By: Larry Mogelonsky
Member of Laguna Strategic Advisors
I attended an interesting travel panel earlier this month in my hometown of Toronto. The topic was the leisure segment, with the panelists all senior members of tourism bureaus and hotel organizations, while their presentations quoted the usual ream of statistical gobbledegook. The mood was rosy as Canadian travel statistics have never been better with the nation approaching its 150th anniversary. The ebullience in the room was so thick that I felt that it couldn’t be cut with even the finest Japanese samurai sword.
But then I asked the question with a somewhat naïve tone, “Have you seen any impact on the hotel sector from alternate lodgings?”
The responses revealed a sharp dichotomy. Those representing the tourism sector clearly want more accommodations, with Airbnb and the like fitting that bill to a tee. A hotel can take several years to build while Airbnb rooms can be added almost instantaneously. Contrarily, those representing the hotel sector were surprisingly not overly concerned on the surface yet their remarks nevertheless had a foreboding undercurrent. They unanimously said that they wanted a level playing field. They went on to point out in various ways that the statistics showed that the hotel sector was not being overtly impacted by the sharing economy, at least at this moment. As a fellow hotelier, I found this complacency to be somewhat worrisome.
My own views about the lurking consequences of unchecked alternate lodgings aside, what exactly does the industry mean by leveling the playing field?
On a simple basis, I would imagine this means that the Airbnb landlord runs his or her property as a business – filing proper tax returns at all levels of government, declaring profits to pay appropriate taxes, subjecting his or her property to regular inspections for health and safety, obtaining all the necessary commercial operating permits, ensuring that he or she levies any occupancy taxes that are paid by guests, and submitting all of these proceeds on a timely basis to the proper authorities.
To me, though, this is not enough. Hoteliers are also required to meet ADA requirements. What about Airbnb? Shouldn’t they be mandated to have a minimum percentage of rooms available in each market that are fully accessible? For those serving breakfast or other meals, should we ensure a health inspection compliance? What about all the statistical and other forms we regularly complete just to stay in business? Shouldn’t they have to complete them as well?
Tourism organizations measure their success on the number of incoming visitors. This single number keeps them operating and their CEOs in their jobs. It is a simple and efficient business model. Having more accommodations in a jurisdiction means that there is room for more visitors. Thus, alternate lodging providers are the best thing to happen to tourism since the advent of cheap airfare. All the tourism organizations want is to collect any guest-levied taxes.
The hotel associations measurement is a tad more complex. They too want increased occupancy by their members, but this is only part of the story as they also want to build average rates. Basic economic theory dictates that increases in supply without commensurate increase in demand will lower price. Airbnb and others represent the biggest and fastest increase in competitor supply that our industry has ever witnessed.
Let’s all get on the same wavelength here. If Airbnb and its competitors want to play with us on the accommodations stage, let’s really make sure they are operating under the same conditions as us. It is in our collective hoteliers’ nature to be friendly and hospitable but this attentive attitude won’t serve us well for what’s to come.
Recall the advent of OTAs and the effective increase in commission load on our operating statement. That was explained away as just another cost of doing business. Airbnb is not the same. This isn’t a 15-30% loss, it’s closer to 100% as once a customer gets comforting using that platform they may never come back. In this sense, leveling the playing field is the only the start to ensure that our customer base isn’t permanently eroded.