How unhotels affect the market

By Colleen Isherwood, editor

“If Dick Van Dyke had a love nest …” So begins the description of a West Toronto retro flat on the subway, available to travellers for just $75 per night in June on Airbnb.

Here’s the description: “A cool and cosy private apartment in an amazing neighbourhood. Steps from the subway! Separate entrance, private kitchen and bathroom with double bed and a sofa bed. Great for a couple or a family. See you soon!”

Is this a better deal than the standard hotel room at an economy brand you could get in Toronto for the same price?

Airbnb, then called Air Bed & Breakfast, originated when roommates Brian Chesky and Joe Gebbia could not afford the rent for their loft in San Francisco. They made their living room into a B&B, accommodating three guests on air mattresses and providing homemade breakfast. From these simple beginnings, they added a third partner and founded Airbnb in 2008. Airbnb runs on a marketplace platform model where it connects hosts and travellers and enables transactions without owning any rooms itself.

Airbnb is now getting too big to ignore. According to Wikipedia, it is a website for people to rent out lodging with over 500,000 listings in 33,000 cities and 192 countries. The Airbnb website numbers are slightly lower—28,000 cities and 190 countries. Either way, the numbers are substantial.   

In April 2014, the company closed on an investment of $450 million by TPG Capital at a valuation of approximately $10 billion. As Jeremy Warner wrote in the U.K.-based Telegraph, with that valuaton, Airbnb is “worth more than both Hyatt Hotels and Britain’s InterContinental Hotels, both of which have a stock market value of about $8 billion.”

Airbnb is not the only player in this field. HomeAway, another such site that operates out of the U.S., boasts 950,000 listings including 297 in Toronto, 347 in Vancouver and 484 in Montreal. There is also a more upscale British counterpart, One Fine Stay which bills itself as “the unhotel” operating only in New York, Los Angeles, Paris and London.

Certainly, the phenomenon has caught the attention of Steve Joyce, president and CEO of Choice Hotels International.

“We have tended to think of ourselves as pure lodging players and the reality is that this isn’t the case anymore,” he told Sean Downey of Lodging Magazine in an interview. “We’re in a technology distribution environment that is fraught with opportunity and peril. And there are potential new businesses that come from what we do that are popping up all over. In the case of Airbnb and HomeAway, we didn’t identify the segment, and we didn’t go after it. So we need to be more cognizant of emerging trends.”

Unlike traditional hotels, Airbnb doesn’t own any inventory, but grows by increasing the number of hosts and travellers and matching them with each other.

Most complaints have come from hoteliers rather than hosts or travellers. Hoteliers object to the uneven playing field—taxes for private homes are much lower than for hotels, and residences operate outside of health, life safety, insurance and other laws that apply to hotels.

“[These businesses] have started to move mainstream,” Joyce told journalists at the recent Choice Hotels International conference. “They can’t ignore life safety and they have to pay taxes, but we’re looking at why they’re doing it and we’re not. We are looking at different business models and what they are doing is interesting. They’re very bright people and have attracted a lot of capital.”

EDITOR'S UPDATE: Airbnb unveiled a new website on July 16 — https://www.airbnb.ca/?locale=en.