Airbnb Crimps Hotels’ Power on Pricing
Rare events that draw huge crowds, like Pope Francis’ visit to the U.S., usually mean a windfall for hotels that can ratchet up prices to meet booming demand for rooms.
But with Airbnb Inc. posting thousands of listings in cities where the pope appeared last week, hoteliers are seeing less-than-optimal results as many compete head on with home-rental companies.
In New York City, Airbnb listings last week reached nearly 20,000 during the pope’s visit, according to Airdna, a Santa Monica, Calif.-based firm that analyzes Airbnb data.
Since New York has about 116,000 hotel rooms, according to data tracker STR Inc., Airbnb increased the city’s lodging supply by about 17%. Philadelphia saw a nearly 16% increase in accommodations last week, including the more than 7,000 listings from Airbnb. In Washington, D.C., Airbnb listings were less of a factor, adding only about 2.5% of inventory.
While hotels are still enjoying premiums over the rates they typically get this time of year because of the pope, a number of owners say Airbnb and other home-rental companies siphoned away some of their business during Pope Francis’ historic U.S. tour.
“I would be surprised if a lot of visitors didn’t look at the alternatives for overnight accommodations,” says Jay Shah, chief executive officer of Hersha Hospitality Trust, which owns hotels in the three cities where the pope visited. “This is the kind of event where you will have an impact from Airbnb.”
Airbnb’s growing presence is the latest encroachment of technology companies on the traditional lodging players. The hotel industry for years has been trying to minimize the influence of online travel agents, and this summer it lobbied unsuccessfully to block the merger between Expedia Inc. and Orbitz Worldwide Inc., saying it would impose higher costs on the industry.
The pope’s visit isn’t an isolated case. Hotels in Louisville, Ken., saw a surge in competition from Airbnb listings during the Kentucky Derby, while hotels in Palm Springs, Calif., experienced the same around the Coachella Valley Music and Arts Festival, according to Airdna.
Lodging analysts say hotels rely on these popular one-time or annual events to get some of their highest room rates of the year. But with the pop-up room supply from home-rental companies, hoteliers are finding it increasingly difficult to maximize profits for events that attract big crowds.
“It’s sapping their pricing power,” says Stephen Boyd, a hotel analyst with Fitch Ratings.
Warren Buffett last year annoyed members the Omaha hotel community after he told shareholders attending his annual meeting to try Airbnb after hotel rates at some properties skyrocketed during the event.
Not everyone in the hospitality industry says Airbnb is a competitor. Some point out that U.S. hotel average daily rates, occupancy levels and revenue are near all-time highs, despite Airbnb’s emergence.
“I view it as a different sort of customer looking for a different type of experience,” said Christopher Nassetta, CEO of Hilton Worldwide Holdings Inc., during a July conference call with analysts.
Morgan Stanley lodging analyst Thomas Allen says his research shows that, in the 25 largest U.S. markets, the impact of Airbnb looks negligible. The number of days when hotels achieved a 95% or higher occupancy level has been rising since 2009. At the same time, he added, the 25% rate premium hotels can charge on nearly-full nights, compared with the average night, is roughly the same as a decade ago, before Airbnb.
Still, many hotel owners say they feel the pinch around tentpole events. Jon Bortz, CEO of Pebblebrook Hotel Trust, told analysts on a recent call that his properties were feeling the impact of Airbnb during certain events, especially those that attract large crowds paying their own way. He cited in particular the Comic-Con International festival in San Diego, where Pebblebrook has an Embassy Suites and a Westin hotel.
While his company used to have an “ability to price at maybe what the customer would describe as sort of gouging rates,” he explained on the call, “I’d say we’ve lost a lot of that ability at this point within the major markets where these events take place.”
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