Hotel Industry Research

AirBNB Shakes Up the Hotel Industry

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AirBNB has gained traction in the hotel industry for the last couple of years. In June of 2015, the popular alternative lodging platform has closed a $1.5 billion funding round with a valuation of $25.5 billion. It was one of the largest private capital funding rounds ever and galvanized its place as a “unicorn” in the startup world. What makes AirBNB unique in the hospitality industry is that it helps people rent out their homes or spare rooms for short stays. This year alone, the company is expected to earn at least $900 million in revenue. By the year 2020, the amount is estimated to increase to more than $10 billion.

At those amounts, hotels are trying to look for ways on how to deal with the lodging paradigm shift. AirBNB already supplies more inventory than all of the worlds largest hotel brands. InterContinental, Marriott, and Hilton maintain under 700,000 rooms each.

While AirBNB does have a lot of rooms to offer, the company doesn’t own them, and most of the listings are not available all throughout the year. And when it comes to actual bookings, AirBNB still has a lot of ground to cover. At present, their bookings are at 37 million room-nights a year, which is only 20 percent of IHG’s numbers. However, experts agree that AirBNB’s booking rates are expected to grow in the next couple of years. They are on track to outpace hotels in the near future.

While it is unlikely that AirBNB will manage to take over the hotel industry completely, the hotels should take the shift seriously. The company is going to offer more additional lodging rooms each year, and as the supply increases demand is likely to shift more slowly and room rates are likely to go down. Hotel general managers must use proper hotel revenue management to ensure that their bottom line is not affected by the influx of available rooms.

Another way hotels are coping with the growth of AirBNB is to keep their standards of cleanliness and service high. Most hotels were developed based on a price point, and they work hard to maintain that price point over time with the use of a comprehensive hotel rate strategy. Hoteliers agree that it is important to create a great value proposition in order to maintain the status quo.

With the right hotel yield management and hotel rate analysis, hotels will remain competitive even if AirBNB manages to attract more homeowners to offer their spare rooms for short stays. One advantage that hotels have over room rentals is that the former provide a holistic guest experience that is topped with great amenities and service. While AirBNB has attracted people looking for authentic local experience, there are still travelers who look for the services and comfort provided by hotels.

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Mayweather Pacquiao Hotel Room Rates

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The Mayweather-Pacquiao fight brought over 200,000 visitors to Las Vegas on May 2nd. Billed as the Fight of the Decade, the competitors took home upwards of $100 million for 12-three minute rounds of boxing. However, on the first Saturday in May it was not just fists flying, hotel rates on the Las Vegas strip were flying high (until the last minute). Listed below are how Las Vegas hotels yielded their rates for fight night compared to their best available rate (BAR) in April:

Hotel Fight (BAR) April (BAR) Fight % Increase
Royal Resort 623 28 2125.00%
Palms Place Hotel at the Palms 799 59 1254.24%
Rumor Boutique Hotel 510 39 1207.69%
Bluegreen Vacations Club 36 999 92 985.87%
Silver Sevens Hotel & Casino 273 26 950.00%
Aria Resort & Casino 1139 113 907.96%
The D Las Vegas 169 19 789.47%
El Cortez Hotel And Casino 165 19 768.42%
Rio All-Suite Hotel & Casino 249 29 758.62%
Trump International Hotel Las Vegas 824 97 749.48%
Flamingo Las Vegas 214 26 723.08%
Encore At Wynn Las Vegas 1300 169 669.23%
Westgate – Las Vegas Hotel & Casino 200 26 669.23%
Luxor Hotel and Casino 229 31 638.71%
Palace Station Hotel and Casino 145 20 625.00%
MGM Grand Hotel and Casino 499 70 612.86%
Excalibur Hotel Casino 229 33 593.94%
Hard Rock Hotel & Casino 249 36 591.67%
Circus Circus Hotel & Casino 159 23 591.30%
Hooters Casino Hotel 159 23 591.30%
Wynn Las Vegas 1105 161 586.34%
Plaza Hotel and Casino – Las Vegas 199 29 586.21%
THEhotel at Mandalay Bay 799 123 549.59%
Tropicana Hotel and Casino – Las Vegas 259 41 531.71%
The Palazzo Resort Hotel & Casino at the Venetian 999 159 528.30%
The Venetian Resort Hotel & Casino 999 159 528.30%
Planet Hollywood Resort & Casino 275 44 525.00%

Using our rate shopping technology, RateShepherd was able to track real time rate movements starting with the announcement of the fight. Rate shopping alerts began on May 1st as hotels drastically dropped their rates to catch undecided travelers. RapidWatch detected that nearly all Las Vegas hotels started undercutting hotel rates in the 24 hours leading up to the fight. Rate shopping reported that many hotels cut their rates by 25%-50% in the 24 hours leading up to the fight.

