By Larry Mogelonsky, MBA, P. Eng. (www.hotelmogel.com)
Raising the argument that Airbnb’s business model does not directly support the local economy is not anything new for the hospitality industry, and even more so for real estate. However, there appears to be an additional impact on hotels, one that requires a bit of explaining.
(Before we get underway, know this Airbnb is simply the largest of these alternate lodging accommodation companies. Its namesake in this article is used as shorthand to represent all others in this category and that Airbnb is not to be singled out in any way.)
A hotel represents the combination of both a physical space and an array of services. This range of services includes housekeeping, maintenance, groundskeepers, front desk personnel, valets, reservations staff, bellhops, restaurant servers and kitchen staff. All this amounts to numerous entry level employees – individuals who are looking to better themselves and their families through gainful employment. And due to socio-economic reasons, the labor pool attracted to these positions (often at or near minimum wage) are typically from the middle to lower end of the class spectrum.
While a direct connection between Airbnb’s influx of rooms and a negative impact on hotel rooms sold has only been vaguely proven, the fundamental economic principles of supply and demand certainly indicate as such. As marketplace demand for accommodations can only grow at organic levels, any dramatic increase in supply, much like what we are currently experiencing with the proliferation of alternate lodging providers, can never be properly absorbed. This means that, inevitably, hotels will suffer, both in terms of ADR and occupancy.
Adding to this is that rental hosts have fewer incremental costs. They can more easily adjust their rates to meet the downward market pressure on price in lieu of increased supply. Hotels aren’t so lucky, which means that in order to make their margins, they will have to start cutting costs. And the largest attributor to this is labor.
If occupancy and ADR stagnate or, worse, decline, property management will be forced to reduce headcount as a means of staying afloat. The jobs (or shifts) that are shed first, though, will typically be those at the bottom rungs of the ladder. It is a sad but true reality; those with greater seniority (manager level and above) are much more likely to weather any storm of this nature due to the specialization – and thus irreplaceability – of their specific roles.
As another corollary, not only does Airbnb affect entry level job opportunities in hospitality, but its trading ecosystem doesn’t allow this labor pool to recuperate its losses either. Although anyone can rent a place on Airbnb, to host requires some incumbent financial means. That is, a host has a spare room, a vacant extra space or a certain degree of freedom to travel away from his or her primary residence.
By inference, this translates to those people who are at least in the lower-middle class or higher. Seldom will you find lower or working class folk hosting via Airbnb because they simply do not have the abovementioned luxuries. And so, these individuals are being squeezed on both ends via reduced job prospects as well as their inability to effectively take advantage of this new system.
What can hoteliers do? First and foremost, recognize the direct and indirect impact that these alternate lodging providers pose to our industry, your property and to your own community. Gather the facts on employment by hotels in your area and potential job losses. Also examine the impact of taking rental product out of the market if it converts to Airbnb lodging.
Second, band together with other hoteliers, using your local hotel associations as your sounding boards and voice to the outside world. Building on this, use these networks to raise awareness on the potential for job losses and rental market changes with your mayor and town counsellors. Utilize public relations as an outreach vehicle.
Next, lever these arguments and any evidence you accrue to push for enacting local legislation to ensure that any alternate lodging facilities in your neighborhood are registered, inspected in the same manner as hotels and levied the same taxes. In tandem to these parity-seeking activities, you might also try to limit Airbnb’s presence in your market by calling for minimums to private rental units of, say, no less than seven nights.
Ultimately, know that the sharing economy is not going away. Airbnb and its ilk are entrenched, well-funded and already enjoying a loyal following. This is something you are going to have to confronted at some point. More studies on Airbnb’s impact on the economy are being released on a regular basis so keep reading and be proactive to help your community.
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Editor’s note: To discuss business challenges or to discuss speaking engagements please contact Larry directly.
