Can Airbnb, Uber, and Other Shared Economy Companies Threaten the Travel Industry?
What began as a new age-ish approach to vacation rentals has now become a trend that is infiltrating the business travel industry. The shared economy, also known as collaborative consumption, makes use of idle rooms, cars, office space, tools, and other items, and has grown significantly since the dawn of Internet-fueled communication and more trusted e-commerce.
Instead of buying more, business travelers have the opportunity to share with fellow travelers and locals in the cities they travel to, which provides an experience with a distinctly different feel and other special benefits.
According to a preliminary analysis of the National Household Travel Survey, Americans conduct more than 405 million long-distance business trips per year. According to another report from Travel Effect and the U.S. Travel Association, American companies spent about $225 billion sending their employees on business trips in 2012, and in recent years, travel budgets for American businesses have begun to increase after years of decline.
Does this $225 billion industry have anything to gain from the budding shared economy, and should traditional business travel companies fear these gains?
Hotels and transportation: Shared services and their benefits
Airbnb has been touted as one of the businesses that really sparked the current interest in the Internet-based shared economy. Valued at $2.5 billion as of 2012 (a 10% increase year over year), its business model involves travelers who use its site's listings of rooms, apartments, and homes made available by those who own or rent them. They are usually for shorter stays at prices that are generally lower than traditional hotels. As of 2013, Airbnb averaged bookings at about 50,000 to 60,000 per night.
One Fine Stay provides more high-end homes and apartments for sharing, which are managed like a hotel with housekeeping, stocked toiletries, and luxury linens. Roomorama reports that 40% of its bookings are by workers, which the company feels makes it a valuable service for business travelers.
Business travelers are also turning to shared-ride services like Uber, which connects travelers with professional drivers who can pick them up. Lyft, RelayRides, and Getaround all now compete with the taxi industry. With FlightCar, you can rent another traveler's car and skip the long airport car rental lines. In Richmond, Va., RideFinders manages car and van pools, and in 2013, the company reports that 11,400 people used the service, making 5,700 daily trips, which accounted for a reduction of 34 million vehicle miles in the city.
The shared economy provides a few different benefits:
- Save money. The shared economy makes use of living spaces and rides that are already owned or rented by somebody else, so those people can often offer lower prices than traditional hotels, car rentals, and taxi services by the day, hour, or mile. For example, a three-night stay at a shared home or apartment can cost about the same price as one night in a hotel.
- Feel at home. Business travelers can easily get homesick, particularly on longer trips. Business travelers can now stay in apartments and houses that feel much more homey and comfortable than a boring, bleak hotel room.
- Live like a local. Instead of just seeing the inside of a hotel room, conference room, and cab, the shared economy presents the unique opportunity of getting to live like a local, truly experiencing the locale.
- Prestige. Some business travelers attest that pulling up to a meeting or business dinner in a nice car looks more professional than arriving by taxi.
Downsides of shared accommodations
One of the reasons that shared living arrangements can maintain lower price points is that they don't always offer the same hospitality amenities of a typical hotel stay. This can include the lack of Wi-Fi or a business center, daily clean sheets and towels, coffee machine, wakeup call, fitness center, pool, and so on.
And some shared economy services increase their costs during the busiest times. Uber, for example, has begun instituting "surge pricing" during high-demand periods, and these higher prices can actually make the service more expensive than traditional taxis and shuttles.
Also, the core of shared economy's business may be under attack. Certain states are passing regulations that would prevent shared hotels and ride services from operating at full capacity. Some of this backlash began in New York, where Airbnb is being investigated for possible violations of a 2010 law passed in New York that says it is illegal to rent out your own apartment in the city.
In Berlin, the government passed a law that would limit the number of holiday rentals within the city, which could dramatically affect the shared housing industry. Spain, Paris, Vancouver, Quebec, and Malta have also begun to take hard looks at shared economy regulations.
Finally, the possibility always exists wherein a business traveler simply doesn't feel comfortable sharing someone else's home or car. They may prefer the traditional hotel stay and taxi rides, which essentially defeats the whole purpose of the new system.
Following the money
The real question is whether the shared economy will be taking away a significant portion of the business from the traditional travel industry. How much do businesses actually stand to save by including the shared economy in their travel plans?
The peer-to-peer lodging market is estimated at $26 billion, though the exact percentage of stays that are business-related are unknown. Airbnb has reportedly linked up more than 8.5 million people in more than 500,000 properties across the globe. The entire travel industry, on the other hand, was valued at over $6 trillion in 2011.
In terms of numbers, the shared economy still makes up a relatively small percentage of the travel industry and the traveling population. In New York, only 1% of tourists stayed in Airbnb properties. One billion cars are driven across the globe, but only 2.3 million participate in the car-sharing economy. Still, the car-sharing market is estimated to grow from $1 billion in 2013 to over $6 billion in 2020.
Some analysts, such as Piper Jaffray's Michael Olson, compare the potential successes of Airbnb, Uber, and similar shared economy start-ups with those of industry revolutionaries like Amazon.com and eBay. If this is the case, then the traditional travel economy may have something to be concerned about. But it will take more time to see just where the shared economy is headed in the next decade or so.
For the moment, it appears that the shared economy has not made enough inroads for hotels or taxis to panic—even though some communities have been more affected. But with the potential for growth in this industry, the traditional travel industry should keep an eye out in the coming years to see just where the shared economy is headed.
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