Hotels have been a part of the hospitality industry for centuries and are integral to travel and tourism. Hotels offer accommodation, amenities, and services to guests for a fee. Over the years, the hotel industry has evolved, and hotels now come in different categories, including luxury, upscale, midscale, and economy. However, in recent years, the emergence of Airbnb has disrupted the hospitality industry, and many people have wondered if Airbnb is poised to replace traditional hotels. But, despite its growing popularity, Airbnb has not been able to replace hotels for several reasons.
High Fixed and Variable Costs
Hotels operate on economies of scale and scope, which means they must achieve consistent volume to keep new guests flowing in after prior guests check out. This is why hotels slash room prices in the slow season and hike them as high as possible in the high-volume seasons. Hotels have high fixed and variable costs; the more high-end the hotel, the higher the direct operating cost. The additional amenities hotels offer, such as a spa, pool, breakfast bar, and valet, are tools to increase the average guest bill. Hotels use these amenities to increase revenue and customer lifetime value without the room price looking too expensive with what comes with it.
On the other hand, Airbnb’s business model is asset-light, which means the company does not own, lease, manage, or maintain any real estate. The company’s innovation is on the supply side, where anyone can list and monetize their guest bedroom, attached apartment, or rental house with a few steps on Airbnb. As a middleman, Airbnb charges service fees to guests and hosts as a percentage of the total reservation cost. Hosts can add or remove listings anytime, and if a host doesn’t see the business they want on Airbnb, they can remove their listing at no additional cost.
Demand vs. Supply
While there are no limits on how many listings can be on Airbnb, there are hard caps on how many hotels can exist based on zoning ordinances. This means that local laws and regulations restrict the number of hotels that can be built and operated in a particular area. These restrictions can limit the growth potential of the hotel industry, as it can be challenging and expensive to find suitable locations to build new hotels.
On the other hand, Airbnb’s platform enables hosts to offer their homes and apartments to travelers without needing expensive and time-consuming construction. This allows Airbnb to quickly and easily expand its supply of listings as long as there is demand for them. As a result, Airbnb has been able to increase and disrupt the traditional hotel industry.
Different Business Models
Airbnb and hotels are two different businesses with distinct business models. Airbnb is a platform that connects travelers with individuals who are renting out their homes or apartments. On the other hand, hotels provide accommodations and services to travelers in exchange for payment.
Airbnb has gained a competitive advantage over hotels due to its platform business model. However, hotels have been operating appealing to customers who like consistency, better in-person service, and special deals for many years. Major hotel companies like Hilton, Marriott, Hyatt, Wyndham, and IHG operate as asset-heavy businesses that generate revenue primarily from providing an excellent overall staying experience with many added services, facilities, and a higher-end experience. Hotels tend to build all the extras like cleaning into the room price, while AirBnB adds many things like failure to clean onto the rental price. This has upset many AirBnB customers with charges perceived as free at hotels.
Despite the media hype about the impending death of the hotel industry and Airbnb’s disruption, the truth is that hotels have already been operating better than Airbnb for a long time, with customers able to book their rooms online. Therefore, it’s challenging for Airbnb or any other new firm to disrupt the hotel industry since the incumbents are already operating similarly. It’s about having a new business model and differentiating and offering customers unique value. Hotels have also benefited from aggregating their bargain deals on discount websites that can be a better value than AirBnB many times.
While Airbnb has been a significant player in the hospitality industry, it hasn’t been able to replace traditional hotels. This is because hotels have certain advantages that Airbnb can’t easily replicate. For one, hotels have high fixed and variable costs, which allow them to operate on economies of scale and scope. This means they can offer amenities and services that increase the average guest’s bill and generate revenue without increasing the room price. On the other hand, Airbnb is an asset-light platform that monetizes existing housing. It offers a different value proposition to travelers, who often prefer the authentic and local experiences of staying in someone’s home or rental property.
It’s important to note that both Airbnb and hotels have different business models, and they both have their pros and cons. While the media may spin stories about the death of the hotel industry, the reality is that hotels have been around for a long time and have adapted to changing times. They have evolved to offer more personalized services and experiences and have embraced technology to improve efficiency and customer satisfaction. At the same time, Airbnb has become an attractive alternative for many travelers, particularly those seeking unique and affordable accommodations. Ultimately, it seems that Airbnb and hotels will continue to coexist and compete in the hospitality industry for the foreseeable future.