HTE601 Resort and Hotel Operations
Assessment 1 Argumentative Essay
Student Name
Angelica Mariss
Student ID
20018298
Student Contact
:
[email protected]
Tutor
Julianne Hearn
Tutorial Group
12PM
Tutorial A | Tuesdays, 9-
Submission Date
25th March 2016
Word Count
1,181 words
Short-term accommodation rental for tourists is not a new phenomenon in the
accommodation industry; it has existed since tourism activities began to flourish
and home owners started to take in lodgers (Goodman, 2016). However, it is not
until the recent years when the emergence of online platforms providing such
service (Airbnb, FlipKey, Roomorama, and Couchsurfing) gained much attention
from the industry (Guttentag, 2015). These web-based companies are best
described as a disruptive innovation an innovation whose establishment may
disturb the long-existing way of doing business in a given industry (Kurtz, 2014).
While budget hotels have arguably suffered a significant financial loss due to the
similarity of their target market with these online companies (Zervas, Proserpio &
Byers, 2016), many Chief Executive Officer (CEO) of international hotel chains
claimed that luxury hotels have high resilience towards the change in the
industry and remain insignificantly affected by the existence of such service
providers (Drillinger, 2015; Guttentag, 2015; Zervas, et al., 2016). Focusing on
the relationship between Airbnb and luxury hotels, it will be argued in this essay
that, rather than competing against each other, the existence of Airbnb can be
seen as a complement to the latter. This essay will firstly rebut the general
presumptions of Airbnb being the culprit behind traditional hotels financial loss,
such as decreasing Revenue per Available Room (RevPAR), occupancy rate and
Average Daily Rate (ADR). This essay will then suggest that Airbnb is
complementing luxury hotels with empirical evidences to support the argument.
Since its official launch in 2008, Airbnb, as the leading online short-term
accommodation rental service provider, has grown exponentially (Airbnb, 2016).
As of September 2014, it has had approximately 800,000 listings worldwide,
compared to 675,000 rooms of Marriott International or 679,000 rooms of Hilton
Worldwide (Mattson-Teig, 2015). Viewed through the lens of the law of supply and
demand, the increasing number of accommodation options in the market can
weaken the peak-pricing power of luxury hotels and increase the price sensitivity
of customers demand (Adams, 1999; Kaplan & Nader, 2015).
As Airbnb provides more alternatives for tourist accommodation, many presumed
that hotel occupancy rate will decline, consequently reducing RevPAR, ADR and
ultimately, net profit (Castle, 2015). This presumption is proven to be false as
recent study found that there is no direct implication of Airbnbs growth to luxury
hotels occupancy rate. In New York, luxury hotels occupancy rate saw an
increase of 25% despite the fact that demand for Airbnb was also increasing at
the same time (Fox, 2016). Crown Metropol Hotel in Melbourne (Australia), whose
primary target markets are business travellers and corporate guests (Crown
Resorts Limited, 2009), saw a 26.2% increase of its occupancy rate from 72.5%
in 2011 (first year of operation) to 91.5% in 2015 (Crown Resorts Limited, 2015).
Weaker peak-pricing power of luxury hotels, although is an inevitable
consequence of increasing number of competitors in the industry, does not prove
that luxury hotels are suffering from profit loss (Zervas et al., 2016). Kurtz (2014)
noted that lowering ADR has to be done in order for luxury hotels to remain
competitive. However, this does not indicate that luxury hotels profit is
declining. In fact, Hilton Worldwide was able to achieve net profit of $673 million
in 2014, increasing 62.2% from the previous year (Hilton Worldwide, 2014).
Additionally, Hyatt Hotels Corporation profit, instead of declining, has improved
since Airbnb entered the market, turning a loss of $43 million in 2009 to a net
profit of $124 million in 2015 (Hyatt Hotels Corporation, 2015). These statistical
evidences suggest that Airbnb does not have any significant negative effect on
luxury hotels income. Schmidt & Druehl (2008) also asserted that disruptive
innovation like Airbnb may have impacts on the existing market, but it does not
necessarily displace the market.
The existence of Airbnb, on the other hand, is beneficial to strengthen luxury
hotels position in customers mind. It is relatively impossible for Airbnb to match
the consistent level of service demanded by corporate clients or luxury leisure
travellers that can be easily provided by luxury hotels (Cusumano, 2015). CEO of
Hilton Worldwide, Chris Nassetta, claimed that luxury hotels have a very
distinctive value proposition that makes customers remain loyal to them
regardless of the price factors (Bryan, 2015). In addition, the questionable Airbnb
properties adherence to safety and security regulations is also motivating
travellers to stick with luxury hotels as their accommodation option (Griswold,
2016; Morrow, 2015). For example, several recent business travellers expressed
in their review that the minimal security and availability of service and amenities
during their stays in Airbnb properties were an adequate reason for not being a
repeat customer for the company in the future, as opposed to luxury hotels who
would go an extra mile to win the loyalty of their existing and new customers
(Carson, 2016; Edleson, 2013).
The creative business model of Airbnb can also serve as a drive for traditional
luxury hotels to innovate and protect their solid market position (Debruyne,
Frambach & Moenaert, 2010). When established companies are challenged by
new competitors which bring a new and fresh way of doing a business, they need
to either imitate or develop a new creative product that can distinguish them
from both existing and new competitors (Chuang, Morgan & Robson, 2014). The
presence of Airbnb in the accommodation industry has encouraged luxury hotels
to stay relevant to their target market, which may have a certain degree of
overlap with Airbnbs target market (Hobbs, 2015). For example, Ritz-Carlton
recently modified its logo colour and design to better suit the next phase of
luxury travellers who are more boutique-style oriented, as well as reflecting the
local characteristics where each hotel is located (Hobbs, 2015). Not long ago,
Starwood, Hilton Worldwide and Marriott international also invested on advanced
smartphone application that allows guests to access their rooms and other hotel
facilities by using their phone, creating a personalised hotel stay (Mandelbaum,
2015).
To conclude, Airbnb is not a comparable competitor to luxury hotels, but instead,
Airbnbs presence in the industry complements the latter. The recent popularity
and rapid growth of Airbnb has been seen as a threat to the hotel industry,
especially to the budget hotel segment. Luxury hotels, nevertheless, remain
insignificantly affected by the emergence of such company. Although decreasing
peak-pricing power of luxury hotels is an inevitable consequence of this
emerging trend, statistical evidences from international luxury hotel chains
refute the claim that Airbnb is causing financial loss for these businesses. On the
contrary, the existence of Airbnb helps to enhance the position of luxury hotels in
customers mind, particularly through its properties reputation of being
inconsistent in serving and adhering to safety and security regulations. Its
creative business model also drives luxury hotels to innovate, which may result
into better and more personalised service quality, winning the loyalty and trust
of their new and existing customers.
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