Excerpt from New Trader U
in recent years the emergence of Airbnb has disrupted the hospitality industry, and many people have wondered if Airbnb is poised to replace traditional hotels. But, despite its growing popularity, Airbnb has not been able to replace hotels for several reasons.
Hotels operate on economies of scale and scope, which means they must achieve consistent volume to keep new guests flowing in after prior guests check out. This is why hotels slash room prices in the slow season and hike them as high as possible in the high-volume seasons. Hotels have high fixed and variable costs; the more high-end the hotel, the higher the direct operating cost. The additional amenities hotels offer, such as a spa, pool, breakfast bar, and valet, are tools to increase the average guest bill. Hotels use these amenities to increase revenue and customer lifetime value without the room price looking too expensive with what comes with it.
Demand vs. Supply
One of the critical differences between hotels and Airbnb is how they approach demand and supply. The hotel industry must validate the demand before the housing supply can exist. This means that if a destination is not popular enough to fill the hotel rooms, the local labor pool is not robust enough, or if the land is unavailable or too expensive, a hotel won’t exist. In contrast, Airbnb operates on an asset-light, fee-based platform that allows anyone to list and monetize their property as long as demand is there for it.
While there are no limits on how many listings can be on Airbnb, there are hard caps on how many hotels can exist based on zoning ordinances. This means that local laws and regulations restrict the number of hotels that can be built and operated in a particular area. These restrictions can limit the growth potential of the hotel industry, as it can be challenging and expensive to find suitable locations to build new hotels.
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