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Analysis : Hotel Compression Nights Under Pressure as Event Attendees Increasingly Opt for Short-term Rentals

Since its founding Airbnb has been seen as a fun alternative to hotels, a way to experience a vacation in a different, more localized way. Yet, in recent years, Airbnb and other short-term rental platforms have become a legitimized threat to the status quo. With each fiscal year, statistics have shown that Airbnb is very much encroaching upon the accommodations market, which until now was monopolized by hotels.  How can hotels compete with Airbnb?

In one area that Airbnb has made massive strides is being a preferred accommodation for people going to specific events like music festivals, conferences, and sporting events. While various sources have identified event travel as a place where Airbnb is starting to win the accommodations battle, questions remain. How much business is actually going to Airbnb over hotels? Why is Airbnb sometimes preferred for events? And who is migrating away from hotel options? Recently, AllTheRooms Analytics conducted a survey of 1,000 American travelers to put concrete data behind this developing market trend and the changing picture of event-based accommodation booking.

Compression Nights

For a long time, compression nights have been a massive source of income for hotels. Compression nights are days or a period of time where booking demand goes sky high. These nights are usually identified as nights where occupancy rates exceed 90-95%. While some heavily trafficked tourist spots, like beach destinations, can at times see rates get close to these numbers because of seasonality, compression nights almost always coincide with major events. As examples think of Austin during SXSW, Palm Springs during the Coachella Music Festival, or for host cities during major sporting events like the Super Bowl.

Various hotel market-specific articles and studies have shown that there have been a decrease in compression nights and a resultant impact on hotel RevPAR. However, this is a hotel centric view. Compression nights still exist when one looks at a city’s occupancy rates as a whole, including short-term rentals, not just hotels. Below we examine just how much business is being pulled away from hotels during these compression nights.

Compression nights falling across all hotel location type groups, via HNN

But the largest impact on New York City’s RevPAR results is the number of illegal rooms posted on short-term rental sites, such as Airbnb and HomeAway, which eat away at occupancy rates, operators said.

Gone are the guarantees of compression days — defined as nights when occupancy is above 95 percent, such as during the New York City Marathon — which local hotels rely on to offset slower travel periods of the year.

“Here you can raise the rates to make money lost on very low compression days, but they do not exist anymore because of international familiarity with short-term rentals.”

Fred Grapstein, Vornado Hotels (via Skift) Tweet

The Survey Results​

To begin, AllTheRooms Analytics asked the simple question “Are you more likely to choose an Airbnb or hotel when traveling for an event?” Upon an immediate eye test, it seems like the impact of Airbnb might be slightly overblown. The survey shows that 71% prefer to stay in hotels versus 29% that would rather stay in an Airbnb while traveling for an event. While this may not seem like a significant percentage, it must be viewed under a relative lens. In an alternative survey conducted by AllTheRooms Analytics targeting business travelers, 92% of these folks traveling for business stay in hotels over Airbnbs. So in comparison to business travel, Airbnb has been able to greatly improve their status as an option for event-centric travel.

The other thing to consider when looking at these results is the definition of compression nights outlined earlier. Compression nights grant hotels significant market power and pricing muscle for a few nights a year. With so much opportunistic short-term rental supply coming online at such short notice, just a small proportion of event attendees opting for a short-term rental can have an out-sized impact on hotels and their ability to command an event-related compression night premiums on rooms. 

Additionally, the survey looked at who is staying where, and there does seem to be a generational gap in Airbnb bookings. When looking at our society’s two biggest generations, Baby Boomers and Millennials, there is a big discrepancy in accommodation preferences for events. Only 13% of the “Boomers” surveyed would choose to stay in an Airbnb over a hotel when traveling for an event. This is a sharp difference when compared to the 34% of Millennials who would choose an Airbnb. This is congruent with many other surveys conducted by AllTheRooms Analytics and what we see in our data; Airbnb bookings skew towards younger generations. While this could be an interesting insight into older generations’ lack of technological literacy, it is also an indicator that Airbnb’s success will continue. As the market begins to lose many of its older contributors and becomes saturated with of-age Millenials and adult aged Gen Z’ers, it has to be believed that the preference for Airbnb will continue to grow, for event travel and in general.

So why do some prefer Airbnbs over hotels when they travel to events? In a follow-up question to those who chose Airbnbs, we asked if it was because of the following reasons: costs, it can accommodate all their friends or family in one place, an increased level of privacy, loosened noise regulations, all of the above, or other. Of the group that said they would prefer Airbnbs, 50% said it was not because of a single reason but instead for the “all of the above” option. The remaining 50% were divided as 16% because the cost of an Airbnb was preferable, 16% because Airbnbs are more private, 12% because Airbnbs can accommodate more friends or family in one place, 3% because noise regulations are less enforceable, and 3% for other (reasons given were “it feels like a home away from home” and “there is more room”). 

Conclusions

These results are important for hoteliers and hotel chains who rely on compression nights to maintain the profitability of their hotels.

29% of people prefer Airbnbs when traveling for an event for a number of reasons, and an even higher percentage when looking at younger customer groups. That’s a lot of bookings that used to go to hotels that are now going to Airbnb, and it will undoubtedly be impacting the ability of hotels to cash in on compression nights.

The first step hoteliers should be taking is to understand the problem – that’s where we come in – revenue managers and hotel management should know the number of short-term rentals operating in the vicinity of their hotel, what kind of nightly rates these listings are charging, and the quality of these listings. With that information they can then make a reasonable analysis of which short-term rentals their hotel is truly in competition with.

Market segmentation and the knowing the competition is key here. A 5 star hotel probably doesn’t need to worry about the lower quality short-term rental properties nearby, but does need to consider the 20-person group booking the townhouse or mansion a few blocks away.

In order to combat these competing short-term rental properties, hotels need to take steps to try and make their offering more compelling to event attendees. Some things hoteliers can’t compromise on, such as noise regulations, but hotels can certainly offer increased flexibility around around accommodating large groups of guests attending an event.

Another strategy is trying to add value to event attendees that they won’t find when staying in an Airbnb, such as by forming partnerships with popular local events to provide benefits to guests like discounted admission or ticket bundles, which is one option that we’ve seen successfully employed by hoteliers. Even smaller initiatives like providing services specifically geared towards event attendees can help. These can take the form of simple steps like free shuttle bus services, or, in the case of the New York Marathon, an interesting example we saw during our research was a complimentary recovery session provided by the hotel spa. Hotels need to get creative and play to their strengths – the quality of their service, attention to detail, and amenities – if they want to continue to be able to command lucrative compression night premiums.

In the case of hotels competing against illegal short-term rentals, another strategy is to ensure that your hotel is working with organizations such as the AHLA or their national equivalent to combat unlicensed listings, which might be working with unfair advantages due to non-compliance with occupancy taxes, as well as contributing to local issues such as exacerbating problems with housing affordability.

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