Silly Putty Supply: The Real Way Airbnb Hurts Hotels

by Susan on March 24, 2016

silly putty

Are hotels losing business to Airbnb?

This is a hotly debated question in the hotel industry, most recently at the Hunter Hotel Conference held last week in Atlanta.

Tyler Morse, CEO and managing partner of MCR Development, said, “AirBNB isn’t a factor in suburban New Jersey or suburban Denver, it just doesn’t matter.”  [Source]

Meanwhile, Joel Ross, principal of Citadel Realty Advisors, said, “You might buy the nonsense that it is just a New York City problem and Airbnb does not matter.”  [Source]

Here’s what I think.

There are obvious market positioning differences between Airbnb and hotels:

  • Unique experience vs. dependable experience
  • Authentic neighborhood location vs. commercial center or resort location
  • Low overheads and expenses vs. high overhead and expenses

Hoteliers make a lot of head-in-the-sand noise about how unfair it is that Airbnb is regulated and taxed differently than hotels, and many of those complaints are valid.  (I’ve written before about how that line of argument obscures the real issue, which you can read here.)

But the most important difference, and the way that Airbnb is stomping on hotels, is supply.  Airbnb has elastic supply, by which I mean the number of rooms available for rent on Airbnb stretches like Silly Putty as hosts add and subtract availability.  When it’s busy season – think summer in Maine or winter in South Florida – more listings are available on Airbnb.  When it’s slow, the number of listings decreases.

Unless a hotel undergoes a major renovation, the number of available rooms is the same whether it’s busy or slow.

If there’s a big conference in town, Airbnb’s supply grows, while the number of available hotel rooms in a market stays the same.  As a result, those periods of peak demand and occupancy compression that hotels used to be able to count on to make their numbers are eroded.

Meanwhile, with constantly shifting supply, hoteliers can’t generate good data around how Airbnb impacts them.  For example, I looked at Airbnb supply in Portland, Maine over a period of about six months.  During low demand periods, listings numbered in the 100s.  For peak season, July – September, they stretched up to 500+.

The TL;DR version?  Heck, yes, Airbnb is affecting hotels, but nobody seems to be able to accurately tell how much.

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