Analyse the macro environment of Airbnb and Vacation Rental industry using Pestle and the impact of external factors  followed by an Airbnb Swot Analysis.

1.0 Introduction

Founded in 2008, Airbnb is a privately-owned company that operates online market place and hospitality services. With headquarters in Francisco, the company’s accommodation on market place provides access to over 5 million unique places to stay in over 81,000 cities and 91 countries globally (Airbnb press room 2018).

The company’s success has mostly been because of its low costs, convenience and ability to expand the capacity of rooms during peak periods among others. As of 2017, Airbnb’s revenue was approximately $2.6billion with $93million in profits, operating income of $450 million and net income of $93 million (Bort 2018).

2.0 Airbnb pestle and Swot analysis 2019

2.1 Political environment

2.1.1 Government laws and travel policies limiting public employees from using short term rentals.

Several state governments including Georgia, North Carolina and Illinois have put laws that ban or discourage their employees from using short term rentals. According to the different government travel policies, lodging claims must be documented with receipts from businesses that offer general public lodgings including hotels and motels in which case stays at private residences are not refundable (Castro 2017).  These restrictive rules which limit government employees from using private residences are a threat to Airbnb.

However, some states have recognized the imprudence of these bans and put a stop to them. In 2016, Gov. Jerry Brown of the California state signed a legislation prohibiting state agencies from banning employees from using short term rentals (Castro 2017). According to the report by Government Technology, such laws are a hindrance to innovation and the development of sharing economy (Castro 2017).

2.2 Economic environment

2.2.1 Rising housing cost a key problem to Americans boosted by Airbnb

Though Airbnb helps people diversify their revenue from home ownership, it has resulted in increased rent costs for local residents, a major problem in several parts of America. According to several analysts, the cost of Airbnb expansion is the reduced supply of housing as properties shift from serving local residents to serving Airbnb travelers, which hurts local residents by raising housing costs (Bivens 2019).

 Due to the fact that housing demand is relatively inelastic just a small change in housing supply (like those caused by converting long-term rental properties to Airbnb units) has potential to significantly increase rent costs. A case in point is New York where average rents by city residents has increased by nearly $400 annually since  Airbnb introduction and expansion in New York City (Bivens 2019). This is a major problem faced by several American families across USA. This is likely to increase hostility towards Airbnb business model increasing the company’s legal issues across major cities a s well, thus a threat.

2.2.2 Intensifying competition between traditional hotels and the private accommodation industry.

As companies like Airbnb increase their services to more than 1000 additional cities, the hotel industry is also adding its offerings and stepping up its lobbying efforts in federal and local circles for stricter regulations governing the private accommodation industry. Short term rentals have aggressively taken over the market forcing hotels to lower their costs especially during peak periods when they used to make extra money (Gerdeman 2018). The convenience offered by short time rentals, access to more rooms and high quality listings at competitive costs have however given companies like Airbnb a competitive advantage against the hotel industry.

2.3 Social environment

2.3.1 Growing tourism industry

The global tourism sector has been growing at a high rate since 2010 generating $1.5 trillion to the US economy in 2017 more than any other countries globally. As of 2017, US tourism grew by 2.7%, 9.8% in China, 7% in Spain, 6.2% in UK and 5.5% in Canada (Hoisington 2018).  According to the report by McKinsey & company, sharing economy is one of the major drivers of this growing industry due to their transparency, simplified interactions and payments among other reasons (Dichter and Sietzman 2017). With Airbnb operating in peer to peer tours, activities and location guide, this is a great growth opportunity for the company.

2.3.2 Traveler’s loss of interest in home sharing

According to Menze (2018), in nearly around 3000 US adults that have taken at least one trip in last 12 months, just 33% of respondents are interested in sharing economy accommodation down from 41% in 2017 and 37% in 2016. 75% express interest in large branded hotels, while 66% are interested in suite-based properties and 61% want limited-service branded hotels. According to the report, the major reasons travelers dislike home-sharing are because they don’t want to share vacation accommodations with strangers (71%), 66%  prefer the locations of hotels and 50% don’t believe that the quality of home shares matches that of hotels (50%) (Menze 2018).

