How the Airbnb and Hotel Industry War Will Look in 2018

Stephanie Hughes
7 min readFeb 22, 2018
After Airbnb launched, it quickly caught up with the hotel industry — and then it started overtaking the market entirely.

Over the past five years, the mainstream hotel industry has faced a rapidly changing competitive landscape with the rising success of online crowd-sourced lodging services such as Airbnb, VRBO and HomeAway, among others. Staple hotel companies like Hilton, Marriott and Wyndham Worldwide (Wyndham) recognize that they now face a new set of challenges and are taking action to improve their competitive positions. For the past few years, they have been mitigating potential room revenue erosion through widespread hotel renovations and by lobbying for more stringent lodging regulation, such as the restrictions on short-term rentals passed in New York in October 2017.

The hotel industry’s concern is well founded: Airbnb doubled its number of guest arrivals at very little cost. Unlike the hotel industry, which requires substantial periodic investment to renovate assets and develop properties to remain competitive, the Airbnb business model requires comparatively little capital investment. Instead, it rests on the successful recruitment of everyday people to host guests in their own homes, expanding the supply of rooms simply through an increase in home listings. In fact, Airbnb’s listings have already surpassed the number of rooms offered by Hilton, Marriott and Wyndham combined.

Sources: Airbnb, Hilton, Statista and Wyndham.

By numbers, Airbnb’s supply reigns supreme, with 3.0 million listings in 191 different countries, well positioning the company to accommodate the growing number of guest arrivals. Airbnb guest numbers grew tremendously between 2013 and 2016, rising to approximately 82.0 million in 2016 from roughly 7.3 million in 2013. According to NERA Economic Consulting, continued growth is expected for Airbnb — though not at the explosive rates that the company has enjoyed over the last few years. Notwithstanding, Airbnb is poised to accommodate more guest arrivals annually than other hotel brands (even those with a strong customer base) in 2018. Even if Airbnb’s 2016 growth rate of 93.0% were cut in half to 46.5%, the company would be on track to accommodate nearly 176.0 million guest arrivals in 2018–10.0% higher than the number of guest arrivals reported by Hilton in 2016. NERA Economic Consulting is even more optimistic, projecting more than 200.0 million guest arrivals in 2018.

Exhibit 1 displays Airbnb’s performance from its inception in 2009 through the last recorded data in 2016. Exhibit 2 shows projected growth leading into the next decade.

Airbnb tends to have relatively cheaper listings, on average, than hotel rooms, depending on location and features, with the exception of the two largest U.S metropolitan statistical areas: New York and Los Angeles. The units offered by both Airbnb and hotel chains tend to vary dramatically depending on location and room type. The top-ten average listed prices per night in major cities across North America are shown below.

The industry created by short-term rentals via Airbnb and other crowd-sourced lodging services is hardly capital intensive, unlike franchised hotels that are required to maintain brand standards and periodically complete multi-million-dollar product improvement plans. Instead, daily maintenance and more intensive capital expenditures are completed at the discretion of the listing owner. Hotels, on the other hand, particularly in today’s changing market as they try to remain competitive amid the increasing number of short-term lodging alternatives, are undergoing substantial capital investment.

In its 2016 Annual Report, Hilton announced a plan to expand renovations across many locations to maintain an image of brand luxury and guest accommodation, which has included major amenity developments at select properties. In a recent deal rated by DBRS, limited-service Hilton-franchised properties that were part of the collateral had received over $9,800 per key in capital investment since 2014 and were projected to receive an additional $4,200 per key through 2020. After reviewing a number of single-borrower transactions executed in 2017, DBRS also observed that limited-service hotels had received more than $3,800 per key annually in capital upgrades over the last six years, with an additional $2,800 per key expected over the next five years. Capital investment per key was even higher for full-service hotels, which had received nearly $8,400 per key and were expected to receive more than $10,100 per key over the next five years. In addition to capital upgrades and other renovations, hotel companies are making adjustments to the standard hotel model based on feedback related to changing consumer preferences, such as creating more residential units and more innovative hotel product offerings that offer a “neighborhood feel” that is conducive to socializing.

Furthermore, a number of internationally recognized hotel companies, through the American Hotel & Lodging Association, are lobbying for legislation that will prohibit certain aspects of Airbnb’s current listing model. In a 2016 manifesto called The Hotel Industry’s Plans to Combat Airbnb, the hotel industry asserts that commercial operators allegedly are able to use Airbnb and other crowd-sourced online lodging services to maximize revenue in their short-term rental units by side-stepping the usual regulation that mainstream hotels must adhere to. Proposed action includes passing legislation in various jurisdictions that would hold Airbnb accountable to the same standards that the hotel industry must abide, as well as collaborating with special-interest groups (affordable housing advocates, tenant groups, etc.) to spread the idea that Airbnb is doing more harm than good to the housing market.

The impact of the manifesto has already been felt: In 2016, the push to pass legislation was successful in certain states. The American Hotel & Lodging Association cites the following examples:

• New York has approved legislation to pass a law prohibiting short-term rentals in multi-unit buildings while the permanent occupant is away.

  • The Illinois Hotel & Lodging Association now places a 4.0% surtax (on top of standard hotel taxes) on levied short-term rentals and has the ability to prevent hosts from registering in the city if they operate in apartment and condo buildings.

• Los Angeles has imposed a prohibition on non-owner-occupied rentals and short-term rentals in rent-stabilized housing units, added registration and data collection requirements and placed a limit on the number of days a year that hosts can rent out their homes.

Finally, the United States is currently undertaking research to assess the effects that Airbnb and other citizen-based short-term rental businesses have on the broader hotel industry.

Come 2018, Airbnb will likely be accommodating as many guest arrivals as some of the most well-known hotel brands in the industry unless regulation is passed to substantially modify the company’s current business model. The online hospitality service operates on a social media–based rental recruitment system designed to hire on new rental operators (similar to the way that transportation service Uber recruits drivers), expanding Airbnb’s own business by listing the rental operator’s property as an Airbnb-rentable property. Short of adopting a similar business model, more mainstream hotel companies will be forced to continue to invest significantly in capital upgrades of their owned real estate portfolios and the growth of those portfolios through the acquisition of existing properties and developable land. It is possible that this form of business model can proliferate to other industries, as it already has in transportation and hospitality.

NERA Economic Consulting’s well-informed projections are a clear indication of Airbnb’s growth — that is, as long as regulation does not inhibit its progress. While hotel fundamentals are currently healthy and delinquency rates are low, 2018 is looking to be the year of the short-term rental industry. Airbnb will continue to be bolstered by other factors such as celebrity endorsements, a trendy image among Millennials, ease of use and self-entrepreneurial capabilities. Next year will be the year of the alternative hospitality service.

For a copy of the report, refer to the DBRS website or e-mail

Follow Stephanie Hughes on Twitter @StephHughes95.



Stephanie Hughes

Freelance financial journalist and research writer, covering market trends, company news and industry disruptors. Follow me on Twitter: @StephHughes95