The future of Airbnb

Elaine Glusac, The New York Times

Posted at Sep 30 2020 11:23 AM

The Airbnb logo is seen on a little mini pyramid under the glass Pyramid of the Louvre museum in Paris, France, March 12, 2019. Charles Platiau, Reuters/File 

In the travel wreckage caused by the pandemic, home sharing has emerged as battered, but with a steady pulse, as rental houses became social-distancing refuges for the travel-starved.

Home rentals have outperformed hotels in 27 global markets since the onset of COVID-19, according to a report by hotel bench-marking firm STR and short-term rental analysts AirDNA. As leisure travel ticked up this summer, average daily rates were higher for rentals in July 2020 versus July 2019 in the United States — from about $300 to $323 — thanks to the popularity of larger homes.

Still, global restrictions have squeezed every aspect of the travel industry, including vacation rentals. Across home-sharing platforms, according to STR and AirDNA, occupancy fell by almost half between mid-March and the end of June to between roughly 33 percent and 36 percent, depending on the size of the rental (hotels by comparison fell to an average of 17.5 percent occupancy).

The biggest player in the short-term rental market, with more than 7 million listings in over 220 countries, is Airbnb. Over the years, its rampant growth and lack of transparency have made it a target for everything from charges of fueling overtourism and turning formerly residential neighborhoods into tourist zones to enabling raucous parties despite complaints and virus-related restrictions on gatherings.

After laying off a quarter of its workforce in the spring, Airbnb jettisoned some new ventures, including forays into transportation and entertainment, and hunkered down to focus on its core strength, lodging, even as its valuation fell from a high of $31 billion to, recently, $18 billion, according to The Wall Street Journal.

Now, as Airbnb prepares to go public, we talked to Airbnb’s co-founder and chief executive, Brian Chesky, along with other industry experts, about some of the company’s challenges and the ways it is changing travel.

“People want to travel, they just don’t want to get on airplanes,” Chesky said. “They don’t want to go for business. They don’t want to stay in the really big cities as prevalently as they used to. They don’t want to be in crowded hotel districts.” But, he said, “they do want to get out of the house. And so we think demand is going to be strong in the future. I’m very optimistic, actually, about the industry.”

LIFESTYLE VS VACATION 

Airbnb has touted privacy and guests’ control over their environment — including having your own kitchen in lieu of patronizing restaurants — as safeguards during the pandemic. It instituted new cleaning guidelines and indicated in late August that more than 1 million listings had earned the “Enhanced Clean” certification, which involves training in new guidelines that detail how and what to wash and sanitize. The procedures recommend 45 minutes of cleaning per room. Some listings guarantee a 72-hour vacancy window before check in.

The company says its offerings are aligned with the way people are traveling now, in family and friend groups to less populated destinations. Over Labor Day weekend, 30 percent of its bookings — double the previous year — were in remote areas, though classic vacation spots like Hilton Head Island, South Carolina, and Palm Springs, California, were among the most popular. Urban bookings remain down.

Overtourism, rising rents and housing shortages

Cities around the world, from Barcelona to Vancouver, are looking to curb Airbnb and other short-term rental companies, which many blame for hollowing out neighborhoods as real estate managers took long-term leases and listed them as more lucrative short-term rentals.

“You can earn more renting out apartments and houses on Airbnb than renting to locals,” said David Wachsmuth, an associate professor in the School of Urban Planning at McGill University in Montreal. “What’s happened on their platform is that actual home-sharing is a fraction of the activity. It’s dominated by commercial interests.”

Research published in the Harvard Business Review found that as listings rise in a city, so do rents. Analyses by the Economic Policy Institute, a nonpartisan think tank, found the costs to local communities of having Airbnb listings, including rising housing prices and shrinking availability, likely outweigh the benefits.

“The problems of overtourism were in the making for a long time,” said Makarand Mody, an assistant professor of marketing in the School of Hospitality Administration at Boston University. “Airbnb came along and made it worse. It was seen as one evil that needs to be sorted out, but there are much deeper societal and economic issues. Airbnb is just the supply side. But demand has increased so much.”

By 2019, the rise of the middle class globally contributed to expanding tourism above the rate of worldwide economic growth for nine years in a row, according to the World Travel & Tourism Council. In Airbnb, many travelers found affordable accommodations that allowed them to stay in neighborhoods rather than business centers.

Now that the pandemic is the ultimate overtourism disrupter, Chesky believes travel has been redistributed in a lasting way to places beyond bucket-list capitals. “It’s kind of redeemed our vision,” he said. “What I would love is to be able to help spread out travel to as many communities as possible rather than over-concentrating them in any one place.”

“My speculation is that the world does not quickly snap back to the way it was,” he added. “I don’t think travel will ever, ever look like it did in January. The world can’t change so dramatically like it has and then one of the industries that’s been hit hardest just looks exactly like it did before.”

Communities aim to ensure that. Last summer, Oahu enacted a law to restrict rentals without permits on the Hawaiian island, enforced with fines. In Europe, cities like Lisbon, Portugal, and Dublin are buying back leases or forcing landlords into long-term rentals in an effort to ensure that when tourism rebounds it won’t overwhelm them again.

