Airbnb and the Short-Term Rental Market 2020

Report Overview

Airbnb is probably the most successful travel company of the last decade. A startup that went from crazy idea to a verb. And now it’s the latest travel business to come public.

Based on these new disclosures, we believe that Skift Research’s latest report on Airbnb is the most detailed look into Airbnb available.

This report includes a proprietary estimate of the size of Airbnb’s Experiences and China business which were not separately broken out in the filings. It also closely examines Airbnb’s brand positioning and how that drives advertising efficiencies, repeat shoppers and high host retention. This has led to a paradox: how can Airbnb scale its platform without diluting the unique hosts and places to stay that have built its brand?

The report addresses Airbnb’s COVID response and places the company within the context of the broader short-term rental market, updating our 2019 market landscape report.

What You'll Learn From This Report

• Proprietary estimates of Airbnb’s growth rates and segment reporting, including Experiences and China.
• Detailed data on Airbnb’s marketing efforts and its ability to attract, retain, and grow customer relationships.
• An analysis of the types of listings and property managers on Airbnb, including a look at how much inventory is exclusive to the platform.
• A deep dive into Airbnb’s COVID-19 response.
• The size of the short-term rental market in 2020 and Skift Research’s updated ecosystem overview.

Executive Summary

Until recently, little was known with any certainty about Airbnb, despite it being one of the largest and most successful travel companies of the last decade. That all changed in just a few weeks as the company filed to go public.

We have run a proprietary analysis of Airbnb’s Experiences and China business and find that despite much hype, they are quite insignificant to Airbnb’s top-line. Experiences contributes perhaps 2% of revenue and China 3%.

Airbnb might continue to rely on its powerful brand position for growth. Brand recognition and loyalty drive organic traffic which minimizes marketing costs. 23% of the platform’s traffic came from paid search in 2019, a pittance compared to rivals like Booking Holdings or Expedia Group. Further aiding this, 69% of the platform’s revenue comes from repeat customers.

But much of this brand strength comes from Airbnb’s distinctive inventory of yurts and airstream trailers. Much of its inventory – 90% of listings – are from mom and pop micro-entrepreneurs, who may have multiple listings, but who are still distinctly separate from the emerging landscape of professional property managers. These hosts are “all-in” on Airbnb and rarely list their properties on any other platforms.

This strength, however, might turn out to be Airbnb’s greatest challenge. How can it continue to grow its platform without diluting the unique and proprietary inventory on its platform? If Airbnb becomes just another listing site, it will need to bid for Google blue links just like everyone else does.

Finally, we place Airbnb in the broader context of the $116-billion short-term rental market. In doing this, we update our overview of the short-term rental ecosystem for 2020.

The Path Ahead for Airbnb as a Public Company

Airbnb is probably the most successful travel company of the last decade. A startup that went from crazy idea to a verb. And now it’s the latest travel business to come public.

Airbnb’s latest disclosures let us dig into the company and understand its business in a way never before possible. For starters, it is one of the fastest growing businesses in travel, increasing gross bookings at a 47% annualized rate between 2015 and 2019.

Airbnb is at its core an online travel agency and its best peer set is other online booking sites like Expedia Group, Booking Holdings and Trip.com Group. Compared to these competitors Airbnb monetizes quite well, earning a 13% effective take rate. This falls short of best-in-class Booking Holdings’ 16% commission but outperforms what Expedia and Trip.com collect. We’ve previously written about why comparing Airbnb to hotels is a mistake.

Airbnb has of course been hit by COVID-19. And in the first three quarters of 2020, gross bookings are down -39% compared to the prior period. We will discuss the impact of coronavirus in greater depth below.

We do not expect Airbnb to be able to recover from the pandemic this year. We forecast that it will end 2020 with $24.4 billion of gross bookings and $3.3 billion of revenue, down -36% and -30%, respectively.

We expect that 2021 will look better than this year, though that will not be a tough feat to achieve. We estimate that Airbnb can achieve $31.4 billion of gross bookings and $4.1 billion of revenue next year. That will represent modest growth (by Airbnb’s historical standards) over 2020 but still below 2019 levels.

