Hotel industry officials say Airbnb should be held to same standard

A recent market report indicates the hotel business is faring well against Airbnb on a global scale, but those within Arkansas’ hospitality industry are bracing for the possibility of a more profound impact in the future, as the residential guest rental industry grows.

They say Airbnb and other companies need to be held to hotel industry standards – and a recent agreement for Airbnb to pay taxes in the state does not go far enough. Airbnb use is on the rise in Arkansas. Last year, about 900 Airbnb hosts in Arkansas earned a collective $4 million. With 34,000 guest stays, the state’s Airbnb use grew 249% from 2015, according to the company. The number of hosts grew 104% statewide.

Fayetteville was the most popular city in the state for Airbnb in 2016. There were 7,500 guest arrivals, and hosts earned about $907,000, according to the company. Little Rock hosts welcomed more than 4,100 guest arrivals and earned $456,200. Hot Springs hosts welcomed nearly 3,400 guest arrivals and earned $362,900.

Airbnb and other “share economy” businesses have been at the center of ongoing controversy throughout the country because of a lack of compliance to tax and regulatory laws, in addition to the fact that they serve as competition for traditional service providers.

Airbnb last month agreed to start paying taxes in Arkansas and Feb. 1 began collecting 6.5% Arkansas Gross Receipts Tax, the state’s 2% Arkansas Tourism Tax and local sales and use taxes from its hosts. It has entered into similar agreements in states throughout the nation and countries throughout the world. The company has not, however, started to collect and pay advertising and promotion taxes to Arkansas cities, and that is where Montine McNulty, executive director of the Arkansas Hospitality Association, said the new agreement falls short.

LEVEL PLAYING FIELD
“All we want is for Airbnb and others to be on a level playing field,” she said, also pointing to Airbnb’s lack of obligation to meet safety codes and the fact that it doesn’t have to meet the same insurance requirements.

“In some cases it violates zoning, and there can be neighborhood problem issues,” McNulty added. “Home owners’ insurance does not cover you if you are renting. A bed and breakfast in a home has to do all of the above.”

Airbnb is competition for the hotel industry that is “here to stay,” McNulty said. “They just need be under the same rules.”

Airbnb spokesperson Laura Rillos said the company could make arrangements with individual cities within the state in the future.

“We are pleased to collect all state-administered taxes through this voluntary collection agreement and hope to reach similar agreements with cities in Arkansas soon, like we have in more than 230 jurisdictions around the world,” Rillos said.

As to Airbnb’s obligation to meet codes and other safety and legal measures upheld by hotels, Rillos said, “We ask all of our hosts to understand and comply with local laws and regulations when they sign up for Airbnb.” She added, “The vast majority of our hosts in Arkansas are good neighbors who share their homes occasionally to help make ends meet. The typical listing is booked just 25 days per year and the typical host earns $3,800 a year, which makes it possible for many to pay the bills.”

STR DATA: HOTELS
STR data indicates Airbnb had minimal negative impact on the hotel industry between 2013 and 2016.

Within the U.S. markets of Boston, Los Angeles, Miami, New Orleans, San Francisco, Seattle and Washington, D.C., the occurrence of high-occupancy nights did not vary widely during the three-year period. The data show an average of 61 compression nights (where hotel occupancy was 95% or more) in 2013, 75 in 2014, 76 in 2015 and 71 in 2016 within those markets.

STR only looked at Airbnb data it deemed comparable to hotel units within the company’s 3 million listings (as of November 2016). It did not include shared accommodations, which comprise about two-thirds of listings, according to STR. Also during the three year period, hotel pricing power remained fairly strong during compression nights, compared to non-compression nights, according to STR. Hoteliers charged 30.8% more on high-occupancy nights in 2013, 25.6% higher in 2014, 34.9% higher in 2015 and 34.8% higher in 2016.

STR’s senior vice president for lodging insights, Jan Freitag, said the study is the first of its kind to use actual Airbnb, rather than a scraped data set.

“It is not surprising that results were different in each market, but data suggests that Airbnb owners seem to not deploy yield management strategies as effectively as their hotel counterparts,” Freitag said in a STR press release. “Occupancies of hotels are higher than Airbnb occupancies, while hotels charge a higher room rate.”

In fact, between July 2015 and July 2016, the average hotel daily rate for a single room in the seven U.S. markets was $16 higher than Airbnb rates, according to STR. In Miami, for example, the average hotel price was $44 more than the average Airbnb unit cost.

AIRBNB HAS MINIMAL GLOBAL MARKET SHARE
U.S. Airbnb guests typically stayed longer than the average hotel guest. 47% of all Airbnb room nights were part of a seven-day or longer stay, the data show, and 90% of Airbnb guests are there for leisure travel, rather than business.

Airbnb is in 50,000 cities and more than 191 countries, but its share of market demand was 4% and revenues were 3% last year, according to STR. At the same time, the hotel industry is taking Airbnb seriously.

“All new competition is significant to our industry,” said Blair Allen, president of Beechwood Hospitality in Little Rock and secretary of the Arkansas Lodging Association within the AHA.

While Airbnb is “a small factor in Arkansas today,” he said “this business model has proved successful in larger markets and in other industries, so we must be prepared.” Allen agrees Airbnb should adhere to the same rules at hotels, including, for example being required to provide access for individuals with disabilities.

“In the end, industries change with time. The hospitality industry is no different. We must always provide what the consumer demands. And, many consumers today are interested in the offerings of Airbnb,” Allen said. “I believe it will continue to grow and have a noticeable impact on the industry.”