Enforcement remains thorny, and Airbnb has been accused of looking the other way when it comes to illegal listings. Last year, Los Angeles limited rentals to owner-occupied properties registered with the city, though many illegal units remain on the site, according to the Los Angeles Times.

In response, Airbnb just launched a new city portal that it says will allow governments to more easily identify listings that don’t comply with local regulations, such as unregistered listings.

Before the launch, the company shared the new tool with San Francisco’s Office of Short-Term Rentals. “They’re pretty positive about it and hopeful this will definitely improve their ability to get bad actors off the platform,” said Jeffrey Cretan, a spokesperson for the city’s mayor.

Perhaps because of these scofflaws, Airbnb says it has not lost significant listings. According to AllTheRooms Analytics, among popular cities in Europe, only Rome and Lisbon have shed listings, about 2,000 each. In Lisbon, the crackdown still leaves just above 14,500 listings, the same figure as in January 2019, but down from the peak in July 2019.

The effect of more regulations may show up in the future, posing a threat to a robust portfolio. “For a platform like Airbnb, they’re not just worried about the demand side, but the supply side,” said Mody, of Boston University, noting the travel freeze may convince hosts to put their units in the long-term rental market, shrinking the platform, and worrying potential investors. “When you’re living on venture capital, profitability is not as important as growth,” Mody added. “Shareholders will be a lot less patient.”

The $52 rental with a $125 cleaning fee

On Sept. 14, a Twitter user wrote, “Found a cheap @Airbnb for 52 dollars. Cleaning fee for 1 night, 125. Nonsense.”

It’s a typical complaint about the platform, which lists attractive nightly rates, but buries the fees until users begin booking. Cleaning and service fees can be modest — zero to $25, say — or add $450 to a booking, reflecting a mix of mandatory and optional host-applied fees. Sometimes there are additional occupancy taxes. And in some countries, Airbnb applies a Value Added Tax on its service fees.

Under Airbnb’s pricing structure, hosts pay the company 3 percent of the booking subtotal, which includes the nightly rate plus any cleaning fee and fees for additional guests. Most guests are charged a service fee of less than 14.2 percent of the booking subtotal, which goes to Airbnb. (If hosts elect to cover the fee entirely, they normally pay Airbnb 14 percent to 16 percent of the subtotal.)

Because of their variability and lack of transparency, fees are the latest financial facet users have fixated on after the company created its extenuating circumstances policy during the pandemic. It said that travelers who had reservations made on or before March 14 could cancel and not be subject to cancellation fees, even if, in their rental agreement, they were in the penalty period. The policy has been extended several times, now to Oct. 31. (While most guests were happy with the resolution, many hosts were not and Airbnb later apologized to hosts for not consulting them).

Airbnb said it aims to introduce a redesign of price displays this year. “We’re trying to partner with hosts to create clear standards and change the search line, so if someone has higher cleaning fees, that affects their placement” in search results, Chesky said. “We’ve heard from travelers that they want a simpler way for us to show more of the price up front.”

RECKONING WITH RACIAL BIAS 

Four years before George Floyd was killed by police in Minneapolis, igniting this summer’s protests for social justice, the emergence of the hashtag #AirbnbWhileBlack called attention to a spate of racist incidents that users said happened at rental homes. Some Black renters were reported by neighbors as thieves. Others were subject to abuse by racist hosts rejecting their bookings. Complaints by Muslim, transgender and other groups followed.

Airbnb worked to purge discrimination from its platform by hiding guest’s profile pictures until a booking is confirmed; hiring anti-discrimination specialists to audit the platform; and creating a reporting channel to identify listings not complying with its nondiscrimination policy. The company said it has removed 1.3 million offenders.

This month, Airbnb plans to launch Project Lighthouse, a research initiative in the US that aims to measure bias through perception based on names and photos, to determine where and when bias happens on the platform, from booking through reviews.

According to the company, the study has been in the works for two years in partnership with the racial justice organization Color of Change, with input from several social justice nonprofits, including Asian Americans Advancing Justice and the National Association for the Advancement of Colored People.

“It’s really hard to change what you can’t measure,” Chesky said. “Then hopefully we will use this data to continue to evolve our platform and reduce the bias.”

EXPERIENCES IN THE DIGITAL AGE 

Airbnb doesn’t just rent lodgings. Through its Airbnb Experiences branch, it offers classes in mole making with an Indigenous cook in Mexico City, a music and cultural tour of Havana with a DJ and walks among penguins with a conservationist in South Africa.

During the pandemic, many of its Experiences went virtual. Now, via Zoom, armchair travelers can visit an animal rescue farm in Connecticut, follow a plague doctor through Prague and sit in on a songwriting session in Nashville, Tennessee.

After Airbnb’s layoffs, many wondered whether Airbnb Experiences, long rumored to be losing money, would be shelved, too. In January, it had 50,000 Experiences in 1,000 cities. During the pandemic, the division was shut down, and later transitioned, with a fraction of its offerings, online. Today, it has 700 virtual Experiences generating $2 million in bookings over the past five months. In-person Experiences have resumed in more than 70 countries with restrictions on group sizes, though the company declined to say how many Experiences are available in person and how much money they are making.

“I would be surprised if they drop it completely,” Mody, of Boston University, said. “They don’t want to be just a home rental company. Travel is about experiencing the destination in its entirety and they want to play a role in that.”

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