Alternative Accommodations Competition? Face It Head On

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As this new decade dawns, it’s time to look back at how the last decade has helped shape the hotel industry.  What a difference a decade has made!

Dozens of major acquisitions and mergers have taken place. The melding of lifestyle and travel into seemingly endless new hotel concepts and brands have come to market. Additionally, we have seen the evolution and proliferation of the Alternative Accommodations concept with Airbnb, Vrbo, and a new breed of brands.

Granted, home sharing and vacation rentals have been around longer than a decade. But that model has been turned on its head in the last 10 years or so.

Competitors and Copycats

Two college friends tried to make some extra money to pay their rent. These two friends (and later, a third friend) went from renting air mattresses in the living room of their apartment to creating a multi-billion-dollar juggernaut – Airbnb, the envy of every young capitalist’s dreams. But it goes beyond these three friends. The platform they created allowed everyday folks to become entrepreneurs themselves by becoming hosts. They could list and rent sofas in their basements, spare rooms in their homes, or tree houses in their yards. Of course, we all know that was just the start.

Born from such humble beginnings, smart money saw the opportunity for what it really was – a platform to invest in institutionally. From there, Airbnb and many copycats have transformed the lodging landscape into what it is today – more than just hotels.

The numbers are staggering. Over 2 million people stay in Airbnb units nightly, and there have been over half a billion Airbnb stays all-time. And that’s just Airbnb.

Statistics for Vrbo (pronounced “ver-boh”) and HomeAway, owned by Expedia Group, are not as readily available, but they add to the overall volume. Airbnb has further diversified itself by offering Airbnb Plus, Airbnb Experiences, and Airbnb Adventures, all created to further enhance the options for improved home rental quality or specialty excursions.

A New Breed of Brands

A new wave of companies has come on the scene offering hotel-like stays in upscale, furnished urban apartments. This niche, formerly occupied (forgive the pun) by corporate housing firms specializing in corporate relocations and long-term rentals (30+ days), has seen a transformation of its own. Thanks to alt-brands like Sonder, The Guild, Lyric, Domio, WhyHotel and others, accommodations are available in many popular U.S. cities. These startups are well-funded and are limited to about a dozen U.S. cities, but the number is growing quickly, adding many more locations.

The rise of such alternative brands is a solution to the dilemma faced when renting from individuals. These brands are better able to provide consistent quality to travelers, similar to what guests might expect from traditional hotel establishments, versus renting from individuals. Plus, they offer larger, fully furnished accommodations at prices comparable to typical hotels.

Alternative Accommodations’ Impact

What impact has this made on the traditional U.S. hotel industry?

In 2018, a study was released showing that Airbnb resulted in 1.3 % fewer hotel nights booked and a 1.5% loss in hotel revenue in 10 cities with the largest Airbnb market share.

According to Skift, alternative accommodations, including individual home-sharing and corporate-owned short-term rentals, accounted for about 10% of U.S. lodging revenues in 2018. By 2019, the estimate was 11%, which translates to about $30 billion. 2020 is certainly expected to be higher.

If imitation is the sincerest form of flattery, then look no further than the recent entry of big box hotel chains. Traditional hotel chains have gotten into the mix, with Hyatt, Accor and Marriott wading into the pool at various depths to expand their offerings in the home rental space.

No worries

Despite the advancement of these lodging options, backed by solid data, many hoteliers don’t take the competitive threat seriously. Their Revenue Managers don’t keep tabs on alternative accommodation pricing and inventory in their own markets or sub-markets, yet scratch their heads when they experience occupancy declines for no apparent reason.

5 Tips for facing “alt-accom” competition head on

What should Hotel and Revenue Managers do in the face of mounting “alt-accom” competition?

