Airbnb is the major disruptor in the multi-billion dollar hotel industry. By opening up rooms that would otherwise have been unused or under-used, the company can bring a flood of options onto the market, benefiting customers and property owners alike.
At least, that’s the idea. But research from Bank of America suggests the top reason people use Airbnb — it’s cheaper than hotels — isn’t actually grounded in fact. Across America at least using an Airbnb is a lot more expensive than a normal hotel.
First, let’s look at some research released by Morgan Stanley analysts this week. The investment bank asked Airbnb users to give their reasons for favouring the service. Here’s what they said:
“Cheaper price” comes on top, by a distance. Note that “own kitchen,” one of common the distinguishing features of Airbnb which hotel rooms basically never have, comes 4th on 25%, a long way below price.
And here’s the accommodation that Airbnb users and prospective users say that the service is replacing. Unsurprisingly, hotels come out on top:
So according to the Morgan Stanley straw poll, Airbnb customers in general use the service because they think its cheaper than hotels.
But that’s pretty odd when you compare it to some research from Bank of America Merrill Lynch, which was released just two weeks ago.
When the BAML researchers went to look at what discount going with Airbnb got in comparison to a hotel room, they found something unexpected — listings on the site are actually more expensive on average across the top 25 US markets, and even pricier elsewhere in America.
A 30% markup in the top 25 cities and a 60% markup across the US, based on average daily rates (ADR) — that’s pretty huge.
But almost immediately, you can spot the problem. Airbnb users often rent out a whole home, not just a single room as you would in a hotel. It’s comparing apples with oranges.
But BAML’s researchers are a step ahead. They have stripped out the unconventional listings that are most like hotels on the cheap end (they suggest “treehouses, cars etc.”) and excluded full-sized homes on the expensive end. They have only included apartments, ranging from studio to 3 bedroom units.
They note that when users are sharing the rooms in a multi-room property, “the rate may be materially less than we are presenting it here.” But for say, a couple booking a single room flat, the discount against hotels seems pretty thin, if it exists at all.
It’s possible, of course, that people are paying for the additional amenities (like a kitchen) that come with an Airbnb listing. But it’s clear from the Morgan Stanley chart above that at least half of the people using the service didn’t suggest they wanted it for the kitchen.
Here’s how the BAML authors sum up their research:
We believe all of this is pretty hard evidence that Airbnb is not just a cheap room or discount alternative to a traditional hotel. Instead it can and likely should be viewed as a competing or substitute good or service. This likely runs counter to some investors’ assumptions about the quality and type of inventory actually available on Airbnb. If anything, we think it adds more support to the potential risk of cannibalization and supports the idea that customers may choose Airbnb listings based more on amenities (like a kitchen) or location than price alone.
Something’s wrong here — are BAML’s figures way off, or are Airbnb user confused about why they’re actually choosing the properties?
There’s no clear answer. The only thing that’s obvious is that not all of these things can be correct at the same time.