When venture capitalist Sheel Mohnot went to book an accommodation on Airbnb recently, he found that the additional fees he was required to pay tallied up to nearly the same amount as the actual booking rate. He made his displeasure known in a tweet.
Disgruntled guests for months have complained on social media about Airbnb’s cleaning fees and how they harm the traveling experience. The charges, which are set by hosts, don’t show up until the end of the booking process.
Chief Executive Officer Brian Chesky responded to the criticism, announcing that starting in December, Airbnb guests will have the option to see cleaning and service fees earlier in the booking process.
“I’ve heard you loud and clear—you feel like prices aren’t transparent and checkout tasks are a pain,” Chesky tweeted.
Increasing fee transparency is Airbnb’s latest attempt to improve the user experience on the short-rental platform. New features to the platform, including improved fee transparency, come at a critical time for the company. Like the rest of the travel industry, Airbnb came to a screeching halt in March 2020, wiping out 80% of its business in eight weeks. But as the pandemic-related travel restrictions waned last summer, the company saw a surge in bookings due to pent-up travel demand. Now faced with renewed competition from hotels, a drop in occupancy of some hosts’ properties and a potential economic downturn, Airbnb stands to lose the ground it gained and needs users to be loyal now more than ever.
Earlier this summer, the company also introduced its free travel protection, known as AirCover, for guests, and launched its categories feature where users can discover unique dwellings by type, like castles and farm properties, rather than solely by location and date. In addition to improving features for guests, Airbnb has recently unveiled tools for would-be and existing hosts.
Following a banner third quarter, Airbnb expects bookings to moderate in its final three month period this year. In its latest shareholder letter, the company reported that its average daily rates will “face some pressure” because of foreign exchange fluctuations and shifts in bookings.
When Airbed & Breakfast—now Airbnb— launched in the Great Recession, the platform became a travel go-to particularly for young people who desired a more personalized experience and were on a budget. Its image as an economical option for rentals is fading.
In 2019, hotels and one-bedroom and studio short-term rentals were similarly priced, with the exception of urban areas, according to a recent report by the short-term rental data analytics company AirDNA. Now, almost three years later, short-term rentals, which includes Airbnb and its competitors like VRBO, are more expensive than hotels in suburban, rural, and small city regions.
While the company hasn’t seen a dip in demand as of yet compared to last year, Bram Gallagher, an AirDNA economist, said via email, “Airbnb needs to fight the perception that it has become an expensive option to book a stay.”
Short-term rental average daily rates have become higher in areas, like the suburbs and rural towns, because there’s fewer hotels in those regions and thus, less competition for alternative accommodations. Inflation is also impacting daily rates as some hosts raised their prices to cover their expenses from cleaners to supplies.
These factors, along with robust demand, have contributed to Airbnb’s most recent record earnings. It also had nearly 100 million nights and experiences booked—its highest number of reservations in a third quarter. The company’s most recent average daily rate was $156, a 5% increase compared to the same period last year.
Airbnb is expected to bring in $8.28 billion in revenue this year, an increase of 38% from the previous year, according to analyst estimates compiled by Bloomberg. Profits are anticipated to result in $970 million compared to a net loss of $352 million in 2021. In 2023, the company is estimated to reach $9.53 billion in revenue and $1.1 billion in profits.
Now that some short-term rentals have edged up in price, some people are considering turning back to hotels. The percentage of U.S. travelers utilizing hotels nearly returned to pre-pandemic levels in 2021 while the number of people relying on short-term rentals has gradually decreased from 28% in 2019 to 23% two years later, according to Phocoswright’s most recent consumer travel report.
“One of the reasons that I have concerns over how much people will continue to be really loyal to short-term rentals is because of some of the high pricing that we've seen,” said Madeline List, a senior research analyst at Phocuswright, a travel industry research firm.
Katie, 36, is among those users leaving Airbnb. She used to rely on the platform when she traveled to New York for work. In August, she booked a room in an Airbnb in what she thought was one of two bedrooms in a home shared by a couple in the city’s East Williamsburg neighborhood. But when she arrived, she was surprised to learn that there were five rooms for rent and no couple to be found.
The experience and higher prices have given Katie pause to book with the website again.
“For me, it used to be that Airbnb was a more economical or affordable option to a hotel,” she said. “I haven't found that to be really the case in the last year.”
Transparency, whether it's how payments are displayed or how homes and rooms are presented in listings, has been an ongoing issue for Airbnb.
“They have issues because of the uniqueness of their product. Every rental is different,” said Peter Ricci, a travel industry professor at Florida Atlantic University.
But, there’s more the platform could do to compete with hotels. Ricci said some Airbnb users’ enthusiasm for the platform—not unlike technology service platforms like Uber and Lyft—has waned with some consumers. These individuals are missing perks like hotel loyalty programs and are tired of rentals looking different in person than in the photos. “So they [Airbnb] need a little pump up of competitive balance.”
Since the beginning of the year, Airbnb’s stock has slid 41% while Marriott International Inc. and Hilton Worldwide Holdings Inc. have dipped 3% and 11%, respectively.
Airbnb’s efforts to make the user experience more satisfactory also comes at a time when a faction of hosts are seeing a downtick in occupancy. The trend has been dubbed #airbnbnbust online.
David Wise, an information technology and telecom executive in Austin Texas, put his second home in Normal, Oklahoma on Airbnb during the pandemic. Initially, the property saw robust demand, prompting Wise to purchase two other homes in the area as rental investments. But now, he said, bookings have dropped to 30% so far this year compared to 2021. The host thinks the dip could be attributed to the fact that more houses in the area have been listed on the platform in the last few years.
For six months up until December, Jay Karen’s studio above his detached garage in Charleston, South Carolina hadn’t been booked. The host has since received a few bookings for December and in 2023. But before then, Karen said he was considering listing on competing sites, because “we’ve had zero activity from Airbnb.”
Airbnb didn’t respond for comment about some hosts seeing a slowdown in bookings and how recent changes and additions to the platform might affect them and users.
In addition to announcing fee transparency, Chesky recently put his own home on the platform, as part of a marketing campaign to attract new hosts to Airbnb. The executive will host guests for several weekends early next year for free.
The delicate balancing act of keeping both users and hosts satisfied seems to be on Chesky’s mind. “You can’t make everyone in a community happy,” the executive said in a recent appearance on Bloomberg TV.
He later continued, “people need to know that we’re listening and not just sitting in an ivory tower.”