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The internet has revolutionized the way we travel, and I would argue that no segment of the industry has been affected more than hotels. Unlike airlines and cruise lines, which continue to operate in oligopolies as they always have, lodging companies got new competitors in the form of home-sharing companies such as Airbnb and Vrbo (now owned by Expedia).
Home-sharing is just what it sounds like — allowing individuals to rent rooms or entire properties. It forms a key piece of the gig economy.
How successful have these home-sharing companies been? Take a look at market leader Airbnb. In 2013, it represented about 3% of the U.S. consumer lodging market. By 2018, that number had reached almost 20%, with competitor Vrbo at about 11%.
Will the success last?
I don’t think there’s any question that Airbnb and its competitors are here to stay, but I do believe that COVID-19 will affect them long after the pandemic has ended. Not that the hotels won’t be hurt — but they have more resources and will experience a faster recovery than the home-sharing companies.
Where will you be safe?
For travelers in the post-coronavirus world, cleanliness will be about more than dust balls in the corners. It will be about health and safety, so all of us will be paying more attention to it. I have no doubt that most home-sharers keep their places neat, but they simply don’t have the army of housekeepers that a typical hotel does.
There will be changes in hotel protocol, as well. For example, in the past several years, hotels have been offering guests points or credit if they decline housekeeping. That policy will likely change, with hotels placing an emphasis on cleanliness and safety.
» Learn more: NerdWallet’s best hotel credit cards
Who has the money?
Multinational lodging companies have a lot more resources to get them through this crisis than individual property owners. Marriott, for instance, just got a $1.5 billion credit line on top of its existing $4.5 billion facility, even though its revenue per available room was down almost 60% worldwide in March. To raise cash, Hilton simply dialed up American Express and sold them $1 billion worth of points to give to credit card customers. And while most of the individual properties are actually owned by franchisees, the parent companies will likely be there to support the brands. When travel bounces back, consumers will return to their favorite brands to rack up or use points.
Airbnb isn’t so lucky. As of Sept. 30, 2019, the parent company was already losing money. Its potential 2020 IPO, which would have provided the company with billions, almost certainly won’t happen this year, meaning that the company was forced to borrow money at rates ranging from 7.5% to 10%.
Airbnb hosts could be in an even more precarious position. Before the pandemic, many borrowed money to purchase multiple properties, confident the rental revenues would cover loan payments. The coronavirus crisis is hitting these individual homeowners hard, and they don’t have the same access to borrowing that Marriott does. Airbnb’s policy requires that hosts provide refunds to guests through June 15 for those who booked before March 15, meaning that those hosts won’t have cash flow to pay their mortgages. Airbnb is giving $7.4 million in relief grants to its most frequent hosts (its “superhosts”), but the grants max out at $5,000 per host.
So what’s next?
We will travel again someday. But the way we choose our lodgings will change. We’re going to be paying attention to more than just price; trust will be a bigger factor than ever.
I don’t think the Airbnb/Vrbo market ends because of COVID-19, but growth will certainly slow. Homeowners will be more reluctant to let strangers into their houses, and the market of customers buying multiple homes with the intention of offering short-term leases will shrink. This recession wasn’t caused by a housing bubble, but the immediate future could have similar effects, albeit on a much smaller scale.
Bottom line? At least in the immediate term, the advantage goes to the lodging companies.
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