Basketball footwear forever changed in 1985. For that was the year Nike issued the Air Jordan 1, the red-and-black masterpieces synonymous with then 22-year-old wunderkind Michael Jordan. The shoe was a pivot point in the history of not only footwear, but professional basketball: before, there was no such thing as a signature shoe or a company elevating a player to the point where the face and name went ahead of the brand. The Air Jordan 1 gained such notoriety that the NBA banned players from wearing the shoe during league play.
The story of the Air Jordan 1 emergence correlates to another flashy, new-on-the-scene product: Airbnb.
If the hospitality industry is the historical equivalent to the Chuck Taylor, Airbnb is the new Nike that everyone wants and that the hotel industry wants shut down or heavily regulated because it's eating into its profits.
The history of Airbnb has similar parallels to the advent of the online travel agencies, taking advantage of a gap in the market. Had Expedia extended its platform to homes and apartments when it launched in 1996, Brian Chesky might not have 135,000 followers on Twitter and a reported worth of more than $3 billion.
Now, the hotel industry has a new player to compete with in addition to other challenges it currently faces, including advancing hotel supply and a global economic slowdown.
A Real Threat
Until now, hotel companies have parried and deflected when asked about the true impact of Airbnb. At industry conferences, hotel CEOs and executives display casual indifference, saying that Airbnb and home-sharing generally aren't affecting their business. They are prevaricating: Airbnb, with its some 2.3 million listings, has created a cottage industry for its reported 640,000 "hosts."
And if hotel executives won't admit to Airbnb's strength, reach and influence, Wall Street sure will.
During InterContinental Hotel Group's third-quarter earnings call, David Katz of the Telsey Advisory Group asked this of IHG CFO Paul Edgecliffe-Johnson:
"[An issue] that continues to be raised by investors when we talk about the industry overall is the shared economy/Airbnb dynamic. Where do you see that going and what is its impact?"
For his part, Edgecliffe-Johnson played it close to the vest, but did volunteer that Airbnb is a nuisance to business, especially hogging in during compression nights. Still, he went short of calling it a mega-threat.
"We've spoken quite a lot about our perspective on the shared economy/Airbnb dynamic and relative rates of growth between our business, branded hotels and the shared economy and the branded hotel market still continues to grow more rapidly; we’ve seen that over an extended period of time and obviously it's much larger, it’s different, it's a different stay occasion, it's a different offering and certainly for business travelers is much more suitable accommodation provision.
"There's been quite a few notes written recently as to whether it has some impact on the high occupancy nights and I think that sort of broadly, people seem to be saying that it's very difficult to identify anything and I'll probably correlate with what we see, quite difficult to isolate particular impact on those compression nights, maybe in some individual markets and where there is particularly higher concentrations. But we are not seeing anything on a systematic basis that we could pull out."
Airbnb has also sparked M&A debate. Some have gone so far as to suggest that Marriott International's acquisition of Starwood Hotels & Resorts Worldwide was made as "an anti-Airbnb defensive maneuver."
That's in stark contrast to what Marriott CEO said of Airbnb back in 2014, when he referred to it as "an interesting experiment" that is "fun to watch."
Last year, Thomas Barrack, founder of Colony Capital, whose various investment funds have owned hotel assets and hotel companies, said Airbnb is "killing" the industry because of low overhead (it doesn't own or operate real estate) and tepid regulation in comparison to the hotel industry.
Many others share Barrack's grumblings. Monty Bennett, founder, chairman & CEO of Ashford, is vocal on Twitter about his disdain for Airbnb and the lax regulation of it.
Global exchanges see Airbnb as a thorn in the side of the hospitality industry that isn't retreating. Back to IHG. On Monday, it was London’s sharpest faller "on fears that Airbnb has been eating into the hoteliers’ most profitable markets," FT wrote. IHG reportedly blamed Airbnb for a slump in the number of compression nights, which it said are down 23 percent year-to-date in the top 25 U.S. cities, having risen steadily since 2009.
The tide could change. Up to now, Airbnb has operated amid a low regulatory environment, and if the Federal Trade Commission won't do anything definitive, New York sure is. Last week, New York Governor Andrew Cuomo "declared war on Airbnb," as the New York Post put it, signing one of the nation’s toughest laws regulating the home-sharing service, including steep fines.
While state law already prohibits apartment renters and owners from renting their entire units for fewer than 30 days, the new law now carries fines of $1,000 to $7,500 simply for posting an available rental for any term short of 30 days.
Airbnb, for its part, isn't taking the law lying down. In response, it filed a suit against New York City and Mayor Bill de Blasio, as well as Attorney General Eric Schneiderman.
“A majority of New Yorkers have embraced home sharing, and we will continue to fight for a smart policy solution that works for [the] people, not the powerful,” Josh Meltzer, head of New York public policy for Airbnb, said in a statement.
Other cities, such as London, are formulating their Airbnb stances, and most are anti.
Airbnb will face further censure and more regulatory action, to be sure. But the platform isn't going away, just like the OTAs are cemented. When such time as regulation is in place, fire and safety is met and taxes are paid, only then will we clearly see the long-term impact of Airbnb. Until that time, the hospitality industry can't turn a blind eye.
Airbnb started as an experiment that is now proven.