Impact of AirBnB on Hospitality Industry: Strategies for Perth Western Australia

This report analyzes the impact of AirBnB on the hospitality industry in Perth, Western Australia and proposes three diversified strategies to overcome the negative impacts. The strategies include promoting houses and rentals via AirBnB, redesigning current services, and selling the location and embracing the home stay. The report recommends establishing a linkage between the hotel and airline industry through a strategic alliance with AirBnB. The report provides data and analysis from various sources to support the strategies and recommendations.

HOSPITALITY AND TOURISM MANAGEMENT
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Table of Contents
1.0 Introduction:..............................................................................................................................3
2.0 Problem area:.............................................................................................................................4
3.0 Proposed diversified strategic directions:..................................................................................6
4.0 Recommendation:......................................................................................................................8
5.0 Conclusion:................................................................................................................................9
References:....................................................................................................................................10
Appendix:......................................................................................................................................12
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1.0 Introduction:
The present report attempts to prepare a range of diversified strategies for the CEO of private
equity firm and the hotel management of Perth Western Australia (WA), considering the pros
and cons of AirBnB operations in the hospitality industry. Among the given scenarios, the
scenario 1 has been chosen to prepare the present report. Different market surveys have been
conducted in this regards globally, which projected that AirBnB has a significant impact on the
hotel industry in both positive and negative ways. The negative impacts found so intense that the
few hotels and accommodation providers also been banned from the listing of AirBnB. Taking
these things into consideration, the report develops three diverse strategies and provides the
recommendation to overcome the negative impacts over the business.
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2.0 Problem area:
The Perth hotel market is experiencing a higher competitiveness due to the flourishing of new
hotel rooms and softening of the business travels. One of the major reasons is the significant
increase of the non-traditional accommodation via the booking of AirBnB. The government
survey indicated that more than 25% of Western Australia’s room capacity is maintained by
AirBnB, and the supply is increasing at about 4% per month. The monthly income of WA’s
AirBnB hosts exceeds by AU$ 4.5 Million (Bcec.edu.au, 2018).
On the other hand, Aznar, Sayeras, Segarra&Claveria(2018) stated that due to the emergence of
issues such as neighbourhood amenity problems, tax avoidance and impacts on the varied
investment models, some of the renters are trying to avoid their listings with AirBnB. The
revenue percentage of the international hotels is getting some hits due to the indulgence of
AirBnB in the unconventional accommodation offerings. At the same time, the Australian
Government also focused on priority areas such as increased demand for AirBnB due to the
disruptive tourism offered by the company. It has been identified that more than 6% of WA’s
incominginternational travellers’ are created by AirBnB. Customized services at an affordable
rate and attraction of getting homely services rather than going for traditional hotel services are
the major concern for the tourism industry today (Alonso & Liu, 2013).
This scenario is found more crucial in other parts of the globe as well. The AirBnB listings,
occupancy rate and revenue of AirBnB hosts from entire Europe can be considered as a potential
example. More than 27,093 listings were to be found in the 14 cities across Europe in the FY
2016 (Tse-fr.eu, 2018). On the other hand, the revenue distribution is found uneven across
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Europe (see Table1 in the appendix). At the same time, the proportion of multiple listing is also
found complex and highly different, which can be seen in Table 2 of the appendix.
In order to resolve these issues, some of the jurisdictions are managing the adverse effects
through establishing an essential line between the commercial and private monarchy of operation
(Ruhanen, Whitford& McLennan, 2015). Thus, analysing the impact of AirBnB have become
more crucial for the present hotel operating in the Perth of Western Australia, and the CEO of the
equity firm, as the main business is concentrated on real estate business. The present report
produces some diverse strategies to exploit the optimum benefit of AirBnB listing with the CEO
of the Equity Firm.
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3.0 Proposed diversified strategic directions:
a) Promoting houses and rental via AirBnB:
The report published by National Visitor Survey (NVS) and International Visitor Survey (IVS)
Australia, provided the demand of AirBnB and comparative analysis of AirBnB demand with the
traditional accommodation providers. Volgger, Pforr, Stawinoga, Taplin& Matthews (2018)
stated that the increased booking in the WA refers a broader scope for Arena Utopia Hotel to
expand its operation through rental via AirBnB.
