Airbnb as a Risk to Tourism in France
Primary Article Contributor – Tayte Aldred
Team Leader: Blaine Yonemitsu
France has long been one of the tourist capitals of the world, offering visitors a chance to see the renowned Eiffel Tower, the Louvre, and the Arc de Triomphe. However, the rapid rise of the “sharing economy”, or “peer-to-peer markets” as it is sometimes called, is threatening the established players in France’s lucrative tourism industry. By 2020, revenues from the sharing economy are expected to triple globally by 2020, from US$6.4 billion to US$20.4 billion. In France, the hotel industry is most vulnerable to the growth in the sharing economy due to the rise in home-sharing platforms. Home-sharing platforms allow homeowners to rent accommodations directly to consumers, thereby allowing consumers to forego traditional travel accommodations. The most prominent home-sharing platform is Airbnb, which has a valuation of $25.5 billion—making it more valuable than some of the hospitality industry’s biggest names such as Wyndham Worldwide Corporation and Hyatt Hotels Corporation, which are valued at $9.4 billion and $9.2 billion, respectively.
According to the Economics and Statistics Administration of the U.S Commerce Department, the sharing economy, or more specifically “digital matching firms” like Uber, Airbnb, and Lyft, are defined by four key characteristics:
- the use of information technology systems (predominantly mobile apps);
- a reliance on feedback directly from the contractors who provide the services and the people who buy the services to establish a rating system;
- the opportunity for contractors to offer their services in a flexible manner without set operating times; and,
- and the reliance on contractors to provide their own tools and other assets necessary to fulfill the services they have been hired to perform
The sharing model provides stakeholders with numerous benefits, as it drastically reduces operating costs and capital expenditures that traditionally tie up firms’ cash.
Airbnb, perhaps the most successful digital matching firm, allows users to rent or list short term accommodations in residential properties. Prices are set by the property owners, and user ratings establish a sense of trust between parties to the transaction. Airbnb’s presence in France is significant, as France is the second largest market Airbnb operates in. Overall, Airbnb has upwards of 350,000 listings in the country with 65,000 of those listings situated in the capital, Paris, making Paris the largest single market in the world for Airbnb. Furthermore, the San Francisco based platform has experienced an increase in clientele of 20% in Paris between June 1 and September 1 of 2016, and up to 80% elsewhere in France. While this is a boon for individuals in France hoping to profit from their underused properties, it is worrying for French hotels as they are expected to suffer a 10% drop in turnover in 2016. Additionally, early evidence indicates that Airbnb is already diminishing revenues of hotels by as much as 13% in some markets.
The prospect of lower revenue for the hotel industry may result in less investment in this sector of the economy, and due to the size of the industry there is the potential that it could have a ripple effect across the larger French economy. Less hotel revenue will also impact the French government’s fiscal books, as the French government taxes hotel bookings and makes more money from hotel bookings as opposed to Airbnb bookings.
To make matters worse for traditional hotels, in the summer of 2015, following a 700% growth, Airbnb announced the Business Travel Programme. This self-service tool allowed businesses to easily reserve properties, generate itineraries, and track expenses. Other technology giants such as Google, Soundcloud, and Twilio enrolled in this service. A few months later, Airbnb unveiled “Business Travel Ready” listings, in which further specification can only be applied if an entire house is for rent and includes free business essentials such as Wi-Fi. This initiative resulted in 50,000 firms booking stays, including leviathans like Morgan Stanley, Facebook, and JP Morgan. Accordingly, hotel bookings by business customers—traditionally a stable market in the hotel industry—are threatened by Airbnb.
With the recent terror attacks in France, visitors may choose to take advantage of Airbnb, avoiding traditional tourist spots where large groups of international visitors congregate. A long-term aspect that will attract guests and companies, is the fact that Airbnb offers more comfortable and intimate spaces, avoiding the customary hotel atmosphere and traditional tourist spots. This will allow guests to experience their destination as townsfolk.
While Airbnb is certainly disrupting the hospitality industry, there are ways to mitigate this risk for investors. Hotels need to abandon their traditional practices and take a more modern approach that focuses heavily on one aspect of a visitors stay that Airbnb doesn’t: customer experience. Airbnb provides users with a key to a rental property; hotels, in contrast, can offer a more personalized touch. The hotel industry should take advantage of its bargaining power and begin to partner with popular tourist destinations and local companies, offering discounts, line-skipping privileges, and exclusive offers to guests. Moreover, hotels should hire and train staff conversant in local activities who can lead tours, trips, and activities. Although Airbnb has taken the price conscious market, hotels must place emphasis on overall customer experience and emphasize the safety aspect of staying in a hotel.
Airbnb is becoming more ubiquitous every year. Investors in the hotel industry will struggle to capture certain price conscious segments. However, Airbnb should help drive the growth of the French tourist industry as a whole, making booking more convenient and affordable. Investors in other segments should look to partnering up with Airbnb, participating in promotions and bundling to engage more tourists.