1. Know your market.

Whether your hotel is located in an urban market, resort destination, or suburban location, get a sense for how much alternative accommodation inventory is out there. Revenue Managers can start by using Expedia or Booking.com to see how many listings exist on those platforms. But to get a true sense of inventory and home in on specific neighborhoods or zip codes, a great resource is AirDNA’s website.

illustration of active rentals around Chicago

2. Be aware of pricing.

It should be no surprise that during high demand periods, alternative accommodations also see a spike in demand. If demand exceeds supply, then hotels should have no problem selling out and capturing high ADRs. The challenge is when supply exceeds demand. Those alt-accommodation listings are still out there during low demand periods, and hotels still grapple with their “regular” hotel competition. This is when hotels truly compete with alternative accommodations. This is also when it’s harder to put a finger on the impact on performance.

David Beaulieu, TCRM Executive

Revenue Managers have tools available to shop their hotel competition. Recently, TravelClick added the capability to gain insight into alternative accommodations as well. Other than using paid services, Revenue Managers must be resourceful in obtaining pricing, such as using OTAs to shop manually or using AirDNA. This can be time-consuming, but it is an important tactic for knowing pricing of all competition in their area and using the information to develop strategy.

3. Enhance value proposition.

Let’s face it, there are many compelling reasons why travelers choose to consider alternative accommodations over hotels, whether for business or leisure travel.

Price may be the reason, or maybe the value proposition. More square footage may tip the scales, or it could be the included amenities. Whatever the reason, hoteliers should frequently review their own value proposition to make sure their offers are equally compelling.

This doesn’t necessarily mean multiple “freebies”. Instead…

  • Focus on ensuring photos and descriptions of the property are up-to-date and accurate in all distribution channels.
  • Ensure there is perceived value for all rates.
  • Find opportunities to include low-cost amenities or additional services, then highlight those extras with the rates.
  • Above all, make service excellence the top priority. Good service is what keeps people coming back.

4. Make use of social channels.

Hoteliers, especially brands, have gotten better at using social media to create awareness, build loyalty, and reach people they might never before have reached. When social media first appeared on the horizon, it was like the untamed wild west – no standards, no best practices. Today, companies have a plethora of resources available for developing their social channels as a resource for customer engagement.

Unfortunately, there are still many hotels that miss the mark with their social channels. They have infrequent and inconsistent messaging. Channels are used only to post deals and specials. Become educated on the Golden Rules of social media content when you post. Develop a well-rounded social channel strategy.

5. Pay attention to online reviews.

In the same vein as social channels, hotels that respond to customer reviews tend to perform better with review sites, and this leads to better revenue performance, assuming the reviews are mostly good. Hotels should go beyond Trip Advisor reviews to include reviews from Google and the various OTA channels – negative and positive reviews alike. The best reviews are those that are not “canned” and use some variety in verbiage, showing sincere appreciation for the specific comments from the reviewer.

red circle indicating no recession in 2020

Alternative Accommodations have come a long way in the past decade and have made an indelible impact on the hotel industry. We expect this niche to keep growing and continue diverging into specialty niches, further complicating the competitive arena. Revenue Managers would do well to not only monitor new hotel inventory, but to keep a close watch on how increased inventory from alternative accommodations are impacting their hotels’ performance.

Having spent more than 20 years in hotel revenue management, David Beaulieu has developed a strong set of skills with respected full-service brands in many markets.  A successful leader and team builder, he is also keenly aware of the importance of monitoring hotel revenue management systems and strategies. This is crucial in today’s fast-paced environment, where revenue can be measured by the hour.  In his role, David assures delivery of TCRM’s niche service to hotel owners, management companies, and asset managers to ensure these revenue opportunities are not missed when hotels are lacking full-time revenue management staff or support.

David began his career in hospitality with Hilton Hotels Corporation (Now Hilton Worldwide) and spent 11 years moving through a progression of roles and assignments.  He has also worked at Loews Hotels & Resorts, as well as two award-winning third-party management companies, Davidson Hotels & Resorts and Crescent Hotels & Resorts. David is a four-year veteran of the U.S. Air Force and holds a bachelor’s degree in business administration from Columbus University.

David Beaulieu, TCRM Executive