Essay: AirBnB's Impact On Hotels And Strategies To Cope.

The CEO of the private equity firm which owns the land, bricks and mortar (real estate) of the Arena Utopia hotel was at a recent AirBnB seminar. Some of the things she heard had her worrying about the potential impact on the more traditional aspects of the industry.  She has heard about your outstanding work as a Hospitality Business consultant and understands that you have a strong reputation for developing sound but diverse strategic options for the hospitality industry in Perth Western Australia.  She has retained you to investigate the impact AirBnB may have as a disrupter to the hotel industry and to make recommendations on how best to deal with the phenomenon in relation to Utopia Arena Hotel.

Investigate the size, scope and impact that AirBnB has had on the hotel sector in other parts of the world.  You may find that in some jurisdictions nothing has been done, while in others laws have been enacted to regulate its’ influences.  Still others have banned hotels and other accommodation providers from listing on AirBnB.

As a consultant you are to develop a minimum of 3 (three) diverse strategy options for the private equity firm CEO.  You are further charged with making recommendations to the CEO and current hotel management (local SBU not corporate) as to which strategy option you think will prove to be most beneficial into the future. Be aware that what may be most beneficial to the equity firm may not be most beneficial to the hotel management.

Size, scope, and impact of AirBnB on the hotel sector

The present report attempts to prepare a range of diversified strategies for the CEO of private equity firm and the hotel management of Perth Western Australia (WA), considering the pros and cons of AirBnB operations in the hospitality industry. Among the given scenarios, the scenario 1 has been chosen to prepare the present report. Different market surveys have been conducted in this regards globally, which projected that AirBnB has a significant impact on the hotel industry in both positive and negative ways. The negative impacts found so intense that the few hotels and accommodation providers also been banned from the listing of AirBnB. Taking these things into consideration, the report develops three diverse strategies and provides the recommendation to overcome the negative impacts over the business.

The Perth hotel market is experiencing a higher competitiveness due to the flourishing of new hotel rooms and softening of the business travels. One of the major reasons is the significant increase of the non-traditional accommodation via the booking of AirBnB. The government survey indicated that more than 25% of Western Australia’s room capacity is maintained by AirBnB, and the supply is increasing at about 4% per month. The monthly income of WA’s AirBnB hosts exceeds by AU$ 4.5 Million (Bcec.edu.au, 2018).

On the other hand, Aznar, Sayeras, Segarra&Claveria(2018) stated that due to the emergence of issues such as neighbourhood amenity problems, tax avoidance and impacts on the varied investment models, some of the renters are trying to avoid their listings with AirBnB. The revenue percentage of the international hotels is getting some hits due to the indulgence of AirBnB in the unconventional accommodation offerings. At the same time, the Australian Government also focused on priority areas such as increased demand for AirBnB due to the disruptive tourism offered by the company. It has been identified that more than 6% of WA’s incominginternational travellers’ are created by AirBnB. Customized services at an affordable rate and attraction of getting homely services rather than going for traditional hotel services are the major concern for the tourism industry today (Alonso & Liu, 2013).

This scenario is found more crucial in other parts of the globe as well. The AirBnB listings, occupancy rate and revenue of AirBnB hosts from entire Europe can be considered as a potential example. More than 27,093 listings were to be found in the 14 cities across Europe in the FY 2016 (Tse-fr.eu, 2018). On the other hand, the revenue distribution is found uneven across Europe (see Table1 in the appendix). At the same time, the proportion of multiple listing is also found complex and highly different, which can be seen in Table 2 of the appendix.

In order to resolve these issues, some of the jurisdictions are managing the adverse effects through establishing an essential line between the commercial and private monarchy of operation (Ruhanen, Whitford& McLennan, 2015). Thus, analysing the impact of AirBnB have become more crucial for the present hotel operating in the Perth of Western Australia, and the CEO of the equity firm, as the main business is concentrated on real estate business. The present report produces some diverse strategies to exploit the optimum benefit of AirBnB listing with the CEO of the Equity Firm.

1. a) Promoting houses and rental via AirBnB:

Strategies for the private equity firm CEO

The report published by National Visitor Survey (NVS) and International Visitor Survey (IVS) Australia, provided the demand of AirBnB and comparative analysis of AirBnB demand with the traditional accommodation providers. Volgger, Pforr, Stawinoga, Taplin& Matthews (2018) stated that the increased booking in the WA refers a broader scope for Arena Utopia Hotel to expand its operation through rental via AirBnB.

The overall findings from Figure 1-5 (see appendix) indicates that the share of AirBnB listings is increasing significantly (more than 20% per year) in the city of Perth, Australia. In this regard, Smallwood (2011) stated that major revenue earning occurs in the holiday season, by the Australian hotel industry. Thus, considering the data of figure 4, it can be stated that customers from age group 30-49 and 70-80 would be more attracted towards the AirBnB services due to the cost effectiveness and customized non-traditional services. Moreover, the buying pattern of international travellers is also changing which can be found in figure 5, as the majority of the Asian and European travellers are attracted to the listed hotels of AirBnB.

The reports indicate that the occupancy rate of AirBnB is increasing almost 40% on a yearly basis (Li & Srinivasan, 2018). Simultaneously, it has also been identified that the average price in the given region for the hotel is approximately $226, whereas, the same for AirBnB is just $123, which is substantially lower. In other words, the Uthopia Arena Hotel may get the leverage of tie-up and collaboration with AirBnB with respect to real estate properties. In nutshell, the increased demand for AirBnB would be beneficial for the CEO to earn greater profitability through renting the real estate business in the WA region.

