Author: Lapas Akaraphanth

Highlight

  • Airbnb’s exponential growth worldwide is squeezing hospitality sector revenues, particularly among hotels in the middle-to-low price range. Although stricter regulations are slowing down Airbnb growth, it stands to benefit from being able to enter the hotel market in full force.
  • Currently Airbnb’s customer base does not overlap with the majority of tourists in Thailand. Thus the Thai hospitality sector has not been greatly affected. Travelers tend to prefer hotel rooms in Thailand as they are priced about the same as Airbnb rooms. However, Airbnb may become a major competitor in the future since more than one million Chinese tourists are booking rooms through Airbnb. The website’s roster of rooms in Bangkok is expanding at the whopping rate of 100% annually.
  • The Thai government should issue a clear regulatory framework for Airbnb so that its fast growth does not adversely affect the country’s tourism industry. Hotel owners should also adjust their strategies in preparation for more competition from Airbnb in the future. Other service-related businesses may also piggyback on Airbnb’s success.

 

Airbnb’s exponential growth worldwide is squeezing hospitality sector revenues, particularly among hotels in the middle-to-low price range. Since its launch in 2010, Airbnb rooms have increased at the rate of 150% per year. It now offers more than 2 million rooms in 190 countries, compared to the Marriott group’s 1.5 million (Marriott is the world’s largest hotel operator). Still, Airbnb’s market share in major cities remains relatively small. For example, around 10% in Paris, San Francisco, and London, but with a more impressive 17% market share in New York. Due to its small market share, Airbnb has strong potential for further growth. In terms of room types, most Airbnb rooms are one bedrooms (50%). Furthermore, average prices tends to be lower than comparable hotel room rates, pitching Airbnb in direct competition with hotels in the middle-to-low range. In London, a room on Airbnb on average costs GBP50-100 per night, compared to an average hotel room rate of around GBP145. In New York the average Airbnb rate is USD173 per night—37% lower than hotels in the same area.

Although stricter regulations are slowing it down, Airbnb stands to benefit from being able to enter the hotel market in full force.

Like other disruptive businesses such as Uber or GrabTaxi, their exponential growth has become a cause for concern among regulators in various countries. Airbnb’s dramatic expansion may result in 1) disturbance to local residents, 2) safety issues (Airbnb room owners do not have to comply with the same standards as hotels such as fire safety equipment and security staff and an accident involving tourists may damage the host country’s reputation), and 3) loss of tax income since the government cannot collect rental income tax from Airbnb room owners. Recently many countries with major tourists hubs have issued new regulations, with stricter room registration monitoring. For example, in Japan the minimum Airbnb stay is now seven nights. In New York and San Francisco each Airbnb room owner may register only one unit. By the same token, however, official public regulations also mean that Airbnb can now compete more openly in the hotel market. Airbnb has also expanded into the business travel sector, cooperating with travel agencies such as American Express Global Business Travel, BCD Travel, and Carlson Wagonlit Travel.

 

Currently Airbnb’s customer base does not overlap with the majority of tourists in Thailand. Thai hotel operators, therefore, have not been much affected by the competition.

The majority of Airbnb users are Western tourists, particularly Americans, aged around 35. This group contributes as much as 30% to Airbnb’s revenue. The choice of Airbnb may stem from their preference for traveling by themselves and experiencing local lifestyles. As they tend to stay longer, Western tourists also tend to look for accommodation options other than hotels in order to reduce travel costs.
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