Airbnb's foray into corporate travel complicates rate negotiations

New York is hanging at 86 percent occupancy for the year. In these conditions, the sharing economy thrives and hotels are unable to push rates.

Negotiations for corporate and contract rates are about to take place across the hospitality industry, and slowing growth in U.S. hotel rates due to a variety of factors, including Airbnb’s expanded penetration into the business travel sector, are about to play a major factor in the process. 

Corporate and contract rates comprise roughly 20 percent of occupied roomnights in the U.S. and nearly 30 percent of the U.S. lodging industry’s revenue. According to a report released by Bjorn Hanson, clinical professor at the NYU School of Professional Studies, Jonathan M. Tisch Center for Hospitality and Tourism, some U.S. cities are running historically high occupancies, including New York, which is currently at 86 percent occupancy for the year. When large events take place, such as the New York Marathon or New York Fashion Week, the availability of rooms takes a dive and rates skyrocket. This is when travelers turn to alternative accommodations, and where Airbnb wins.

“I remember when all-suites and extended-stay hotels were first launched in large numbers, and they were initially dismissed by the industry,” Hanson said. “When these hotels reached 5 [percent] or 6 percent of overall hotel supply, suddenly they became a segment. It’s clear in some markets that alternative lodging has become 5 [percent] or 6 percent of its supply, and to corporate travel managers this is good news.”

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This week Airbnb unveiled a new partnership with WeWork, a company providing co-working spaces in major cities. Travelers booking through Airbnb are now able to reserve time at WeWork locations in any of six pilot cities at this time, giving corporate travelers an incentive to book through the home-sharing service. Hanson said corporate travelers are flocking to Airbnb because of its lower rates, allowing them to save money on their stay even if it violates corporate travel policies.

“Nobody is using WeWork for hobbies,” Hanson said. “This partnership with WeWork sends a message that Airbnb is here to stay in business travel. The company already has American Express and restaurant companies, and all of this serves to make Airbnb a bigger, more credible force for business travel.”

As Airbnb continues to fill in the gaps in its operating model through digital partnerships, Hanson said it may be inevitable for the company to begin developing its own rooms to block off. “Airbnb is aware of where the largest events are taking place in the U.S., so it could be happening now. I’m just not aware of it,” he said. “It’s a likely development, though.”

WeWork may not look like a traditional business environment, but business travelers take it very seriously.

The Other Drop

Additionally, Hanson said corporate rate negotiations in 2016 and 2017 took place at a time when the industry expected larger rate increases than what actually occurred, and for the coming year they are scaling back their expectations. Average daily rates in the U.S. are expected to increase between 2 percent and 2.5 percent both this year and in 2018, and corporate and contract rates are expected to increase in 2018 between 2 percent and 3.5 percent. Compared to 2016, when these rates increased between 5.75 percent and 7 percent, and 2017 where they rose between 3 percent and 4 percent, the drop is significant. So what happened?

According to Hanson, some corporate travel mangers and convention planners have expressed concern that “member rates” and non-refundable rates available for booking directly on brand websites are lower than corporate, contract or convention rates, which are typically lower than what is available to the public. Hanson said that convention rates are somewhat distinct from corporate and contract rates, but considers them part of the conversation because they are also heavily reliant on fluctuating business travel budgets. Overall, Hanson said conventions are taking place over shorter periods, fewer attendees are attending and price sensitivity is on the rise.

“Some use of meeting rooms and event amenities are included in these prices, so they tend to be higher than member rates,” Hanson said. “The real issue is that the convention and meeting business is more scattered, and now event organizers and convention spaces have to be more aware of timing and location to bring in travelers.”

What Can Be Done

As of now, hotels still have numbers and partnerships that give them control of the industry, which Hanson said they must leverage to succeed. He said hotel companies need to concentrate corporate hotel use at a smaller number of properties to increase bargaining power, and include more upscale, select-service and limited-service hotels in place of or in addition to upscale, full-service and luxury hotel offerings.

Hotel companies should also allow travelers to select hotels that are not included in their portfolio of hotels with negotiated rates, something Hanson said is a popular option for younger travelers. Lastly, Hanson cautioned hotels against growing comfortable with the current negotiation climate because it is always just one factor away from changing.

“I’ve been doing this annually, and it’s quite extraordinary how much this process has changed,” Hanson said. “There was a time when corporate rates were kind of easy to understand, and corporate travel mangers understood their buying power. The job of being a corporate travel manager has become 10 times more difficult than it was decade ago.”

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