Alex Besant hasn’t stayed in a hotel in years. That’s not because he’s been staying at home though.
It’s because Besant, a screenwriter in his 30s who has travelled to more than 10 countries in recent years, has begun to eschew hotels. Instead, he relies on Airbnb for accommodation — renting rooms or entire apartments from locals through the website.
“I’ve stayed in Airbnb’s all over the world,” he said. “They are almost always cheaper, allow you to be connected to locals, and are located in areas that aren’t penetrated by hotels.”
Besant and his fellow Airbnb users are obviously bad news for hotel operators. But the largest of these, Marriott International, owner of its eponymous chain and the Sheraton brand, among others, might just have found a way to protect itself from that threat.
It recently acquired Starwood Hotels and Resorts in a record $13.3 billion deal that closed in September. It made Bethesda-based Marriott the largest chain operator, but also shifted its portfolio of properties upscale – giving it three new luxury hotel brands, including St. Regis, and The Luxury Collection.
The company now boasts twice the offerings it had before the deal, in eight distinct luxury brands, which comprise its newly formed luxury division, including old stalwarts like The Ritz-Carlton. The chain is scheduled to open nearly 30 new luxury hotels in 2017. Another 180 luxury hotels are currently in its development pipeline.
With all this, Marriott has also insulated itself from fast growing competition from Airbnb, a disruptor to the hotel industry in recent years.
“Airbnb focuses a lot of inventory on lower price point, and Marriott focuses on the upper scale and the Starwood acquisition will add to that upper scale and luxury price point,” said Dan Wasiolek, a hotel industry analyst at Morningstar Investment Services.
Certainly, Marriott is already somewhat protected by the fact that even its more ordinary offerings, like Courtyard by Marriott, are geared toward business travelers.
Company spokespeople have publicly dismissed Airbnb as a non-threat. Marriott also addressed Airbnb with its investors.
Airbnb isn’t “resonating as well with corporate travelers who are arriving at 10 o’clock at night and leaving at 7 o’clock the next morning and they don’t really want to go find a key or make their own coffee,” Laura Paugh, senior vice president of investor relations, for Marriott said at a Barclays conference in December.
The business travelers are “looking for some service and some reliability about the internet access, that the business center is open and available, so we haven’t really seen a big impact,” she said.
But Industry experts, who’ve paid close attention to the changing nature of the business, and the evolution of the millennial traveler, argue that hotel executives who claim their business is impervious to new technology and change are more wary of emerging competition than they let on.
“I think there are some elements of bravado in dismissing Airbnb as a competitive threat if you work in the hotels sector,” said Alex Stephany, a sharing economy expert and author of The Business of Sharing. “I think the reality is that most of them are probably more worried than they let on.”
For one thing, Airbnb is increasing options for travelers, and typically at lower price points. It is cheaper in major metropolitan areas, according to Jamie Lane, a Senior Economist with CBRE Hotels’ Americas Research.
“You’re paying $300 for a single room at a hotel and now you can pay $200 and get an apartment with two rooms,” he said.
And an added supply of rooms has forecasts for revenue growth falling. For 2016, the U.S. lodging industry is forecast to achieve a 3.2% increase in RevPAR — less than the 6.2% mark in 2015. Analysts attribute the decrease to supply growth exceeding demand growth for the first time since 2007.
Marriott’s Paugh acknowledged this at the conference, saying that Airbnb has taken the hotel industry’s ability to “press pricing” around big events like the “Boston Marathon and the Pope’s visit to Philadelphia. “In a market at a time like that, you could conceivably see big increases in room rates, but now you have less of that because of Airbnb.”
While luxury properties are faring better than bare-bones offerings, this pattern could eventually change, as Airbnb begins to introduce luxury properties into its mix of offerings, and breaks into the business travel arena.
“Airbnb is making significant investments into the business platform, and that’s what the hotel industry is keeping an eye on,” said Scott Shatford, founder of Airdna, a company providing data and analytics related to Airbnb. “To date, over 10 million business trips have been booked with Airbnb. When they can crack the code on business travel, that’s when hotels will really feel the pain,” Shatford said.
And Airbnb is having an indirect effect on the luxury market, said Patrick Scholes, a hotel industry analyst with Suntrust Robinson.
“There is a small domino effect where it reverberates throughout the market. Your middle and low end hotels will feel it the most, so they cut their rates a bit and it sort of works its way up through the system,” Scholes said. “So even the Four Seasons will feel it a little bit.”
But then the deal will help in other ways, namely by giving Marriott scale. The company now claims ownership of nearly 6,000 properties in 120 countries and territories, and boasts 1,068,990 guest rooms. Hilton, the second largest hotel company, owns 4,322 properties across the globe and 716,062 rooms.
The increased breadth and scope as a result of its merger with Starwood translates into cost savings for the hotel company, including with online travel agencies like Expedia and Priceline, said CBRE’s Lane.
“When they are buying beds for their hotels, they are getting a better deal because of more bulk purchasing,” Lane said. “They get to spread out general corporate costs over more hotels.” In sum, greater cost savings will lead to greater overall profitability for Marriott.
Analysts like Lane expect Marriott will have insulated itself from competition, for now.