Another big trend that is leading to loss of interest in home sharing is the increase in the use of Google search engines. The number of travelers using Google to search for travel information and destinations has increased to 41% from 40% and 32% in 2017 and 2016 respectively (Menze 2018). This is a threat to the growing industry of home sharing.

2.3.3 Growing pressure on city housing and growing inequality

As more landlords realize the benefits of the sharing economy, rent costs are suddenly becoming too high for locals to afford. Landlords are forcing tenants out while opting to make money out of short lets to rich tourists.

This has increased inequality and resentment towards companies like Airbnb mostly due to the fact that people with desirable properties are steadily making money through the sharing economy while those without are at a risk of becoming homeless with property prices across cities becoming unaffordable (Harris 2018). This is a threat to companies like Airbnb as it will hurt their reputation and force government intervention which will cost them profits.

2.4 Technological environment

2.4.1 Rising smart phone penetration

Smart phone penetration especially in emerging market is a major trend driving the growth of the sharing economy. According to a report by Statista (2018), the number of global smart phone users was forecast to grow from 2.1 billion in 2016 to 2.5 billion in 2019 with the numbers forecast to reach 224.3 billion users in USA alone by 2022.

Smart phone penetration especially in emerging markets is rising sharply providing a growth platform for sharing services. This growing use of smartphones will enable and encourage innovations related to the sharing economy for newly accessible consumer groups thus a growth opportunity for the temporary home sharing industry.

2.5 Legal environment

2.5.1 The 2015 San Francisco law that requires vacation rental hosts to register with the city

According to the law, properties are to be registered in order to ensure that they meet city rules that aim at preventing illegal hotels in homes. The law also requires vacation rental hosts to be permanent residents and limits whole home rentals to 90 days (Said 2017). Companies that use unregistered hosts will face a fine of up to $1000 a day per listing and criminal penalties for arranging bookings with unregistered bookings (Said 2017). With the threat of huge penalties, companies like Airbnb, Home Away and FlipKey have stopped working with hosts who have neglected the city registration requirements for short term rentals leading to a decline in the number of city rentals with an overall reduction of 55% (Said 2018). A decline in the number of city rentals means a decline in profits of companies like Airbnb thus a threat.

New York in 2017 also passed a law that is aimed directly at short term rentals where by apartments who advertised their homes on sites like Airbnb for less than 30 days were to face a fine between $1000 to $7500 (Castro 2017). Such laws that affect the supply side of short term rentals are a threat to the growth of companies like Airbnb.

2.5.2 Japan’s private temporary lodging law

Japan’s new home sharing law is likely to affect home sharing businesses like Air b&b once enacted. According to the new private temporary lodging law known as ‘Minpaku’ in Japanese, home sharing will be limited to 180 days a year a cap that is likely to make it hard for companies like Air b&b to make profits (Kyung-Hoon 2018).

Local governments are also imposing severe laws on home sharing services due to security concerns. Tokyo Chuho ward has for instance banned weekly rentals on claims that allowing strangers into apartments on weekly basis could pose a security threat (Kyung-Hoon 2018). Banning of such services is a threat to home sharing services like Air b&b as it will affect their profits.

2.6 Environmental issues

The UN has been working with the hotel industry globally to reduce greenhouse gas emission and make it more sustainable to align it to the Paris climate change agreement and UN global goals (United Nations 2018). According to the UN report, the main target is to hold global average temperature to below 2 degree celsius and close to 1.5 degrees celsius which would help prevent the worst impact of climate change including floods, water shortages and fires that are a threat to the tourism industry across the globe.

