Airbnb killing hotels, right? Wrong. It is hurting the industry, just not in the way most perceive.
According to a November 15th report from Morgan Stanley Global Insight, online travel agencies Priceline, Expedia and Orbitz are likely to lose bookings to upstart Airbnb, but the hotel industry as a whole is not going to suffer a major impact.
Morgan Stanley analysts Brian Nowak and team explain their perspective: “Our 4k person survey shows 12% of travelers have used Airbnb & adoption is rising despite awareness, privacy, and safety hurdles. We think investors overestimate Airbnb’s threat to hotels – <50% of use cannibalizes hotels and hotels over-index corporate– but underestimate its threat to OTAs.”
The MS report notes that Airbnb traveler penetration is already at 12%, and the team projects penetration to hit 16-18% within a year or so. The MS survey suggests that 12% of leisure and business travelers have used it at least once, with penetration expected to increase over the next 12 months (18% for leisure and 16% for business). One could argue this means it has started to peak, but Nowak et al. see room for more growth as users are 90%+ satisfied and because just 41% of the survey sample is even aware of the service today. Of noted, among the sample group that had heard of Airbnb, a solid 25% of them have tried the service.
Surprisingly, the MS survey also suggests that Airbnb users are wealthier than other travelers, with around two-thirds of U.S. users bringing home $75,000 a year. This contradicts the popular belief users of the service are mainly college students or others with lower incomes.
The survey also shows price is the primary reason (55%) that most people use the room booking service, which again implies the service could have broad popular appeal over time
Growth mainly in leisure market
Also of interest, under half of demand is currently coming at the expense of traditional hotels. According to the MS survey, a mere 42% of users are substituting for traditional hotels. Around 36% switch from bed & breakfasts, 31% are using Airbnb rather than staying with friends and family, and 20% are using it over vacation rentals. This, together with only 7% of Airbnb users staying only one night (compared to around 25% for traditional hotels), makes it clear that the private home-booking service is mainly focused on non-hotel, leisure, longer-duration stays instead of corporate single-night stays.
Nowak and team argue that corporate travel will be more difficult for Airbnb to penetrate given safety and privacy concerns, as well as the greater importance corporate travelers put on amenities such as loyalty programs, business centers, restaurants and so forth.
The Morgan Stanley analysts remain bullish on the hotel group as the “heavy corporate travel mix insulates Airbnb cannibalization risk.” They argue that the “differences between leisure and corporate travelers matter given the major hotel groups’ corporate-heavy bookings mix (~70% of business from corporate demand).” They also point out that their survey makes it clear that Airbnb leisure use is growing quite a bit faster (+50% NTM increase) than corporate use (+33%).
Could hurt OTAs
Taking a closer look at the big picture makes it clear why Airbnb is a leisure travel competitive threat to OTAs such as Priceline, Expedia and Orbirz. Nowak and colleagues say “Airbnb’s threat to the OTAs is larger and multifaceted” (compared to hotels).
For example, the more hotel demand the service racks up, the harder it will be for the OTAs. The analysts argue that hotels will probably not turn to OTAs if Airbnb causes more macro weakness than expected. They note: “if anything they are likely to turn to Airbnb.”
Another important consideration is that the OTAs business model leaning toward leisure (80%+ of major OTA bookings come from leisure demand) means they are really in direct competition with the private home-booking service. Moreover, Airbnb’s cannibalization of non-hotel categories such as bed and breakfasts and vacation rentals also hurts OTA demand, and this trend is only going to grow in the future.
Granted that online travel agencies have posted excellent room night growth in 2015 during the period Airbnb has been ramping up, over the long term Priceline and Expedia are going to have to compete more directly for traveler bookings with the rapidly growing private stay service.
Nowak et al. note this “keeps us cautious on OTA long-term growth and earnings power…and on the sidelines.” They go to point out that even if only 20% of Airbnb’s long-term room nights come at the expense of OTAs, this would mean a 7% downward revision to their long-term OTA room night projections.