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Disruption in the accommodation industry – the lines blur

It is always easy to tell that ‘disruption’ has turned into normality when organisations start to legislate for it.

The travel and transport industries are full of such disruption at the moment: Unmanned Aerial Vehicles (inadequate response); self-connection (left to a few large airports, most do not formally cater for it); the sharing economy; (and the daddy of them all) the environment (uncoordinated, ineffectual response to protests).

The UN World Tourism Organisation (UNWTO) has recently published a report – ‘New Business Models in the Accommodation Industry’ – which provides a systematic overview of the ways that both national governments and local authorities are “addressing” and managing new business models in the accommodation industry.

The UN is doing this just as a new variation on disruption shifts into gear – with accommodation sharing agencies such as Airbnb entering the hotel sector and some hotel groups targeting the sharing sector.

Summary

  • A UN World Tourism Organisation report points to a lack of regulation of the sustainability of accommodation sharing activities.
  • While it does not mention it specifically, there is clearly overcapacity in some places, turning communities against the concept.
  • Against this background, and one of some cities clamping down on such rentals, Airbnb is shifting into the (upmarket) hotel sector, thereby risking its ‘disruptor’ image.
  • But there are still many attractions as, conversely, some major hotel groups shift the other way, into sharing.

Consumer protection regulations predominate; ones concerning planning and sustainability – less so

The UNWTO report draws on 21 global case studies from European countries such as the Netherlands, Italy and Spain, which are home to some of the world’s most popular cities for tourists, as well as countries in the Americas, such as Mexico, and from across Asia, as in the case of Japan. It notes that most of the measures implemented relating to the sharing economy refer to areas of 'fair competition' and 'consumer protection', specifically measures related to taxation and registration and permits.

By comparison, measures relating to 'planning ' and ‘sustainability' are less commonplace. At the same time, the report highlights the challenges that destinations face in implementing rules and regulations, with a lack of local capacity and a lack of clarity over whose responsibility it is to monitor and regulate short term tourist accommodation.

Excess capacity is a serious issue in some countries

There are numerous issues surrounding these new business models in the accommodation industry, within which Airbnb remains the primary mover, although it is no longer the only one, by any means.

The UN report mentions a lack of capacity; but a more serious problem in some places, including several of the countries mentioned above, also Iceland in particular, is excess capacity. That is, both existing and new accommodation being snapped up by profiteering landlords solely for short term vacation (and increasingly business) rentals of entire properties, rather than the original ‘spare room’ concept, and tapping into the growing propensity to conjoin business trips with family vacations.

Where this is more profitable to locals than renting long term it not only makes accommodation for them sparse but also pushes up prices in the properties that remain accessible to them. Reykjavik is one city that has suffered from this, although a 20%+ fall in overseas visitor arrivals this year will help counter that.

Elsewhere, in Oslo, significant parts of the new ‘Barcode’ downtown area apartments have been taken by sharing sector ‘entrepreneurs’, while in Manchester, UK, four giant city centre apartment blocks (one of them 700 feet [225 m]) tall, have been hijacked by overseas investors, again – reputedly – to provide such short term lets.

It is not unknown for some ‘hosts’ to have more than 100 properties. One is known to have almost 1000, and to be making USD15 million a year out of the enterprise.

Indeed, it has been observed that the pattern is identical to the one followed by the internet: namely, the initial promise of a chummy, decentralised capitalism, followed quickly by a mad dash by well-heeled interests who see the chance to make a killing, behind a faux-authentic façade.

Airbnb disrupts itself by moving into the hotel sector

Another sign of disruption turning into a commonplace feature is Airbnb’s continuing move into the hotel sector. Indeed this may be happening because of the way disrupters are being disrupted both by regulators (slowly) and by other disruptors (more quickly).

It seems that Airbnb is going exactly the way Ryanair and other ‘low-cost carriers’ went by seeking safety in the higher yielding business segment. The USD550 billion global hotel business still houses many more business guests than do Airbnb apartments, houses, mansions, granny flats, (garden sheds and everything else being rented out).

One of Airbnb’s three founders, Brian Chesky, is currently involved in the redevelopment of 75 Rockefeller Plaza in Midtown Manhattan as a joint venture with RXR Realty, the USD18 billion New York-based property company that owns the skyscraper.

Described as “a unique property” the building is part all-suite hotel, part serviced apartments, part shared workspace and part private members’ club, together with a bar, restaurant, gym, business centre, meeting and event space, conference room and a concierge offering “experiences usually reserved for locals” (whatever that means). Room service comes not from the hotel but from local restaurants — like an upmarket Deliveroo or Uber Eats.

Airbnb is thus moving into a sector – hotels – that it once set out to replace.

Rooms will be designed by Airbnb and marketed by it for a cut in the revenue and reservations will be available for as little as one night through Airbnb. RXR will seek to profit from the operation of the hotel and the other constituent parts of the building.

Another property will follow in Brooklyn next year, then in other U.S. cities, followed by London – that is, assuming that this Manhattan property’s model is seen to work.

Airbnb’s decision may have been driven partially by a clampdown on short term rentals in New York

One of the reasons for opening in New York may be that the city authorities there have been clamping down on Airbnb and other operators’ short term rentals there.

Already this year Airbnb has invested USD200 million in an Indian hotel start-up, Oyo Rooms, which has become the world’s fastest growing chain, adding more than 700 properties each month. Mr Chesky wants to make them available on Airbnb as he aims to increase the number of guest visits to one billion a year by 2028.

Another reason for Airbnb going into the hotel business might that hotel operators have been moving onto its turf, too.

Marriott — the world’s biggest hotel operator, with 1.3 million rooms — became the first to launch its own home rental service this summer. Before that, in 2016, the French hotel giant Accor acquired Britain’s high-end home share operator Onefinestay. Hyatt has introduced 'Hyatt House', a sub-brand of hotels where rooms come with kitchenettes and have a more residential feel.

There is some risk for Airbnb in adopting this strategy. As it shifts into conventional hospitality, it might lose some of its disruptive appeal.

There are certainly going to be many unenvisaged regulatory issues for UNWTO to get its teeth into. The whole ‘disruption’ game is in danger of spinning out of control otherwise.

Indeed, it may not be long before British Airways starts operating railways in the UK, or holiday rental properties become available in government buildings in London, Paris, Rome, Washington and Moscow.

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