Hotel Business Case Study

Hotel Business: The impact due to onset of sharing economy

Traditionally, the hotel industry has catered to the lodging, dining and other amenities of travellers or guests. The industry operates across the different value chain by offering services and facilities as per the preferences and paying capacity of guests’. Typically, players in this industry own assets and or franchise their brands or manage third party assets. The hotel business is highly capital intensive but at the same time highly competitive, this is due to the presence of a large number of players across the different value chain. The industry being highly regional in nature, the hotel business is directly impacted by overall economic or business activity and tourist movement

They act as a link between local hosts (property owners) and guests, then earn revenues through commissions from both the sides. The business model is not capital intensive at all and has high scalability as the asset is not owned and as a result, geographic penetration could be easily achieved. The hotel industry is directly impacted by this business model since it provides similar services albeit with a varied degrees of differentiation.

Televisory attempted to study the impact of the advent of sharing economy on the operational performance metrics of the hotel business, for the study Televisory considered Airbnb, the leading sharing economy services provider in the world. Televisory’s analysis concentrated on New York which is the second largest hospitality market in the world and a leading hotel REIT market. Moreover, it is the main hub for Airbnb as well.

The study was based on three key operational metrics of the hotel

Secondly, the consumer preferences also changed for the length of stay, for mid duration stays the consumers preferred Airbnb over the traditional hotels. The increase in duration of stay positively impacts occupancy rate of any hotel. But, despite an increase in stay duration experienced by Airbnb average occupancy rates for hotels across all chain scale in the USA remained largely unaffected.

Source: Televisory’s Research

On a closer look at the third important operational metric which is the Average Daily Rate (ADR) of traditional hotels in the USA, Televisory found that the ADR of the budget hotel segment declined by 14.5% on a YoY basis and was worst impacted among on all chain scale in 2015. A declining ADR for the budget segment somewhat explains unaffected occupancy rate despite direct competition from Airbnb and increasing guest preference towards the accommodation provided by Airbnb, as budget hotels reduced their tariffs to compete with