Hotel Vs Airbnb – In a free market, the laws of supply and demand govern how we do business. Barring external intervention (government regulation or historically unprecedented events such as a pandemic), any change in market supply or demand has a definite effect on prices—and, in turn, a direct effect on profit margins. .
That being said, any significant change in supply and demand can be transformative for an industry as a whole. When supply or demand fluctuates, surviving companies may need to adjust their business model or even their core service offering. Finding new inputs, reorganizing their supply chain, increasing or decreasing production, finding new ways to reach new customers, or restructuring operations to maintain (or increase) profits in new market conditions can alter supply and demand. Implications in any industry.
Hotel Vs Airbnb
And the hospitality industry is no exception. The rise of Airbnb has not only had a significant impact on the supply side of the hospitality industry equation, but has also changed consumer expectations and changed the fundamental nature of industry demand. None of this sounded the death knell for the hoteliers. Conversely, hotels are finding new ways of doing business that help them adapt to these new market conditions.
Airbnb Or Hotel? How Travelers Choose
It seems almost redundant to say that Airbnb has brought increased competition (and lower RevPar) to the hospitality industry. After all, “[b]ut an annual growth rate of more than 100%, Airbnb now has more than 4 million listings, with the US being its largest market.” As a 2018 study revealed:
[A] 1% supply growth for Airbnb in 10 major US hotel markets between 2008 and 2017 led to a 0.02% decline in hotel RevPAR across all segments. [And] Airbnb’s supply grew by more than 100% year-over-year over this ten-year period, which means the “real” decline in RevPAR was 2% across all hotel segments. Unsurprisingly, it’s not just the economy, but the luxury hotel segment that’s been hit hard by Airbnb’s increased supply, with an actual 4% drop in RevPAR. […] The brands most impacted were mid-range and luxury, with a 4.3% and 2.3% decline in RevPAR, respectively.
After all, as there are more rooms on the market in a given city, the price of a room falls as hotel operators and Airbnb hosts claim limited demand. However, like most market dynamics, the big picture is not as simple or straightforward as we tend to think at first glance.
For example, another National Bureau of Economic Research study that analyzed data from the 10 US cities with the largest Airbnb market share found that “Airbnb admissions caused a 1.3% reduction in hotel occupancy and a 1.5% loss in hotel revenue”. But the 1.3% drop in hotel bookings is only part of Airbnb’s market share. As PostFunnel notes:
Hotel Or Airbnb? Which One Should You Choose For Your Next Vacation?
When considering Airbnb’s impact, it’s important to remember that consumers may not adopt the platform because they prefer the platform to hotels. Sometimes Airbnb is the only viable option for many consumers. Airbnb’s biggest success stories have come from cities with limited room availability during high seasons, such as New York, Los Angeles and San Francisco. Meanwhile, Airbnb listings are very limited in low-demand cities like Atlanta, Houston, and Memphis. […] As room availability declines, the price of remaining rooms increases, pushing consumers to alternatives like Airbnb.
In other words, a reservation won by Airbnb is not always the same as a reservation lost by the hospitality industry. Essentially, many Airbnb bookings occur simply because customers are unwilling or unable to book hotel rooms during peak times. As the US Bureau of Labor Statistics points out, “Hotel revenues would be 1.5% higher without Airbnb’s presence… 42 to 63% [of Airbnb guests] would not have made hotel bookings if Airbnb had not been available.” However, it is estimated that the bookings lost to hotels by Airbnb reduce hotel profits by 3.7%. .
In short, Airbnb has the greatest impact on room supply (and the hospitality industry) in cities with high demand – that is, properties where there aren’t enough properties to fully meet the demand for hotel properties. . Not only are half of Airbnb bookings diverted from the hospitality industry, but those diverted bookings tend to be high-value bookings, where a 1.3% drop in bookings leads to a 1.5% drop in revenue and a 3.7% drop in profit.