As their commitment to promote healthy tourism Airbnb has launched the office of healthy tourism. According to a 2018 report by Airbnb, guests that use Airbnb listings use significantly less energy, water, fewer greenhouse gases are emitted and waste is reduced. By opting for Airbnb listings rather than hotels, Airbnb guests in Europe achieved energy savings equal to that of 826,000 homes and reduced water usage equal to 13,000 Olympic-sized swimming pools. Airbnb guest stays in North America resulted in lower greenhouse gas emissions equal to that of over 354,000 cars through 2017 (Airbnb Citizen 2018).

3.0 Airbnb swot analysis 2019

3.1 Strengths

3.1.1 Strong Partnerships.

In 2018, Airbnb launched a global partnership with Site Minder, the leading cloud platform for hotels to attract and book guests across the globe. This enables the company to connect to traditional hospitality businesses and to easily list rooms on the company’s platform (Site Minder 2018). This will also enable hotels to connect booking information to their existing management systems in real time and increase Airbnb’s customer base and profits.

3.1.2 Big brand name.

Founded in 2008, Airbnb offers listings in at least 191 countries and over 4 million listings in total which is higher than the top five major hotel brands combined (Gerdeman 2018). This has given the company a competitive advantage against hotels and big customer base.

3.1.3 Low costs.

Other than additional benefits associated with staying in a residence, Airbnb accommodation is typically cheaper than traditional accommodations. (Guttentag 2015). The table below illustrates the difference in costs between Airbnb and other accommodations in different parts of USA.

3.1.4 Differentiation.

Airbnb has differentiated its self from other online businesses through exclusive supply system which has given it a competitive advantage against competitors (Bainbridge 2018).

3.1.5 Strong growth in London.

The company’s market share in London as of 2017 almost tripled from 2.8% to 7.6% with over one million bookings (Manthorpe 2018).

3.1.6 Airbnb’s ability to expand the capacity for rooms during peak periods. 

According to Gerdeman (2018), Airbnb has revolutionized the lodging market by keeping hotel rates in check especially during peak periods when hotel rooms normally fill out rates are increased.  This is a great advantage to tourists who don’t have to pay very high costs during holidays and big events; this has also helped boost the customer base and profits of Airbnb.

• Big customer base globally.

• Convenience offered by short term rentals is one of the company’s major strengths. Airbnb accommodations provide a number of benefits associated with staying in a residence. For tourists who prefer the feeling of being in a home over a hotel, Airbnb guests will often have access to practical residential amenities, such as a full kitchen, a washing machine, and a dryer which are not available in hotels (Guttentag 2015).

• Quick response to market conditions.

• High quality of listings

3.2 Weaknesses

• Uncertainty of services offered by private residences. According to Schlichter (2018), there are probabilities of misrepresentation, hosts cancelling bookings before the guest’s arrival, poor living conditions among others which could affect the company’s reputation.

• Poor PR resulting from actions of Airbnb hosts has tainted the company’s reputation. This is mainly due to the several loopholes in the business model.

3.3 Opportunities

• Growing tourism industry.

• High unemployment rate.

• Rising smart phone penetration.

3.4 Threats

• Japan’s private temporary lodging law.

• The 2015 San Francisco law that requires vacation rental hosts to register with the city.

• Government laws and travel policies limiting public employees from using short term rentals.

• Travelers’ loss of interest in home sharing.

• Growing pressure on city housing and growing inequality.

• Intensifying competition between traditional hotels and the private accommodation industry.

Conclusion.

As the most successful home sharing company, Airbnb has experienced tremendous growth and success through the years. However, the environmental analysis has discovered a number of trends and business shifts that are likely to impact the company’s success. Legislative restrictions by legislative bodies and municipalities across several states are a major threat to the growth of the company as they have resulted in a decline in the number of city rentals with an overall reduction of 55%. Other threats include; Government laws and travel policies limiting public employees from using short term rentals, travelers loss of interest in home sharing, growing pressure on city housing and growing inequality and intensifying competition between traditional hotels and the private accommodation industry.

However, the analysis also presents growth opportunities for the company which include; Growing tourism industry, high unemployment rate and rising smart phone penetration.

