By Tarik Dogru, Makarand Mody, and Courtney Suess
If you are in the hotel industry, chances are that Airbnb has come up in conversation at some point or another. The sharing economy phenomenon and the economic, social, and technological changes fueling its growth have challenged the hotel industry to rethink its experiential value proposition to the customer (Mody, Suess, & Lehto, in press). Airbnb founder and CEO Brian Chesky tweeted that “Airbnb hosted more than 2 million guests in the past New Year’s Eve,” and that with the last round of financing, which was $1 billion, Airbnb is now valued at $31 billion (Yurieff, 2017). As a result, Airbnb has been at the core of discussions in the world of hospitality and beyond, mainly due to its potential and uncalculated impacts. On one hand, Airbnb might have positive economic impacts on hospitality and tourism institutions, such as restaurants, bars, and other area attractions, through increases in income and job creations. On the other hand, potential adverse economic impacts of Airbnb cannot be overlooked: Airbnb might negatively affect the hotel industry, if visitors were to shift their demand from hotels to Airbnb accommodations. However, it is not yet clear whether Airbnb is taking a share of the existing hotel industry pie or increasing the size of the overall accommodations industry.
The results from the most comprehensive study analyzing the effects of Airbnb on the hotel industry showed that a 1% increase in Airbnb listings decreases hotel revenue by 0.05% (Zervas, Proserpio, & Byers, 2016). Thus, although negative effects on hotel revenues by way of Airbnb were reported in this study, the magnitude of these effects was small in the given location of Texas. On the other hand, a study conducted in Korea showed that Airbnb does not affect hotel revenues at all (Choi, Jung, Ryu, Do Kim, & Yoon, 2015). A recent study conducted by Smith Travel Research (STR) in 13 global markets reported that Airbnb listings did not affect hotel demand and revenues (Haywood, Mayock, Freitag, Owoo, & Fiorilla, 2017).
While there are limited studies from which to draw definitive conclusions on the effects of Airbnb on the hotel industry, according to Mr. Chesky, Airbnb does not directly compete with the hotel industry. He claims that Airbnb guests are not typical hotel customers, but rather those who would have stayed with friends and family (Intelligence, 2017). Although Airbnb argues that it brings new visitors to destinations and that 70% of its listings are outside of hotel districts, a report by Morgan Stanley indicates that about 42% and 36% of Airbnb guests switched from hotels and bed and breakfasts respectively, whereas only 31% of Airbnb guests represent those who would have stayed with friends and family (Intelligence, 2017). Furthermore, a recent study conducted in Los Angeles showed that more than 60% of the properties listed on Airbnb are solely used for commercial purposes and thus are excluded from the residential real estate market (Lee, 2016). According to a recent report by CBRE, revenue generated by hosts renting out two or more units was about $1.8 billion, and hosts renting out ten or more units generated $175 million in 13 major US markets in 2016 (CBRE, 2017). Despite this massive amount of generated revenue, the hosts are generally not paying taxes on their properties.
While there seems to be free-riders on the market that take advantage of the sharing economy platforms like Airbnb by listing multiple properties, based on the current knowledge, it is still not clear whether Airbnb has an adverse effect on the hotel industry. The present study compares the hotel industry and Airbnb in terms of key performance metrics, including occupancy, ADR, and RevPAR, to determine whether and how Airbnb affects the hotel industry in Boston. Boston is a strong hotel market, but italso has a considerable and growing Airbnb supply, so it provides an excellent context for our analysis.
In our analyses, we treated Airbnb as an accommodation firm to analyze whether it is directly competing with hotels in Boston. Accordingly, the number of Airbnb units listed and the number of units rented (including entire homes and private and shared rooms) multiplied by the number of days in a specified time period constitute Airbnb supply and demand figures, respectively. Occupancy, ADR, and RevPAR were calculated following the same methodology used to calculate these statistics in hotel industry. The Airbnb and hotel data were provided by Airdna and STR, respectively. We analyzed data for the period between January 2015 and September 2016.