So the question remains: How can the hospitality industry offset this obstacle to its high-season profit margins?
State Of Travel 2016: Airbnb Vs. Hotel Rivals In 6 Charts
As Airbnb has proven, technology has fundamentally changed what the hospitality industry has to offer. Barring regulatory intervention, there’s not much you can do to reverse it. Pandora’s box has been opened and the toothpaste can’t be put back in the tube.
Fortunately for the hospitality industry, Airbnb’s online marketplace is far from the only new technology relevant to its bottom line. There are also many technologies available to help hotels streamline their operations, such that the loss of revenue to Airbnb is more than compensated for.
From operations to finance to guest experience, there are many KPIs that hotel operators and hotel managers can track and monitor to reduce costs and increase revenue. However, among the nearly two dozen key performance indicators that hotel owners and managers rely on, none is as important as GOPPAR (gross operating profit per available room).
Why? Because it takes into account operating costs and revenues. By focusing on improving their GOPPAR, hotels unlock new efficiencies and cost savings. RevPar vs. GOPPAR
How Airbnb Has Disrupted The Hotel Management Industry
Revenue per available room (RevPAR) is a valuable metric for hotel operators. Specifically, it helps hotels measure the efficiency of their operations by tracking how well available rooms fill their Average Daily Rate (ADR). Since RevPAR measures revenue earned over a period of time, it can be used to compare a given period to previous periods, plot seasonal trends, and measure a property’s long-term performance.
Gross operating income per available room (or GOPPAR) goes further, however, taking into account the operating costs of generating revenue for a given room (or the hotel as a whole). It is used by hoteliers to increase the profitability of an establishment by combining operating costs with their forecasts.
Some examples of operating expenses that are considered when calculating GOPPAR include energy use, housekeeping, internet, laundry, and food and beverages. By calculating these operating costs, GOPPAR provides a more complete picture of a room’s operating costs, allowing hoteliers to more accurately estimate overall profitability. As Olivier Harnisch, writing for HospitalityNet, says:
A GOPPAR maximization strategy is more complex [than a RevPar strategy] because it incorporates broader criteria for hotel success. Because GOPPAR is calculated by dividing a property’s or business’s GOP by the number of available room nights, it includes all factors that affect GOP. Therefore, both cost factors and revenue factors are considered. On the one hand, selling below the variable cost is avoided, leading to an immediate reduction in GOPPAR. A GOPPAR focus [also] considers the variable costs generated by an occupied room (cleaning, laundry, energy, etc.), the additional profit generated by the sale of a room (F&B, laundry, telephone, etc.), but also the cost of generating revenue, such as channel costs.
Airbnb Vs Hotels Infographic Reveals Which Type Of Accommodation Is Cheapest
In other words, GOPPAR provides better insight into a property’s profitability as it compares room revenue to actual expenses incurred over the same period. Indeed, by calculating operating costs, GOPPAR can help hoteliers calculate how much it costs to run a given room or the hotel as a whole. However, more importantly, it allows hoteliers to identify unnecessary or gratuitous expenses that are eating into their profit margins.
GOPPAR is calculated by subtracting your total operating expenses from the hotel’s total revenue, and then dividing that number by the number of available rooms for that period. Of course, once you have a complete picture of a property’s performance, it’s time to look at ways to increase those margins while optimizing your operating costs.
In the hospitality industry, “keeping the lights on” goes beyond lighting. As Forbes reports, “60-70% of [a hotel’s] utility costs are charged to electricity alone.” Therefore, by implementing smart energy management systems, a hotel can increase its GOPPAR and the overall resale value of the property while providing an improved guest experience. Indeed, the difference between having and not having an energy management system often means the difference between a hotel in the red or in the dark.
Fortunately for hoteliers, various energy management technologies do more than just monitor energy consumption
Comparing Airbnb To Hotels Is A Mistake, Ipo Investors Need To Remember That
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