We do not see a full top-line recovery to pre-COVID levels until 2022 at the earliest. And a return to profitability, which Airbnb once managed to achieve, will take even longer.

Region and Segment Breakdown

One of our biggest disappointments of Airbnb’s S-1 release is that the company declined to break out any operating segments, instead reporting as a single consolidated business.

Management has in the past described its Experiences and China units as separate businesses. In late-2017 it named co-founder Nathan Blecharczyk as Chairman of Airbnb China. In January of this year, it appointed Catherine Powell as head of Experiences and gave her a seat on Airbnb’s executive team (Ms. Powell has since been promoted to head of Hosting, a new role which consolidates Experiences and home hosting responsibilities.)

But the hard facts of the S-1 splash some cold water on what was just so much PR spin. Each of these segments must account for less than 10% of company revenue, otherwise SEC rules would require separate segment disclosure. And in fact, we estimate that each represents only ~2-3% of total revenue apiece.

Are You Experienced?

Skift has in the past called tours and experiences the last great untapped market in online travel, and we still believe that to be the case.

Some of Airbnb’s fiercest online travel competitors, Tripadvisor and Expedia, are aggressively expanding in the space. Tripadvisor’s Viator is the current market leader with over 395 thousand listings but Expedia is perhaps the fastest growing, adding over 185 thousand listings in the last two years.

Airbnb has preferred to take a quality over quantity approach, it was at one point only accepting 30% of tour operators that applied to list on its platform. Still, the platform has grown from just over 5,000 experience listings in 2018, to 40,000 by the end of 2019 and 50,000 today.

But despite this growth, Airbnb is still years away from making a meaningful amount of revenue from its Experiences businesses. In 2019, we estimate that Airbnb Experiences generated about $112 million in revenue, just 2.3% of total sales.

To arrive at this figure, we ran a proprietary Skift Research analysis of Airbnb experiences. We looked at every activity available on Airbnb’s website in its top ten experience markets (Paris, Bali, Rome, Mexico City, London, Lisbon, New York, Barcelona, Los Angeles, and Havana) and hosting markets (In addition: Tokyo, Toronto, San Diego). In total, we analyzed 4,640 experience listings, about 10% of the total platform.

The average activity has received 82 reviews, which gives us a floor for the minimum number of bookings. This approach bakes in conservatism in two ways. First the reviews are from the lifetime of the listing, but we are only applying it to a single year. Second, we are looking at a sample of just the most popular destinations, which therefore have the most reviews, but are applying this figure across the entire platform, overstating the volume of bookings received in secondary and tertiary markets.

Our review data was combined with disclosure from Airbnb that 68% of its guests leave a review to back into an estimated number of group reservations. We assume that most experiences are done in groups and that only one member of a group needs to leave a review. We assume an average party size of two people per reservation to arrive at our estimate of 9.6 million experience bookings made in 2019.

From our proprietary dataset we calculated a weighted average price per experience of $58 which yields Experience Gross Bookings of $560 million in 2019.

Airbnb’s Core: Accommodations

With a figure in hand for the Experiences business we can disaggregate it from Airbnb’s consolidated reporting to isolate the Accommodations business in 2019.

We estimate that Airbnb sold 317 million room nights in 2019 at an average daily rate of $118 for gross bookings of $37.4 billion. Depending on the measurement, accommodations made up 97 — 99% of the company totals.

Airbnb has long been in a race for alternative accommodations listing with Booking Holdings that featured some heated back and forth. With its filing, Airbnb appears to have pulled into the lead with 7.4 million total listings as of September 30, 2020. But more importantly, however, the company also provided valuable new disclosure about what share of those listings are actually booked.

Of those 7.4 million total listings, 5.6 million were active listings, meaning that they had received at least one past guest booking and were still available to view on the platform. Put another way, nearly a quarter of Airbnb’s listings have never been booked.