1. b) Redesigning current services:

The hotel may apply innovative promotional strategies to attract foreign as well as domestic visitors. Folger (2018) also mentioned that hotel industry needs to adopt latest technologies and trends quickly so that the market may be disrupted and value creation may not be at stake. In this context, it may be noted that add-on services like housekeeping facility, fitness center, gymnasium, community hall,, banquet etc. are critical to business success apart from traditional room booking services (Dickinson, 2018). In the given case, Arena may apply those techniques in collaboration with AirBnB. Such collaboration may take the form of strategies with respect to targeted marketing. For example, AirBnB’s appeal for “Authentic” experience at local properties. Some researchers may be of the opinion that emphasis on cultural tours and events may be good start for a hotel in the mood of expansion (Forgacs & Dimanche, 2016)

1. c) Selling the location and embracing the home stay:

Hotel industry, at times, manages several hidden costs within their price structure.  For the sake of expansion and growth, the management of Arena may revisit their cost structure, identify the hidden costs related to amenity and value creating services and offer those separately. Like, mini bars may be offered to the customers at the street prices. It has been observed that AirBnB has been offering self cook services to its travelers. Therefore, the management of Arena may be advised to have a tie-up with AirBnB as well as local bakeries and restaurants. Horizontal as well as vertical line supply chain affects the bottom line in the long run (Yiannakis& Davies, 2012).

Recommendations for Utopia Arena Hotel management

The given case study presents three different strategic options for the CEO of the private equity firm of Arena Utopia Hotel. An in-depth perusal of the strategies so suggested may reveal the fact that the CEO of the private equity firm may be considered to be in a better position to encash the benefit arising out of the tie-up and listing of AirBnB airline business.

The three possible strategies may suggest the linkage establishment between hotel and airline industry. Such linkage and strategic alliance may help both the businesses in the long run.  The overall performance of AirBnB in the airline sector may be considered to be sufficiently satisfying and hence, the strategic alliance with them in terms of know-how sharing and the rental arrangement of property may surely contribute towards the growth potential of the hotel.

Therefore, it may be recommended to get the real estate property listed with AirBnB so that the increasing number of booking with AirBnB will positively result in the more number of rooms booking as well for Arena Utopia Hotel. Moreover, such proposition is expected to be effective and finally viable for CEO of the private equity firm as well because the same will increase the revenue by way of renting of properties.

Conclusion:

Based on the discussion and analysis performed in the preceding sections of the report, it may be concluded that the given case study establishes the fact that the impact of airline industry on the hospitality industry, especially, on the hotel sectors is substantial. Since both the industries serve almost similar vertical in terms of customer services with premium level of comfort, convenience and value offering, the market players of the two industries may not be construed to be rival but co players in the market. If the management perceives the same and attempts to foresee the opportunities underlying, both the hotel and airline industry may achieve considerable in the long run.

References:

Alonso, A., & Liu, Y. (2013). Local community, volunteering and tourism development: the case of the Blackwood River Valley, Western Australia. Current Issues In Tourism, 16(1), 47-62. doi: 10.1080/13683500.2011.644770

Aznar, P., Sayeras, J., Segarra, G., &Claveria, J. (2018).AirBnB Competition and Hotels’ Response: The Importance of Online Reputation. Athens Journal Of Tourism, 5(1), 7-20. doi: 10.30958/ajt.5.1.1

Bcec.edu.au. (2018). Retrieved from https://bcec.edu.au/assets/The-impact-of-Airbnb-on-WAs-tourism-industry-report-web-version.pdf

Dickinson, G. (2018). How the world is going to war with Airbnb. Retrieved from https://www.telegraph.co.uk/travel/news/where-is-airbnb-banned-illegal/

Folger, J. (2018). The Pros and Cons of Using Airbnb | Investopedia. Retrieved from https://www.investopedia.com/articles/personal-finance/032814/pros-and-cons-using-airbnb.asp

Forgacs, G., &Dimanche, F. (2016). Revenue challenges for hotels in the sharing economy: facing the Airbnb menace. Journal Of Revenue And Pricing Management, 15(6), 509-515. doi: 10.1057/s41272-016-0071-z

Li, H., &Srinivasan, K. (2018). Competitive Dynamics in the Sharing Economy: An Analysis in the Context of Airbnb and Hotels. SSRN Electronic Journal, 4(7), 77-126. doi: 10.2139/ssrn.3197969

Ruhanen, L., Whitford, M., & McLennan, C. (2015). Indigenous tourism in Australia: Time for a reality check. Tourism Management, 48(55), 73-83. doi: 10.1016/j.tourman.2014.10.017

Smallwood, C., Beckley, L., & Moore, S. (2011). An analysis of visitor movement patterns using travel networks in a large marine park, north-western Australia. Tourism Management, 4(11), 23-44. doi: 10.1016/j.tourman.2011.06.001

Tse-fr.eu. (2018). Retrieved from https://www.tse-fr.eu/sites/default/files/TSE/documents/ChaireJJL/PolicyPapers/2016_30_12_pp_understanding_airbnb_in_14_european_cities_coyle_yeung_v.3.1.pdf

Volgger, M., Pforr, C., Stawinoga, A., Taplin, R., & Matthews, S. (2018). Who adopts the Airbnb innovation? An analysis of international visitors to Western Australia. Tourism Recreation Research, 43(3), 305-320. doi: 10.1080/02508281.2018.1443052

Yiannakis, J., & Davies, A. (2012).Diversifying rural economies through literary tourism: a review of literary tourism in Western Australia. Journal Of Heritage Tourism, 7(1), 33-44. doi: 10.1080/1743873x.2011.618538