Can Airbnb help hotels increase revenue?

It is commonly believed that the growth of Airbnb has made a significant negative impact on the hotel business. There are also empirical studies that have documented Airbnb's negative impacts on hotels.

That makes sense. As a substitute of the traditional lodging products — hotel rooms — every transaction on Airbnb means a loss of revenue for hotels or online travel agents (OTAs), such as Expedia and Priceline, which also sell hotel rooms. Thus, it is not surprising to see hotels, Airbnb and OTAs are firing up for a new war.

Hotels, for example, are finding every possible way to stop the growth of Airbnb, even though hotels' book-direct strategy might push OTAs to work closely with Airbnb. Meanwhile, Airbnb is aiming big and wants to become a full-service travel company to compete with both OTAs and hotels.

So, it is really not a question of whether Airbnb has become a big threat to local hotels or OTAs. The question is: In what way does Airbnb make a negative impact on the traditional hotel business?

While there are reports that discuss the supply and demand of Airbnb listings, few studies include Airbnb's price positioning into their analysis. Price is an influential factor when consumers choose between a hotel room and an Airbnb listing. At the same time, price is an important variable in analyzing supplies and demands in economics.

Therefore, Airbnb's price positioning in a market should not be ignored when we measure Airbnb's impacts on the hotel industry.

To address this research gap, I worked with Karen Xie, a professor at University of Denver, on an empirical study that was recently published in International Journal of Hospitality Management. In this study, we answered:

http://bit.ly/kwok091717

3 research questions

• What is the impact of Airbnb supply on the performance of hotel counterparts in a market?
• How would such impact be moderated by Airbnb's price positioning, in terms of price difference between a hotel property and the nearby Airbnb listings in the same zip code as well as price dispersion among these Airbnb listings?
• How would the impact of Airbnb supply on hotel performance be moderated by such quality attributes as class category (e.g., budget traveler hotels vs. luxury hotels) and average review ratings of the hotel counterparts in the same zip code?

The data and analysis

Firstly, we built a unique data set from three different sources, including Tripadvisor.com for hotel-related information, Airbnb.com for listing-related information, and Texas Comptroller of Public Accounts for hotels' quarterly performance records. Our data set is thus composed of the performance records, quality information and characteristics of hotels, as well as the price information of Airbnb listings in the market of Austin, Texas, recording 1,482 observations of 86 hotels located in 20 zip codes of the city over a period of 12 quarters from Quarter 3, 2008 to Quarter 2, 2011.

This sample covers all hotels in the Austin market during the period of observation as long as they reported financial performance data to the Texas Comptroller and received reviews on TripAdvisor. Then, we used a blend of econometrics models to perform the estimations for hypothesis testing.

The results

The supply of Airbnb listings in a market brings down a hotel's revenue per available room (RevPAR) performance, confirming Airbnb's negative impact on hotels.

However, price difference between a hotel and the Airbnb listings and price dispersion within Airbnb listings are positively related to a hotel's RevPAR performance. Such results support the "agglomeration effects" of a product's strategic orientation, in which low-cost hotels can possibly yield higher RevPAR if they are strategically located in an area with many high-priced competitors (in our sample, the average price of Airbnb listings were much higher than their hotel counterparts).

Furthermore, as the gaps in price difference and price dispersion increase, the negative impact of Airbnb supply on a hotel's RevPAR performance decreases significantly.

The negative effect of the Airbnb supply on a hotel's RevPAR performance does not significantly vary by the quality attributes of the hotel, such as class category or review ratings. In other words, hotels of different types cannot immune from the negative impacts from Airbnb.

Implications

We added "price" as an important variable into our analysis when we estimated the negative impacts of Airbnb supply on a hotel's RevPAR performance in a market. For hoteliers, this means:

• When they are facing the threat of Airbnb, managers should also pay attention to the price positioning of the Airbnb listings in the neighborhood. If Airbnb listings are charging for a much higher or lower price than the hotel, chances are they are not competing in the same market.
• If a hotel is located in a nice neighborhood with a lot of high-end, short-term residential rentals, the hotel may be able to leverage the "agglomeration effects."
• As a strategy to fight back against hotels and Airbnb, many OTAs have added the list of residential rentals into their websites. OTAs now have the business intelligence of both hotels and short-term residential rentals, which could be helpful for hotels. We advise hotels to reconsider their relationships with OTAs.
• Hotels may consider adding some Airbnb listings as part of their competitive sets when they evaluate their performance and assess their current revenue management practices.

In conclusion, Airbnb's price positioning in a market can be very influential to a hotel's performance. Are there other factors we should look into when we measure Airbnb's impacts on the hotel industry? What are your suggestions?

Note: This article was also published at MultiBriefs.com - the leading source for targeted, industry-specific news briefs. The picture on the top of this post was downloaded from LogoDesignGuru.com.