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By Alan E. Young, Co-Founder and President of Puzzle Partner

Everybody has a place to live. And thanks to Airbnb and other rent-by-owner sites, everybody can turn their spare room into a moneymaking short-term rental. In the taxi industry, this sharing model let Uber crush the cab companies.

The situation isn't that dire for hotels, yet; consumers are more likely to take a chance on an unknown provider for a 15-minute car ride than for a five-night stay. That doesn't mean hotels don't have to take the new competition seriously, however. Airbnb's $30 billion valuation is now larger than that of any of its hotel competitors—without owning a single physical property.

The threat to traditional hotels is likely to increase as Millennial travelers come to dominate; this generation reached their twenties and started planning their own vacations just as Airbnb started up. Their limited budgets and craving of unique experiences made Airbnb a natural fit for them, plus they prefer the easy online booking, even via mobile devices, that Airbnb offers. A survey by Hipmunk found that 44 percent of Millennials prefer rentals to hotels.

Combine that with the American Express report that more Millennials plan to increase travel frequency compared to Boomers (52.8 percent vs. 32.1 percent) and more Millennials plan to increase their travel spending compared to Boomers as well (58 percent vs. 41.3 percent), and the significance of the challenge becomes obvious.

Hotels are taking a multi-faceted approach to tackling this challenge. The four main strategies are:

1. Block. Not everybody is happy when their neighbor turns a home into a hotel, and many communities aren't happy about owners who don't collect hotel taxes. Local regulations in major destinations like New York City prohibit short-term apartment rentals, and new laws that impose serious fines may force some listings off the market. While the hotels haven't filed legal action themselves, they've partnered with organizations that oppose Airbnb and run social media and other advertising campaigns in support of restrictions, as well as speaking up at planning commission meetings and other public hearings.

2. Compete in the traditional hotel market. Hotels are attempting to compete with Airbnb in two ways. First, by emphasizing the features that distinguish a hotel from an Airbnb property, and second, by integrating the Airbnb features travelers are seeking into their hotels.

There are some travel sectors where hotels naturally have an advantage over Airbnb. It's difficult for Airbnb to match hotels' ability to offer blocks of rooms for meetings or group travel. Business travelers want a consistent level of service, and high-end luxury travelers want responsive, sophisticated service. Although Airbnb is attempting to compete in these markets, they can't yet offer the level of service provided by traditional hotels.

Other benefits hotels emphasize are their 24-hours of operation—customers don't have to worry about meeting the owner to pick up the key if their flight is delayed or how to get help if the toilet backs up—as well as security and compliance with safety regulations. Hotel loyalty programs help draw repeat business.

To attract customers who want the unique, personalized experience of staying in an Airbnb property, hotels are working to individualize their properties so they feel more boutique. Some hotels are now offering original guidebooks written by locals, while chains are creating collections of properties, like Hilton Curio, where the hotels are distinctive rather than cookie-cutter.

3. Compete in the short-term rental market. Some hotel chains are competing against Airbnb on Airbnb's turf. Accor acquired onefinestay, which lists upscale homes, and the hotel chain is providing concierge services to the listed properties. Another chain moving into home rentals is Choice Hotels, which offers Vacation Rentals by Choice Hotels. Stays at Choice's vacation properties earn points in the hotel's loyalty program, and points can be used to book either hotel or vacation rental stays.

4. Don't compete; partner. For some hotels, the solution to competing with Airbnb is to partner with the company rather than compete against it. Several smaller hotels now list their rooms on Airbnb's site. For these hotels, Airbnb's reservation fee, which is smaller than the fee charged by major hotel booking sites, makes working with Airbnb attractive. In some cases, hotels provide check-in services for Airbnb properties and allow Airbnb guests access to their amenities, blurring the lines between hotel and short-term rental stays.

For hotels, the challenge of Airbnb is real, but not yet fatal. Revenue per available room has increased over the past few years despite all the additional capacity from the sharing economy, and forecasts call for continued growth of close to 4 percent in 2017. With innovative approaches to hospitality spurred by the new competition, hotels are likely to continue to thrive.

About Alan E. Young

Alan E. Young is the President of Puzzle Partner Ltd. and Co-founder of Next Big Thing Travel & Hospitality (nbtworld.com). Previously, Alan has held executive level positions with startup companies such as Newtrade Technologies, (acquired by Expedia), Hotel Booking Solutions (acquired by IBS Software) and TrustYou. Alan is past Chair of The Board of Directors of The OpenTravel Alliance and been very involved with other industry associations most notably AHLA, HEDNA, and HTNG. With over two decades of experience in the travel and hospitality technology world, Alan specializes in helping innovative companies achieve winning performance and dramatic growth. You can connect with Alan on LinkedIn or follow him on Twitter.

Contact: Alan Young

alan@puzzlepartner.ca / 888-978-8455

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