With home rentals delivering better pandemic performance than hotels, rival operators are now scrambling for inventory, in a new battle to attract hosts.
However, while consumers continue to prefer self-contained accommodation, those watching the marketplace note that hotels are in a good position to fight their way back into consumer consciousness, as travel builds and the fear of covid-19 recedes.
Meantime, strong demand has heightened the confidence of leading home rental players. “There is no doubt that vacation rentals are leading the travel rebound and 2021 has been our best start to a year in the US,” said Vrbo president Jeff Hurst. “We want professional hosts to be able to join us quickly and seamlessly as we continue on this exciting journey.”
And Airbnb CEO Brian Chesky declared in a recent interview: “There will probably be more guests coming to Airbnb than we have hosts for. We think there will be a travel rebound coming that’s unlike anything we’ve seen. We have four milliion hosts, to meet the demand over the coming years, we’re going to need millions more.”
Jade Tinsley, head of marketing at short term rental data company Transparent, told Hotel Analyst that demand for hotels fell more substantially than for home rentals during the last year, and that, as a result, home rentals now have a substantial price premium. “Traditionally, hotel rates have been higher than for short term rentals and we could see this trend reinstated with more freedom of movement.” But Transparent’s data shows current hotel rates down 26% year on year, while home rental rates are up 7%.
Transparent also tracks forward bookings, noting travellers are booking short term rentals more confidently further ahead (15% average occupancy for the remainder of 2021, compared with hotels at 5%).
“Year on year reservations are also currently stronger in vacation rentals across global regions (-37% compared with hotels at -72% in Europe), as demand favours self–sufficiency, amenities and space for more rural, domestic and longer stays.”
“It should be remembered that hotels traditionally enjoy higher occupancy and rates, and such a well-established industry will surely bounce back,” said Tinsley. “Their inclination toward more last–minute bookings will help recover occupancy, and crucially, absolute reservations remain far greater for hotels.”
Expedia’s home rental brand Vrbo has stepped up the competition for hosts and listings, by revamping its Premier Partner service under a new name, Premier Host. It has also launched a number of functions to improve listing visibility. A Fast Start scheme helps well reviewed hosts win higher visibility in listings, even if those reviews were on another site.
Qualification for the Premier programme demands high standards from those hosts, with a minimum 90% acceptance rate for bookings, less than 5% cancellations, and a minimum 4.3 guest rating. To prevent newcomers jumping in, listings also need to have a minimum 60 nights, or five bookings, with at least three reviews online.
Over a test cycle with US hosts, Vrbo said Fast Start delivered a 25% uplift in bookings, 50% increase in booked nights and 140% uplift in gross booking value.
“In 2020, new Vrbo homes earned more than new properties on other travel sites,” claimed Cyril Ranque, president of Expedia’s travel partners group. “We are seeing great consumer demand on our site, and this presents an opportunity for new hosts wanting to join us. With Fast Start, new hosts join a trusted global vacation rental brand whilst keeping their hard-earned review score, and receive increased visibility, to set them up for early success on our platform.”
Airbnb is equally bullish. “Now we’re starting to see a really big rebound – when people are vaccinated, they are travelling again,” said Chesky, in a recent interview with CNBC. He revealed that searches from over 60s – those already vaccinated – are up 60% for summer travel. “People want to travel, when they can travel they do, and people aren’t going to the same place they used to. A lot of our growth is in rural areas, small towns and even entry points to national parks.” He said that searches for rural destinations are up 40%.
At Airbnb, the company has just conducted a global advertising campaign, to promote not only travel but to encourage more hosts. But Chesky insisted the strength of his brand will drive both demand and supply. “We are never going to spend the amount of money on marketing, as a percentage of revenue, as we did before the pandemic. We are the leader in this category, and we will retain that leadership position, but we don’t think we would anticipate doing a lot of incentives.”
When quizzed about Airbnb’s previous forays into hotels, and even building its own accommodation, Chesky suggested the current focus remained on the core platform. “As travel recovers, there are things we scaled back that we could resume. We are going to continue to invest in Hotel Tonight, and one of the big trends we are seeing is the decline of business travel.”
HA Perspective [by Andrew Sangster]: Airbnb is currently the biggest dedicated travel company in the world. It has a market cap of USD106bn [as of 27th April] which compares to Booking Holdings at USD99bn and Marriott at USD48bn.
But Airbnb is focused on a market, the private rental space, that is something like a quarter of the size of the hotel market. It is hard to believe that investors are betting on it staying where it is.
It is clear that in the near-term – possibly no more than a year or so – home rentals have the edge on more traditional serviced accommodation. But it is hard to see this lasting and hotels are likely to resume their place as the premium product.
Airbnb’s battle with Vrbo (ditching the European brand Homeaway is an epic fail by Expedia, by the way) matters in the near-term and is important as part of Airbnb’s “soul” or, more fashionably, “purpose”.
In the years ahead, it will be how Airbnb negotiates its entry into hotel distribution that will matter.
Booking Holdings, as the previously dominant OTA, beat arch–rival Expedia (market cap currently USD25bn) by focusing on the agency model. Expedia had been hugely successful with the merchant model (taking inventory and selling it on a sale or return) and was addicted to the higher margins.
Now Airbnb is coming for Booking’s lunch, challenging head-on Booking’s dominance of performance marketing that drives its agency business. If customers are coming directly to your website, you have an enormous edge over businesses that rely on paying Google billions to deliver those customers.
Airbnb will have to execute its entry into hotels adroitly, but it looks well placed to dislodge Booking’s grip in the hotel space. Many hotel customers are currently booking their holidays via Airbnb given the current preference for self-contained accommodation.
The good news for hoteliers is that this is likely to lead to further falls in commissions and OTAs wanting to be better “partners”. Hoteliers will still need to count their fingers and toes after the negotiations but the pendulum of power is definitely further over to the hotel side than it has been for decades.