The threat from the Internet: Why Wall Street analysts view Airbnb as the “killer” of the hotel business

Photo: Andrew Harrer / Bloomberg

Financial analysts at Bank of America predict a global decline in the global hotel services market. First, they say, the successful cycle for this segment has ended. Secondly, online services are putting pressure on the market, practicing an alternative approach to short-term rental housing. The most striking example is Airbnb.
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What is the problem

In mid-May 2016, Bank of America analysts published a report referenced by the Bloomberg publication. The document lists factors that may adversely affect the development of companies in the hospitality industry. Among other things, analysts of the BofAML division list such threats as a decline in corporate demand and an oversupply of hotels operating under old offline schemes.

However, one of the main problems that can bury the traditional hotel business is the development of online booking services. The leader of this market, the Airbnb project is one of the most expensive and discussed startups in the world (it is so popular that, according to its pattern, Game of Thrones fans have already launched a website for renting housing in the fantasy country of Vasteras).

Wall Street analysts suggest that the development of Airbnb will seriously change the hospitality industry. According to the forecast of one of the analytical companies, by 2025 a billion bookings of nights in hotels per year will be carried out through this service.

Such optimistic forecasts are made on the basis of information available to analysts. According to these data, service users are, on average, more satisfied with their experience than using traditional hotels, and this applies to both private travelers and representatives of the corporate segment.

Data: Cowen and Company / Infographics: Bloomberg

Perspectives of hotel networks: the Internet is coming

As a result, the Bank of America working group lowered the rating of Hilton Worldwide Holdings Inc., Hyatt Hotels Corp. and the Hersha Hospitality Trust from “buy” (corresponds to the purchase of shares) to “neutral” (it is not recommended to carry out operations to purchase shares of this company). RLJ Lodging Trust received a mark “below the market average” (underperform). Analysts have suggested that the hotel sector expects a failure of more than 40%, if its market valuation returns to the average historical indicators.

“We have noticed a trend suggesting that all demand indicators are at their peak when hotel deals are growing. The pricing policy on the Internet has a significant impact on the players' positions, and alternative rental methods such as Airbnb are an obvious threat to this market, ”he quotes Bank of America. According to analysts, a successful cycle for the hotel sector, which began in March 2009, has come to an end.

At the same time, Wall Street does not consider the "existential threat" of private landlords assembled on the Airbnb service, and other alternative forms of employment seriously, according to Bloomberg observer.

Not so simple

The Cowen Group Inc estimates that the flow of room-to-night orders for Airbnb could increase from 79 million this year to 500 million over the next five years (and, as noted above, to a billion over 10 years). But this does not mean the imminent disappearance of the traditional hotel business. Travelers, business travel practitioners should become its mainstay - a large number of such people still prefer to book hotels in the old manner.

Disagree with the assessment of Bank of America and in the research company Long Pond Capital LP, arguing that the online booking services of the Airbnb type and the budget hotel market are completely different stories - the leading analyst of this company, John Curry (John Khoury) predicts the growth of Hyatt network shares .

The prospects for the Airbnb service on the RBC television channel were also discussed by investment consultant ITinvest Pavel Deryabin:

The threat from the Internet: Why Wall Street analysts view Airbnb as the “killer” of the hotel business

What is the problem

Perspectives of hotel networks: the Internet is coming

Not so simple

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