With Airbnb’s growth, pressure mounts on hotel rates, especially luxury

Hotels are already feeling the effects of Airbnb’s approach to room rentals, but continued growth could force the hotels to lower room prices. By the end of 2016, Merrill Lynch analysts say listings on home-renting platform Airbnb Inc. could make up as much as 1.2% of hotel offerings. But as a fast-growing startup, with an estimated 40% to 50% growth in listings per year, Airbnb listings could make up 3.6% to 4.3% of inventory by 2020, the analysts say.

By constantly increasing its global market share, Airbnb is expected to help the overall room supply finally meet consumer demand. That should force hotels to lower prices in order to attract guests, which caused the analysts to downgrade several large hotel owners.

Consumer demand for lodging is expected to outpace hotel room supply in 2016 and 2017, but if Airbnb rooms are included in the mix, supply and demand could be balanced in 2016. Then, with Airbnb included in 2017, room supply will be higher than demand and will continue to grow with Airbnb’s growth rate, the analysts say.

As a base, the analysts cite about $4 billion in Airbnb gross bookings and 40 million room nights booked in 2014. They estimate the numbers will increase to 74 million room nights booked in 2015 and more than 100 million in 2016 and beyond. The analysts estimate that 43% to 67% of Airbnb listings are competition for hotel rooms, as the others may be shared spaces.

The hospitality industry is likely to be most affected, considering that Airbnb is offering similar facilities (accommodations) at a fraction the price of the hotels. Airbnb has also been working to improve service with many owners understanding the need of luxury consumers for personalized service and attention.

edited by Oliver Petcu