Alternative Accommodations – Travel Industry Disruptor
The alternative accommodation space is a significant travel industry disruptor and is becoming increasingly institutionalized characterized by sophisticated revenue management and multi-unit management companies as evidenced by Google’s entry, and Amazon’s potential entry, into the industry. Online Travel Agencies (OTAs) and hotel companies are also entering the alternative accommodation sector by partnering with professional vacation rental management companies. The new Homes & Villas by Marriott International is offering home-sharing across the U.S., Central America, Mexico, the Caribbean, and Europe.
The industry is also characterized by prominent acquisitions, including the acquisition of Vrbo by HomeAway and later the acquisition of HomeAway by Expedia. Airbnb has also deployed an aggressive acquisition strategy to broaden its offerings in recent years as it seeks to further dislocate the travel industry; expanding its focus to experiences, listing quality, and business travel. Booking.com and Trip Advisors have a strong presence in international markets, but the bulk of their U.S. business is focused on hotels, unlike Airbnb and Vrbo.
According to MaryJo Finocchiaro, Executive Vice President and Chief Financial Officer for BRE Hotels & Resorts, Airbnb is the undeniable industry leader in alternative accommodation. She indicated that they have concentrated their efforts on the U.S. where they are credited with having an overwhelming majority of supply. Airbnb enjoys vast brand recognition, despite being younger than its competitors. Vrbo was founded in 1996, HomeAway in 2006, and Airbnb in 2009, she added. Ms. Finocchiaro also referred to Airbnb as the dominant pureplay short-term rental site, with more than double the monthly visits of its closest pureplay competitor, Vrbo. According to AirDNA, the monitoring platform for home-sharing, Airbnb and Vrbo comprise approximately 90 percent of U.S. alternative accommodation supply.
Younger generations and affluent travelers coming from a household of at least $100,000 tend to have used home-sharing for travel. According to Skift, 50 percent of affluent consumers have stayed at a short-term vacation rental. What’s more, preference for a traditional hotel room drops from 78 percent to 44 percent once an individual has stayed in an alternative accommodation.
AirDNA data also reveals that supply is significant and highly concentrated with 69 percent of supply situated in the South Atlantic, Pacific and Mountain regions. Conversely, 50 percent of traditional hotel supply is in those same areas. Ms. Finocchiaro noted that the data suggests that most of the alternative accommodation supply is leisure oriented rather than an individual business traveler. Additionally, she noted that demand for alternative accommodation is up 35 percent over a year versus only two percent for U.S. hotel demand. Alternative accommodation supply is also seasonal, with new listings emerging during high demand periods in many markets, which makes hotel revenue management more challenging, said Ms. Finocchiaro. The average net income on an “entire home” rental is $23,000.
Alternative accommodation is no fad – it’s the uber to the hospitality industry and it’s here to stay.
-MaryJo Finocchiaro, Executive VP and CFO
She further conveyed that regulation is a major headwind for home-share companies and some municipalities, under pressure from local constituencies and hotel companies alike, have passed strict regulations on alternative accommodation. In 2019, legislation was enacted in Los Angeles, Hawaii, and New Orleans. Los Angeles requires hosts to restrict rentals to 120 days, must register with the city ($89 per year), and may only rent out their primary residence where they spend at least six months per year. Hawaii restricts advertising of unpermitted rentals with severe fines. They also limit short-term rentals with an owner living on-site. Rentals in resort areas, including some sections within Waikiki and Ko Olina, are exempt from the new law. In New Orleans there is a ban on short-term rentals of whole homes in residential areas, hosts may rent out part of the residence they occupy to short-term visitors and short-term rentals of any kind are banned in most of the French Quarter. Time will tell whether the legislation with be strictly enforced and expanded elsewhere. But one thing is certain, alternative accommodation is no fad – it’s the uber to the hospitality industry and it’s here to stay.