On average, Las Vegas saw an increase in ADR of more than 200% year over year. Now it is up to the revenue managers in Las Vegas to prepare for the next fight of the century (which we all hope occurs every year).

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Best Available Rates (OTAs versus Hotel Booking Site)

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Hotels have seen a steady increase of web bookings over the last ten years and it is safe to say that most hotels see between 25% and 50% of all bookings via the internet. As an ever growing medium for revenue, OTAs (online travel agencies) and home booking sites are a critical part of any hotelier’s revenue management strategy. However, hotels tend use these two channels in very different ways. We sought to find out how the different strategies were put to use.

We selected 106 hotels and 1,814 rates to find patterns in the way hotels use their Home Booking Site versus OTAs. We found that 82% of the time hotels kept the best available rate equal across all sites while the other 18% of the time OTAs were either at a premium or a discounted rate. About 1% of the time the difference was due to being sold out of the product (please note that this is different from the rate type not being offered as in the case with promotions or advance purchase incentives).

OTAs vs Home Booking Website
Total %
Rates 1,813 100%
Equal 1,481 82%
Not Equal 332 18%

We see three basic strategies employed:

  • OTAs and Home Booking Sites are normally Equal
  • OTAs are normally a Discounted rate
  • OTAs are normally a Premium rate

To further dissect the way in which hoteliers use the two channels we analyzed the number of times that OTAs were at a discounted or premium rate.

OTA Premium vs Discount
Rates % Avg Difference
OTA Premium 123 37% $16.41
OTA Discount 184 55.4% $(10.51)
Inventory Sold Out 25 7.5%

Some sites normally had equivalent rates between the two channels, however in some instances limited time promotions were run on Expedia or the Home Booking Site that created a price difference.

Limited Time Promotions
Rates % Promo Rates %
OTA Premium 123 37% 14 4%
OTA Discount 184 55.4% 8 2%

Best Rate Guarantees are very common among the major brands and we consistently found that hotels with a Best Rate Guarantee kept the two channels equal across their minimum rates. However, when the Home Booking Site was higher than the OTA, 21% of the time the hotel had a Best Rate Guarantee on their website.

With this in mind it is interesting that OTA rates are at a premium 37% of the time. This would seem to be a way in which to offset the 18% to 80% cost associated with booking through an OTA, but could make a hotel less competitive in the heavily marketed online channels and lead to less volume. On the other hand, we were very surprised to see the OTA at a discounted rate almost 56% of the time. With OTAs available to the majority of travelers via phone, tablet or laptop, guests are likely aware of the lowest available rate across multiple websites even as they are waiting in the lobby. With the added overhead associated with OTAs it seems very odd that hoteliers would train loyal guests to book their rooms through OTAs in this manner.

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How Often do Hotels Change Rates?

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Hotel Rates are constantly on the move. We sought to analyze just how active rates are by looking at how many rates changed in a 90 day forecast over an 18 day period of time. Each change is associated with a distinct date and room type so that we can show exactly how often hotels change their pricing.

We selected 124 hotels from 7 different cities and looked at the following characteristics:

  • Hotel ADR
  • Total Rate Changes
  • Total Rate Increases
  • Total Rate Decreases
  • Average Rate Changes Per Day

As seen in the table below the average hotel changes about 1/3 of their rates every day.

Rate Changes to 90 day Hotel Forecast during 18 Day Window
ADR Total Changes Rate Increases Rate Decreases Changes per Day
AVERAGE $157.61 507 240 267 28
MEDIAN $131.60 131 59 49 7
MIN $39.79 0 0 0 0
MAX $635.33 5506 2739 2767 306
Hotels w/ No Changes 15 27 21

Six out of seven cities had at least one hotel without any rate changes during the range of our analysis, with fifteen hotels never increasing or decreasing their rates. Reno was the only city where every hotel made changes during our analysis period.

The most active mover was the Regency Hotel in Miami which changed nearly all of their rates within the 90 day forecast on a daily basis with an average of 306 rate changes per day and an ADR of $124.

Gold Spike, Las Vegas had the lowest ADR at $39.78, but still changed around 10 rates per day.

Las Vegas and Miami had the largest average change of rates per day, with an average of 49 and 45 changes respectively. However, Miami also had 5 hotels with no rate changes and a 6th hotel with only 6 rate changes. Las Vegas only had one hotel with no rate changes during the period, Flamingo Las Vegas.

Hotel brands varied greatly in each market likely due to different owners and operators. However, hospitality operators did show consistency in their changes. MGM Resorts changed frequently with Circus Circus and Monte Carlo’s average change rates per day at 198 and 168 respectively. Conversely, Kimpton Hotels seemed to have little if any changes to their rates in the hotels we surveyed.

Our analysis has shown that every market consistently changes rates within a 90 day forecast window. We have also seen that there are a number of laggards in each market that do not respond to competitive pricing changes.

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