The overall findings from Figure 1-5 (see appendix) indicates that the share of AirBnB listings is
increasing significantly (more than 20% per year) in the city of Perth, Australia. In this regard,
Smallwood (2011) stated that major revenue earning occurs in the holiday season, by the
Australian hotel industry. Thus, considering the data of figure 4, it can be stated that customers
from age group 30-49 and 70-80 would be more attracted towards the AirBnB services due to the
cost effectiveness and customized non-traditional services. Moreover, the buying pattern of
international travellers is also changing which can be found in figure 5, as the majority of the
Asian and European travellers are attracted to the listed hotels of AirBnB.
The reports indicate that the occupancy rate of AirBnB is increasing almost 40% on a yearly
basis (Li & Srinivasan, 2018). Simultaneously, it has also been identified that the average price
in the given region for the hotel is approximately $226, whereas, the same for AirBnB is just
$123, which is substantially lower. In other words, the Uthopia Arena Hotel may get the leverage
of tie-up and collaboration with AirBnB with respect to real estate properties. In nutshell, the
increased demand for AirBnB would be beneficial for the CEO to earn greater profitability
through renting the real estate business in the WA region.
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b) Redesigning current services:
The hotel may apply innovative promotional strategies to attract foreign as well as domestic
visitors. Folger (2018) also mentioned that hotel industry needs to adopt latest technologies and
trends quickly so that the market may be disrupted and value creation may not be at stake. In this
context, it may be noted that add-on services like housekeeping facility, fitness center,
gymnasium, community hall,, banquet etc. are critical to business success apart from traditional
room booking services (Dickinson, 2018). In the given case, Arena may apply those techniques
in collaboration with AirBnB. Such collaboration may take the form of strategies with respect to
targeted marketing. For example, AirBnB’s appeal for “Authentic” experience at local
properties. Some researchers may be of the opinion that emphasis on cultural tours and events
may be good start for a hotel in the mood of expansion (Forgacs & Dimanche, 2016)
c) Selling the location and embracing the home stay:
Hotel industry, at times, manages several hidden costs within their price structure. For the sake
of expansion and growth, the management of Arena may revisit their cost structure, identify the
hidden costs related to amenity and value creating services and offer those separately. Like, mini
bars may be offered to the customers at the street prices. It has been observed that AirBnB has
been offering self cook services to its travelers. Therefore, the management of Arena may be
advised to have a tie-up with AirBnB as well as local bakeries and restaurants. Horizontal as well
as vertical line supply chain affects the bottom line in the long run (Yiannakis& Davies, 2012).
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4.0 Recommendation:
The given case study presents three different strategic options for the CEO of the private equity
firm of Arena Utopia Hotel. An in-depth perusal of the strategies so suggested may reveal the
fact that the CEO of the private equity firm may be considered to be in a better position to encash
the benefit arising out of the tie-up and listing of AirBnB airline business.
The three possible strategies may suggest the linkage establishment between hotel and airline
industry. Such linkage and strategic alliance may help both the businesses in the long run. The
overall performance of AirBnB in the airline sector may be considered to be sufficiently
satisfying and hence, the strategic alliance with them in terms of know-how sharing and the
rental arrangement of property may surely contribute towards the growth potential of the hotel.
Therefore, it may be recommended to get the real estate property listed with AirBnB so that the
increasing number of booking with AirBnB will positively result in the more number of rooms
booking as well for Arena Utopia Hotel. Moreover, such proposition is expected to be effective
and finally viable for CEO of the private equity firm as well because the same will increase the
revenue by way of renting of properties.
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5.0 Conclusion:
Based on the discussion and analysis performed in the preceding sections of the report, it may be
concluded that the given case study establishes the fact that the impact of airline industry on the
hospitality industry, especially, on the hotel sectors is substantial. Since both the industries serve
almost similar vertical in terms of customer services with premium level of comfort, convenience
and value offering, the market players of the two industries may not be construed to be rival but
co players in the market. If the management perceives the same and attempts to foresee the
opportunities underlying, both the hotel and airline industry may achieve considerable in the long
run.
