Booking.com.
A new analyst report attempts to shoot down that argument. Financial services firm PiperJaffray argues that Airbnb would not be adept at selling hotel rooms over the next five years, and therefore will not have a significant adverse impact on online travel agencies’ room-night bookings.
In addition, hotel expansion isn’t part of Airbnb’s core strategy as it focuses instead on expansion in China, business travel and vacation rentals, the report states.
“Therefore if Airbnb hits its 2020 targets [$10 billion in 2020 revenue], the impact to global hotel growth will be a headwind of less than 100 bps each year which, we believe, is not meaningfully impactful to the multiple investors should be willing to pay for Priceline and Expedia,” the report states.
Among the factors that PiperJaffray cites as limiting Airbnb’s potential growth in hotels are that its hotel rates for consumers would not be competitive because it charges travelers a 6-12 percent booking fee while online travel agencies don’t.
PiperJaffray outlines some of its arguments in the following graphic:
Rather than compete against Expedia and Priceline in the hotel sector, “Airbnb is more likely to find other ways to partner with hotels, in our view, promoting Airbnb as an overflow option for hotels,” PiperJaffray states.
Au Contraire About Airbnb and Hotels
There are plenty of questions that can be raised about PiperJaffray’s analysis. For example, PiperJaffray argues that because Airbnb charges travelers a 6-12 percent booking fee — and online travel agencies don’t — then Airbnb’s hotel rates would be higher than those offered by Expedia and Priceline and therefore wouldn’t be competitive.
But business models aren’t crafted in stone. HomeAway, for example, which had never charged guests a booking fee, in recent months has implemented a traveler booking fee to bring its take rate to parity with Airbnb and TripAdvisor.
There isn’t anything that would bar Airbnb from changing its business model, which currently entails charging hosts a 3 percent booking fee and giving guests a free ride. With the volume of traffic that Airbnb gets it could potentially increase host or hotel commissions in the future and still undercut online travel agencies.
There is an argument to be made that specialization — sticking with just apartments and vacation rentals — won’t win the day in the long term. Just look at Booking.com, which has expanded beyond hotels to vacation rentals and apartments, and Expedia, which acquired HomeAway last year for $3.9 billion to supplement hotels with vacation rentals.
Expedia argues that comprehensiveness in its hotel inventory increases conversions on its sites. Expedia plans on adding vacation rentals from HomeAway, and apartment rentals, to its Expedia and Hotels.com sites.
Numerous travel industry officials, such as the Priceline Group’s Darren Huston, have pointed out that the lodging revolution starts with “one customer” who may want to stay in a Marriott for a business trip and then an Airbnb or HomeAway rental for an extended leisure trip with the family.
Would it not be in Airbnb’s interests to offer the gamut of choices for these multifaceted travelers, especially if comprehensiveness increases conversions, which bolsters marketing budgets?
With all of Airbnb’s growing site traffic, $2.39 billion in funding to date and the prospect of increased conversions because of a more comprehensive offering, Airbnb should be amply equipped to eventually compete against the online travel agencies in digital marketing for hotels.
We’ll have ample opportunity to revisit this issue over and over again in the next few years.
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