Travellers — the ultimate winner of changing accommodation industry dynamics
17 November, 2015
The accommodation industry continues to feel the winds of change?
Overnight, Marriott International, the US based hotel giant, announced it is buyin Starwood Hotels, owner of the Westin, Sheraton and W brands, for $US12.2 billion. The deal, if approved by regulators and stockholders, will create a massive player in the hotel business; an entity with 1.1 million rooms in over 5,500 hotels in more than 100 countries.
This looks like a logical response to the changes going on in yet another industry that is being reshaped by both the digital and sharing economies?
Traditional hotel businesses are having to respond to twin threats — the online booking firms like Expedia and Priceline, who have become increasingly influential, but more latterly lodging rental businesses like AirBnB starting to flex its muscles.
The growth of lodging business AirBnB growth has been impressive, tell us about this.
Yes, like the Uber of accommodation, Airbnb has said it already has 1.5 million rooms available for rent with listings in more than 190 countries. Documents reviewed by the Wall Street Journal in June showed that while it's currently losing money, it expects to hit $US900 million in gross revenue this year, rising to over $US10 billion by 2020. At this stage it forecasts to be making $US3 billion in operating earnings.
AirBnB has identified the business traveller as a key plank of future growth. Traditional hoteliers will be sitting up and taking notice. This point was acknowledged by Starwood CEO Adam Aron, who noted in a recent conference call that Airbnb is a "real" competitor and that it's "here to stay."
Even more interesting is the valuation reportedly attached to AirBnB. In its most recent funding round the start-up was valued at about $US25 billion. That is incredible when you consider it was only founded in 2008 and is still losing money.
Starwood, which was founded in 1930 and is profitable, is being acquired at a price that works out to roughly half of Airbnb. This may say more about an inflated value for AirBnB than about Starwood!!
How are the players positioning themselves for the future?
We believe establishing a trusted brand and customer proposition will differentiate the winners from the losers. In short own the customer, or at least own their digital interactions, and you will win the business.
Each channel is responding to that maxim differently.
The traditional chains are working hard to reduce costs and to improve the digital and loyalty experience for customers to persuade them to book directly with them. This is particularly important given that a small number of corporate customers produce a massive amount of their profits. In the case of Starwood, 30% of profits come from 2% of the customer base.
The online booking companies like Expedia are broadening their service offering and improving app experience to position as a travel "one stop shop." that can meet all a customers needs. Expedia has also bought an AirBnB competitor, HomeAway Inc, to give themselves a foot in that camp.
Last but not least, AirBnB is looking to help property owners appeal to the business traveller so that they can meet the needs of an attractive travel demographic in both their private and business lives.
Unlike some industries there is likely room for a number of differing business models to have some success here. The one undisputed winner, though, is the traveller with more choice, lower prices and a better booking experience.