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References:
Alonso, A., & Liu, Y. (2013). Local community, volunteering and tourism development: the case
of the Blackwood River Valley, Western Australia. Current Issues In Tourism, 16(1), 47-62.
doi: 10.1080/13683500.2011.644770
Aznar, P., Sayeras, J., Segarra, G., &Claveria, J. (2018).AirBnB Competition and Hotels’
Response: The Importance of Online Reputation. Athens Journal Of Tourism, 5(1), 7-20.
doi: 10.30958/ajt.5.1.1
Bcec.edu.au. (2018). Retrieved from https://bcec.edu.au/assets/The-impact-of-Airbnb-on-WAs-
tourism-industry-report-web-version.pdf
Dickinson, G. (2018). How the world is going to war with Airbnb. Retrieved from
https://www.telegraph.co.uk/travel/news/where-is-airbnb-banned-illegal/
Folger, J. (2018). The Pros and Cons of Using Airbnb | Investopedia. Retrieved from
https://www.investopedia.com/articles/personal-finance/032814/pros-and-cons-using-
airbnb.asp
Forgacs, G., &Dimanche, F. (2016). Revenue challenges for hotels in the sharing economy:
facing the Airbnb menace. Journal Of Revenue And Pricing Management, 15(6), 509-515.
doi: 10.1057/s41272-016-0071-z
Li, H., &Srinivasan, K. (2018). Competitive Dynamics in the Sharing Economy: An Analysis in
the Context of Airbnb and Hotels. SSRN Electronic Journal, 4(7), 77-126. doi:
10.2139/ssrn.3197969
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Ruhanen, L., Whitford, M., & McLennan, C. (2015). Indigenous tourism in Australia: Time for a
reality check. Tourism Management, 48(55), 73-83. doi: 10.1016/j.tourman.2014.10.017
Smallwood, C., Beckley, L., & Moore, S. (2011). An analysis of visitor movement patterns using
travel networks in a large marine park, north-western Australia. Tourism
Management, 4(11), 23-44. doi: 10.1016/j.tourman.2011.06.001
Tse-fr.eu. (2018). Retrieved from
https://www.tse-fr.eu/sites/default/files/TSE/documents/ChaireJJL/PolicyPapers/
2016_30_12_pp_understanding_airbnb_in_14_european_cities_coyle_yeung_v.3.1.pdf
Volgger, M., Pforr, C., Stawinoga, A., Taplin, R., & Matthews, S. (2018). Who adopts the
Airbnb innovation? An analysis of international visitors to Western Australia. Tourism
Recreation Research, 43(3), 305-320. doi: 10.1080/02508281.2018.1443052
Yiannakis, J., & Davies, A. (2012).Diversifying rural economies through literary tourism: a
review of literary tourism in Western Australia. Journal Of Heritage Tourism, 7(1), 33-44.
doi: 10.1080/1743873x.2011.618538
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Appendix:
Table 1: Proportion of the AirBnB listings with annual revenue in Europe
(Source: Tse-fr.eu, 2018)
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Table 2: Types of the AirBnB listings and its distribution in Europe
(Source:Tse-fr.eu, 2018)
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Figure 1: Share of AirBnB users in travel purpose categories, WA, 2015
(Source: Bcec.edu.au, 2018)
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Figure 2: Share of Airbnb users, international visitors, WA, January to September 2016
(Source: Bcec.edu.au, 2018)
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Figure 3: Share of AirBnB users in age groups, international visitors, WA, January to
September 2016
(Source: Bcec.edu.au, 2018)
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Figure 4: Holidaymakers - Share of AirBnB users in age groupsWA, January to September
2016
(Source: Bcec.edu.au, 2018)
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Figure 5: Share of AirBnB holders based on countries of origin from Jan to Sep 2016
(Source: Bcec.edu.au, 2018)
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Figure 6: Number of AirBnB listing per host in FY 2016-2017
(Source: Bcec.edu.au, 2018)
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Figure 7: Potential issues of AirBnB in WA
(Source: Bcec.edu.au, 2018)
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Figure 8: AirBnB booking demand based on previous visit
(Source: Bcec.edu.au, 2018)
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Figure 9: No of AirBnB listings per month in WA within FY 2016-2017
(Source: Bcec.edu.au, 2018)
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Figure 10: No of AirBnB host listings per month in WA within FY 2016-2017
(Source: Bcec.edu.au, 2018)
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Figure 11: Gross occupancy rate of AirBnB in WA within FY 2016-2017
(Source: Bcec.edu.au, 2018)
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Figure 12: Price rate of AirBnBlistings in WA within FY 2016-2017
(Source: Bcec.edu.au, 2018)
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