FSU study: Airbnb driving down lodging prices

by Scott Powers

Vacation rental home platform Airbnb is driving down the lodging prices and revenues for traditional hotels, a new national study led by a Florida State University professor finds.

The study, published in the latest issue of the academic journal Tourism Management, is being promoted as the first of its kind, looking closely at the occupancy rates, room prices, and revenues in cities where Airbnb has had dramatic growth in the past decade.

The article was written by Tarik Dogru, an assistant professor of hospitality management in FSU’s Dedman School of Hospitality, Makarand Mody, an assistant professor of hospitality marketing at Boston University’s School of Hospitality Administration, and Courtney Suess, an assistant professor at Texas A&M University’s Department of Recreation, Parks and Tourism Sciences.

Their article finds, according to an FSU news release, “Airbnb is fast becoming the 800-pound gorilla that’s shaking up the hotel industry and forever changing it.”

Airbnb declined to comment on the study.

Dogru and his colleagues looked at 10 cities where Airbnb has become a big player, Miami, Boston, Chicago, Denver, Houston, Los Angeles, Nashville, New York, San Francisco, and Seattle, studying the data trends from 2008 through 2017. The cities had between 7,300 [Nashville] and 80,000 [New York] active Airbnb listings in 2017, meaning they’d been rented at least once in the previous year.

The researchers gathered data on hotel room revenue, average daily rates, and occupancy rates from Smith Travel Research.

“Increased competition from Airbnb is mainly affecting hotel prices and revenues, but occupancy rates are also down slightly,” Dogru stated in the news release.

The article notes that Airbnb’s listings have grown more than 100 percent a year — Airbnb now boasts six million listings in 81,000 cities worldwide.

Dogru found that each 1 percent increase in Airbnb’s supply in a city lowered hotel revenues between 0.02 and 0.04 percent, which he estimated in New York City alone would have amounted to a loss to hotels ranging between $91 million and $365 million in 2016.

The study found increasing consumer demand for authenticity in lodging, and travelers felt Airbnb properties were more authentic than franchised hotels.

“Consumers don’t want to stay in a new city but in the same old hotel,” Dogru said in the news release. “More people want an authentic experience, and Airbnbs offer that — the chance to engage with local people and have localized experiences.”

The article also says that the hotel industry’s first reaction to Airbnb’s emergence had been to dismiss it as insignificant, a lodging option appealing to a different market compared with the hotels. That only served to support Airbnb’ own statements about its intended mission, the article states.

“However, as Airbnb began to grow, hoteliers adopted the second knee-jerk response: fight, arguing that Airbnb does not play by the same rules they do, and that much of the company’s revenue comes from illegal hotels,” the article continues, citing previous research.

Interestingly, the very parlance illegal hotels indicates the industry’s recognition of Airbnb as a substitute to the conventional hotel product. The disruptive innovation that was once ignored by the legacy businesses is now considered a major competitor to be attacked through legal battles, lobbying, and marketing.

The vacation rental home business model, though disruptive to the traditional hotel industry, may have broader, positive effects on a community, especially during unusually high demand periods, the article finds.

“Although Airbnb adversely impacts the hotel industry, Airbnb accommodations may provide substantial financial, economic, and social benefits to the communities in which they operate,” the article states. “The availability of supplementary Airbnb rentals may be beneficial during peak seasons or in the cases of mega events like the Olympics, rather than building hotels that will later not be utilized at optimal levels.”