Airbnb Not Hurting Boston Hotel Sector

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The growth of Airbnb has had little effect on the Boston hotel market, and Airbnb customers will pay more for features that hotels can’t always provide.

Those are the findings of two studies by BU School of Hospitality Administration researchers that were published in the spring 2017 edition of the Boston Hospitality Review, a journal published by the school.

Despite the explosive growth of the sharing-economy lodging service, data from January 2015 to September 2016 show that Boston’s hotel sector maintained or increased its room rates and revenues per room, even as the supply of hotel rooms has increased.

In Boston, at least, “Airbnb did not affect the hotels at all. Hotel supply continued to grow, hotel ADR [average daily rate] continued to grow, demand increased dramatically,” says Tarik Dogru, an SHA assistant professor of hospitality finance and accounting, who wrote the paper “Comparing apples and oranges? Examining the impacts of Airbnb on hotel performance in Boston” with Makarand Mody, an SHA assistant professor of hospitality marketing, and Courtney Suess-Raeisinafchi, an SHA assistant professor of hospitality administration.

Airbnb does for the hotel industry what Uber and Lyft do for taxis and limousine companies, exchanging a guest-hotelier transaction for a peer-to-peer transaction through its website. Users can search the site for a room, an apartment, or an entire house with the desired location, amenities, and price, then book a stay, and Airbnb takes a piece of the rental fee. Guests and hosts later rate one another on the site.

“The emergence of companies like Airbnb, representative of the broader idea of the sharing economy, are changing the rules of the game,” says Mody.

Airbnb is no longer just people renting out a spare bedroom; many properties on its site are now owned expressly as rentals by entrepreneurs seeking a bigger piece of the action. Legislators are taking notice at both the state and local level, considering issues from taxation to guest safety and fire codes. And academics are assessing issues from pricing policies to the experience a private rental offers compared to that of a hotel or motel.

The “apples to oranges” paper examines key performance metrics for Airbnb and the hotel industry, such as supply, occupancy rates, average daily rate, and revenue per available room. It is based on information from Airdna, a company that provides data and analytics on Airbnb to entrepreneurs, investors, and academic researchers, and STR, a standard source for hotel industry data.

The researchers report that the Boston hotel industry’s occupancy rate was 85.4 percent in September 2015 and 83.1 percent a year later, while the supply of rooms increased slightly, to just over 1.6 million room/days per month. But the average daily room rate increased from $209 in September 2015 to $219.26 a year later.

During the same period, Airbnb’s supply of room/days in Boston roughly tripled, from 128,730 to 390,270 per month. Perhaps as a result, the occupancy rate dropped from 40.2 percent to 27.6 percent, while its average daily rate decreased from $183.34 to $159.41.

In sum, the explosive growth for Airbnb has not damaged the hotel industry. In fact, the authors say, it’s possible that Airbnb has expanded the lodging market in the Boston area, either by bringing additional travelers to the market or by attracting customers who would otherwise have chosen alternate accommodations, such as the couch of a friend or family member.

It’s possible that Airbnb has expanded the lodging market in the Boston area, either by bringing additional travelers to the market or by attracting customers who would otherwise have chosen alternate accommodations.

“Key performance metrics for Airbnb and hotels indicate a strong positive correlation, indicating that Airbnb demand is potentially different from hotel demand (i.e., they target different customer segments), and thus, Airbnb’s negative economic impacts on the hotel industry are, at best, marginal,” the report says.

Understanding what’s happening here is important because “the sharing economy isn’t just accommodations,” says Suess-Raeisinafchi. “It could be the sharing economy for cars, if you’re renting your personal vehicle out, instead of just Uber. I play polo, and we’ve got a sharing economy of horses now, thanks to an app. You can connect with your fellow members where you can lease horses and organize transportation. We’ve got sharing economy with fashion, where you can rent each other’s wardrobes. That’s going to disrupt the fashion market.…It’s all new.”

A second paper, “What do guests value most in Airbnb accommodations? An application of the hedonic pricing approach,” written by Dogru with Osman Pekin(SHA’17), found that people often pay more for Airbnb lodgings than they do for hotels.

“In some months, the average price on Airbnb was higher than hotels,” Dogru says. “When I started to look into this, I was thinking people would be more into Airbnb for economic reasons. But either they are not rational in their decision-making, or they are looking for unique experiences and features, and they don’t care about the price differences.”

The researchers found that the price of Airbnb rentals increases 10 percent over other units if a listing is handicapped accessible, 11 percent if the listing is family friendly, and 11 percent if a free breakfast is offered. “The results showed that Airbnb guests place more value on space, cleanliness, number of photos, handicap accessibility, family friendliness, free breakfast, location, and unique experiences,” the paper concludes.

Mody is interested in the consumer psychology surrounding Airbnb and the accommodation experience, and also in what sort of rethinking that forces from hotels. Companies like Airbnb are changing the nature of the traveler’s experience outside the accommodation itself, he says.

“I think this is where the fight between hotels and Airbnb is going to be played out in the near future,” he says, “and in terms of the overall experience of place.”

The papers are part of an ongoing series from researchers at the school, who say there’s much still to mine from Airbnb’s approach to the lodging business.

“For the economy, for the industry, it is disruptive,” says Dogru, “but for the researcher, it’s a great opportunity.”

The Novus Group