Takeaway: The data suggests that the marginal impact from Airbnb should be negligible moving forward.

The Airbnb threat is a major tenet to the prevailing short thesis on hotels and the OTAs.  Indeed, our work on Airbnb, including the use of the Hedgeye proprietary Airbnb listings dataset, suggests a negative impact on the US hotel market and potentially the domestic OTA segment.  However, as we will show in this note, Europe is an entirely different market. With PCLN generating the majority of its bookings and revenues in Europe, we believe the marginal competitive impact from Airbnb going forward will be slight. 

KEY POINTS

  1. AIRBNB EUROPE: ALREADY DENSE/GROWTH SLOWING: As a reminder, PCLN is most exposed to the EU, which is where we will focus this analysis.  Our Airbnb density analysis suggests the EU was an early adopter of Airbnb, but we have yet to see any material impact on EU hotel RevPAR to date.
  2. EU MARKET ALREADY EXISTED: The alternative accommodation market was already well established in the EU well before Airbnb, which has had a mixed to muted impact on that market.  In turn, we suspect all Airbnb is doing is facilitating that market, vs. the US where it is essentially creating it.
  3. SHOULD HAVE SEEN IT BY NOW: It’s possible that Airbnb may have had an impact on PCLN already, but it wasn’t large enough for anyone to take notice.  Given that Airbnb density growth is already slowing, we believe the impact moving forward will be limited as the second derivate impact will likely continue to wane.

AIRBNB EUROPE: ALREADY DENSE/GROWTH SLOWING

There is little doubt that European consumers were early adopters of the Airbnb platform, most likely due to the alternative accommodation market that already existed there. As can be seen in the following chart, Airbnb density – defined as Airbnb listings as a % of total hotel rooms – was and is much higher than the rest of the world. Moreover, up until last year, Airbnb listings growth in Europe exceeded the rest of the world as well.

It’s difficult to gauge the Airbnb impact on European RevPAR over the last few years given the volatility of the region and exogenous factors (i.e. terrorist attacks, Greece, refugee crisis, etc.). Maybe hotels were affected, maybe not. However, we posit that given the high Airbnb density already in the European market, and slowing growth, the incremental impact to the hotel industry and PCLN is likely to be insignificant.

In contrast, US hotels may be more at risk. In our Airbnb presentation on March 17th, we estimated the 2015 Airbnb impact could’ve been around a negative 100bps. More importantly, the negative Airbnb impact is likely to persist given the relatively density yet higher listings growth. The chart below compares Airbnb density in the top European hotel cities with those in the US. The implications are clear: Europe may or may not have already felt the brunt from Airbnb already but it’s not likely to be much of a factor going forward. The risk to the US is more palpable.

PCLN | Is Airbnb a Threat? - airbnb density by region

PCLN | Is Airbnb a Threat? - airbnb european cities

EU MARKET ALREADY EXISTED

We believe one major reason why Airbnb is having a limited impact on EU hotel RevPAR is because the alternative accommodation market was already well established before Airbnb arrived.  Further, it appears the introduction of Airbnb in the EU is having a mixed to muted impact across this market. In the US however, it appears that Airbnb is expanding the alternative accommodation market; Phocuswirght estimates that the percentage of US travelers staying in alternative accommodation has grown from ~10% in 2011 to 25% in 2014.

 We have segmented the EU accommodation market by nights stayed at traditional hotels vs. that of holiday establishments, which are essentially self-contained lodging units with minimal, if any, complementary services (i.e. alternative accommodation).  The data suggests that the latter was already well established in the EU, particularly amongst the top 5 countries, which make up roughly 75% of all accommodations nights.  The percentage of holiday nights to total accommodation nights across these 5 markets has ranged from 11% to 41% dating back to 2006.

The impact from Airbnb on these markets has been mixed to muted at best.  Generally speaking, markets that have historically had a relatively low percentage of alternative accommodation nights have increased as a percentage of the total, with the UK seeing the most dramatic increase.  On the other hand, markets with a relatively higher percentage of alternative accommodation nights (i.e. Germany & France) have declined as a percentage of the total. 

These conflicting data points suggest that Airbnb isn’t necessarily expanding the alternative accommodation market, but rather facilitating a market that existed well before it got there. 

PCLN | Is Airbnb a Threat? - EU   Airbnb Impact Mute

SHOULD HAVE SEEN IT BY NOW

It’s possible that Airbnb may have had an impact on PCLN already, but it wasn’t large enough for anyone to take notice.  Airbnb experienced its sharpest growth in both absolute listings and density during 2015; a period where PCLN produced stable to accelerating room-nights growth.  Maybe PCLN’s growth rate would have been higher ex Airbnb, but we don’t have anything to suggest that would have been the case.

Moving forward, we suspect that PCLN has already experienced the brunt of any impact from Airbnb given that EU density is ~2x that of the ROW, and density growth has already started to slow into 2016. From a second derivative standpoint (accelerating vs. decelerating trends), that means Airbnb is likely to have a waning impact on PCLN into 2016, and likely moving forward barring a reacceleration in density growth.

 In summary, if Airbnb really was a material threat to PCLN, we should have seen it by now, and maybe we did.  But moving forward, we do not believe Airbnb will have a significant impact on PCLN’s room-nights growth.

PCLN | Is Airbnb a Threat? - PCLN   Airbnb Impact 2 

Let us know if you have questions, or would like to discuss in more detail.  

Hesham Shaaban, CFA
Managing Director


@HedgeyeInternet
 

Todd Jordan
Managing Director


@HedgeyeSnakeye