Airbnb vs. The Global Hotel Industry
In September, Airbnb announced plans to go public during 2020. We analysed the hotel industry, including the major players within it, and how Airbnb compares. Our goal is to specify the largest industry players using financial data and benchmark these selected companies based on industry-specific metrics from Craft.
To begin, we look at the hotel industry as a whole and at the performance of the major players within the hotel industry.
As of December 31, 2018, the global hotel market revenue reached $540 billion, a 13% increase compared to the previous year. The industry consists of more than 191,000 hotels, representing over 17.6 million rooms in the world. The industry-wide performance metrics (revenue, number of hotels and rooms) for the last 3 years are presented in the table below.
In this analysis, we focused solely on major international chains, eliminating both real estate investment trusts (REITs) that invest in hotels and companies operating only in local markets. The top five hotel chains by revenue are as follows: Marriott International, Hilton Worldwide Holdings, Hyatt Hotels, Intercontinental Hotels Group, and Accor.
In the chart below, we show the market share of these five hotel chains.
The Top 5 brands represent roughly 8% of the total market. We can see that the relative share of the leading hotel companies remains consistent during the last 3 years.
Next, we compared the revenues for fiscal year 2018 of the top five hotel chains.
Out of the Top 5, almost half of the revenue can be attributed to Marriott, while Hilton represents one-fifth of the total amount.
Another performance metric of the hotel industry is the number of rooms offered across all chain locations. In the chart below, we compare the top operators by room count.
In terms of performance by number of rooms, Marriott remains the top performer, but their lead is not as significant as it is in terms of revenue. The bottom performer in terms of room count, Hyatt holds only 5% of the Top 5 aggregate room count. This is due to market segmentation - Hyatt operates mainly in the premium segment with higher average prices per room.
Next, we assessed how the number of rooms are changing at each brand, looking at the growth rate for the last three years.
The industry room growth rate is stable over the past three years at around 2.3%. However, the Top 5 players outperform the industry significantly.
Hyatt Hotels and Accor Hotels had the highest growth in rooms from 2017 to 2018. This growth can be explained by acquisitions of other hotel chains. In 2018, Hyatt Hotels acquired Two Roads - which operates five brands, Alila, Destination, Thompson, Joie de Vivre, and tommie - for a total acquisition price of $405M. Accor Hotels acquired Mantra Group, Mövenpick Hotels & Resorts, Attron Hotels, Tribe Perth, and 21c Museum Hotels for a total of €1.46B.
Overall, for the top five chains, 27% (or about 71,000 rooms) of the growth in rooms can be attributed to acquisitions, while the remainder is due to the expansion of existing chains.
We also compared revenue and room numbers of the industry and its top players from a geographical perspective.
Across the global hotel industry, 33% of revenues can be attributed to the Americas. However, four out of the top five companies earn the majority of their revenues from the Americas. Accor Hotels and Intercontinental Hotels, both non-US brands, have comparatively more revenue from other regions in the world.
In the chart below, we compare the top five brands’ room numbers geographically with the total industry averages.
The Top 5 hotel chains have a heavier distribution of rooms in the Americas region at 57%, compared to the global hotel industry at 32%.
Hotels can also differentiate based on quality level - the segments include Luxury, Upper Upscale, Upscale, Upper Midscale, Midscale and Economy. Segment differentiation usually depends on the range of services provided, such as restaurants, spas, recreation facilities, business centers, local transportation, and Average Daily Rate (ADR). The ADR is the average rate a person pays for a room at the hotel and the higher the ADR value, the higher the segment.
We classified five segments - Premium (includes Luxury and Upper Upscale), Upscale, Mainstream (includes Upper Midscale and Midscale), Economy, and Other. The last segment includes timeshare/affiliation arrangements, lifestyle, and unallocated properties.
In the chart below, we assess the chain segmentation for each of the top five brands.
Hyatt and Marriott primarily offer Premium rooms, while, comparatively, Intercontinental only offers 10% of their rooms classified as Premium. Accor, the only chain of the top five with a majority of rooms outside of the Americas region, is also the only of the top five with a heavy focus on Economy rooms, at 40% Economy.
The critical key performance metrics in the hotel industry are Average Daily Rate (the average rate paid for an occupied room), Occupancy Rate (the ratio of occupied rooms to the total amount of available space) and Revenue Per Available Room (the hotel's ADR multiplied by its occupancy rate).
The table below shows the key performance indicators for the Top 5 companies.
The global industry Revenue Per Available Room (RevPAR) for 2018 is estimated to be $82.8. As we can see from the table above, four out of the five chains have RevPAR numbers above the industry average. Hyatt has the highest RevPAR and Average Daily Rate (ADR), as they primarily offer Premium rooms.
After analyzing the landscape of the hotel industry, both as a whole and with a focus on the major players, we look at the relatively recent entrant to the market, Airbnb, the disruptive home-sharing rental startup.
In the chart below, we compare Airbnb with the top five hotel industry companies in terms of Average Daily Rate and Total Rooms.
Marriott has the largest revenue amount, as well as one of the highest ADR values. Hyatt has the smallest number of rooms out of the top five, but the largest ADR value and ranks third in terms of revenue. In comparison, at the end of 2018, Airbnb reported the highest number of available rooms, at approximately 5 million listings (number of rental units available for booking on the Airbnb website). This represented an 11% growth compared to 2017 and a 66% growth compared to 2016.
Airbnb is a private company and, therefore, not (yet!) required to report financials and other metrics to the SEC. We used Inside Airbnb, a publicly available source of information about Airbnb, for estimating the Average Daily Rate (ADR) for the company. The estimated ADR for the rental units is $140, based on a dataset of 1.1M listings from 84 cities (roughly 20% of all Airbnb listings at the end of 2018). Out of the 1.1 million listings included in the dataset, 69% are for entire home/apartments, 29% are for private rooms, and 2% are for shared rooms.
The distribution of rental prices shows the average price of $140 is skewed higher due to a few more expensive listings. The most popular Airbnb rental price segment is in the range of $28 to $78.
Somewhat different from the typical hotel chains, Airbnb operates as a marketplace, connecting homeowners with vacationers, rather than owning and renting out their own property. As a result, Airbnb’s revenue model is different, earning money by charging service fees as a percentage of the rental price to hosts and visitors. The service fee is typically 3% for hosts and roughly 13% for visitors, but can be higher in some circumstances.
In the table below, we show Airbnb’s annual revenue for 2016 to 2018.
These findings may shed light on why Airbnb’s business model is so viable and competitive. Operating in more than 81,000 cities and 191 countries at the end of 2018, Airbnb shows signs of steadily increasing growth, majorly disrupting the hotel industry. The platform offers lower Average Daily Rates (ADRs), more options for rooms with a higher number of listings on their website, convenience for booking, and a more immersive, local experience for travelers.
Key Comparison Takeaways
- The Top 5 hotel chains represent 8% of global hotel industry revenues.
- The industry room growth rate is stable over the past three years and is around 2.30%. However, Airbnb’s number of rooms grew 66% between 2016 to 2018.
- Airbnb has 5 million listings (as of December 2018), outnumbering the aggregate number of hotel rooms across the Top 5 hotel chains at 4 million rooms.
- The average price of Airbnb’s rental unit at $140 is only slightly cheaper than the average price for rooms in the Top 5 hotel chains at $142, though the majority of Airbnb units are priced between $30 - $80.
- In 2018, the global hotel industry was worth $540b, with $43b of revenues attributed to the Top 5 hotel chains. Airbnb, with a marketplace-based service fee monetization model, earned an estimated $3b in revenues for 2018.
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