The SWOT analysis presents a major weakness of uncertainty of services offered by private residences which could affect the company’s future growth. However, the company could use its inner strengths which include a big brand name, strong partnerships and high quality among others to mitigate this arising threat.

Airbnb has dominated the industry creating high barriers to entry through creating customer and supplier loyalty. The company’s power of suppliers is low which gives it high power and makes it more profitable, the bargaining power of buyers is minimum and the threat of substitute too is low which makes the market more profitable.

References

Airbnb Citizen (2018) “Celebrating earth day with new data on Airbnb environmental impact” [online] at  https://www.airbnbcitizen.com/celebrating-earth-day-with-new-data-on-airbnbs-environmental-impact/

Bivens Josh (2019) “The economic costs and benefits of Airbnb” Economic Policy Institute [Online] at https://www.epi.org/publication/the-economic-costs-and-benefits-of-airbnb-no-reason-for-local-policymakers-to-let-airbnb-bypass-tax-or-regulatory-obligations/

 Bort Julie (2018) “Airbnb made $93 million in profit on $2.6 billion in revenue, but an internal clash sent the CFO out the door” Business Insider [Online] at https://www.pulse.ng/bi/tech/tech-airbnb-made-93-million-in-profit-on-2-6-billion-in-revenue-but-an-internal-clash-sent-the-cfo-out-the-door-id7946485.html

Castro Daniel (2017) “The cost of government bans on sharing economy” Government Technology [Online] at http://www.govtech.com/policy/Banning-the-Sharing-Economy.html

Dichter Alex and Sietzman Nathan (2017) “What’s really driving the growth of the sharing economy” Medium [Online] at https://medium.com/@WTTC/whats-really-driving-the-growth-of-the-sharing-economy-5f2e3dbb3e72

Daniel Guttentag (2015) “Airbnb: disruptive innovation and the rise of an informal tourism accommodation sector” Current Issues in Tourism, 18:12, 1192-1217,

Harris John (2018) “Airbnb and the so called sharing economy is hollowing out cities” The Guardian [Online] at

Hoisington Alicia (2018) “U.S. travel industry falling behind in global tourism race” Hotel Management [Online] at https://www.hotelmanagement.net/own/u-s-travel-industry-needs-to-do-a-better-job-capturing-global-share

Kyung-HOON Kim (2018) “In Japan, new rules may leave home sharing industry out in the cold”Reuters [Online] at https://www.reuters.com/article/us-japan-airbnb/in-japan-new-rules-may-leave-home-sharing-industry-out-in-the-cold-idUSKBN1HU06C

Menze Gill (2018) “Travelers losing interest in home-sharing, Google gaining ground as travel resource” Phocus Wire [Online] at

Said Carolyn (2017) “Air bnb, HomeAway settle SF suite, agree to register all local hosts” SF Gate [Online] at https://www.sfgate.com/business/article/Airbnb-settles-SF-suit-agrees-to-register-all-11112109.php

Said Carolyn (2018) “A leaner vacation rental market” San Francisco Chronicle [Online] at https://www.sfchronicle.com/business/article/SF-short-term-rentals-transformed-as-Airbnb-12617798.php

Schlichter Sarah (2018) “7 Airbnb problems and how to solve them” Smarter Travel [Online] at https://www.smartertravel.com/7-airbnb-problems-solve/

Site Minder (2018) “Airbnb launches global hotel technology partnership to support boutique hotels, bed and breakfasts” [Online] at https://www.siteminder.com/news/airbnb-global-hotel-technology-partnership-boutique-hotels-bed-breakfasts/

Sri-Kumar Komal (2018) “An unemployment rate under 4% is only half of the story of the US job market” Business Insider [Online] at https://www.businessinsider.com/us-jobs-market-unemployment-rate-under-4-half-the-story-of-2018-5?IR=T

United Nations Climate Change (2018) “UN works with Global hotel industry to reduce emissions” [Online] at https://unfccc.int/news/un-works-with-global-hotel-industry-to-reduce-emissions