But an active listing only needs to have ever received a single booking at any point in history. Just 76% of active listings had received a recent booking in the trailing 12-month period ending September 30, 2020. However, we attribute some of that falloff to the global pandemic. Using a 24-month window, 90% of active listings had received at least one booking and we suspect this ratio is closer to the normalized figure.

We use our Skift Research estimates to derive an occupancy rate for Airbnb listings. By using effective listings on the platform – those that received a booking in 2019 – our estimate skews higher than the total figure for the platform would otherwise suggest.

We estimate that in 2019 Airbnb had an effective occupancy rate of 19%, for a revenue per effective listing of $23. For context, this is a structurally lower occupancy trend than the rest of the industry.

In Europe, alternative accommodations (excluding the sharing economy) have been trending at a ~30% occupancy rate for the last five years. In real terms, that means European vacation rentals are booked ~ 3-4 months of the year – in other words, just for the ski or beach season, respectively.

That Airbnb comes in below the rest of the industry should perhaps be no surprise. In a market already prone to periodic swings, Airbnb still has significantly outsized seasonality. No doubt, this is due to Airbnb’s large component of sharing economy inventory. This supply can be extremely dynamic and short-lived. Only coming online during peak compression nights, such as New Year’s Eve or a location-specific special event like the Superbowl.

If we were to use the 7.4 million total listings, occupancy rates on the platform would fall to 12%, and revenue per listing of $14.

Regional Breakdown

Airbnb’s largest market is North America by gross bookings and revenue, followed closely by EMEA and then Asia Pacific and Latin America. By volume of nights and experiences booked, EMEA led in 2019. The U.S. is Airbnb’s largest country market by far; it is the only country that represents more than 10% of Airbnb’s total revenue.

In 2020 with international travel shutdown due to coronavirus, Airbnb’s core U.S. market has pulled well ahead. In the first three quarters of 2020 North America accounted for 54% of total gross bookings, up from a 42% share in 2019. It rose to 50% of revenue, from 41% in 2019.

North America led EMEA in bookings and revenue despite experiencing fewer room nights in 2019 because of its major advantage in pricing power. Length of stays in North America and EMEA were the same (implying that there were more trips to or within Europe) but North American ADRs were dramatically higher.

Airbnb realized a $165 daily rate in North America compared to a $105 in Europe. Pricing power was even weaker in Asia Pacific and Latin America at $85 and $78, respectively.

In 2019 Asia Pacific represented 13% of Airbnb’s bookings and 12% of its revenue. So where does the much-vaunted China business fit into this? Skift Research estimates that Airbnb generated $1.4 billion of gross bookings from China in 2019 and $143 million of revenue. This would represent 25% of Asia Pacific sales and 3% of global company revenue.

To get there we start with an estimate of 320,000 Airbnb listings in China. We struggled to find recent data here, but in early 2017 the company reported 80,000 listings. We doubled this figure annually over the next two years, a growth rate consistent with our reporting.

To fill in assumptions, we applied the global data for the share of active-to-total listings and for effective occupancy rates. We also used the Asia Pacific average daily rate even though that includes developed economies such as Japan, Korea, and Australia. All of this should have the net effect of skewing our China estimates upwards, and yet the figure still comes in at just 3% of total revenue.

As a sense check to put this in context, out of Airbnb’s top ten revenue generating cities, Tokyo is the only one in the Asia Pacific region. We believe that Tokyo itself generates just shy of 1% of the global Airbnb revenue, likely around 90 basis points. With Beijing, Shanghai, and Shenzhen each pulling in even less per city, it’s hard to see how the China business could be more than 3% of global sales.

Airbnb’s Strong Brand Drives Organic Growth of Hosts and Guests

One of the keys to Airbnb’s success is its gold-plated brand. Airbnb’s image and platform help drive a powerful flywheel that is difficult to replicate.

Airbnb’s experience is intimately tied up with its hosts and distinctive properties in unique locations. Therefore, host onboarding and retention is crucial.

Host Retention

Most of Airbnb’s revenue comes from long-lived hosts. 84% of its revenue in 2019 came from bookings made with hosts who had at least one check-in the prior year. That host retention has stayed consistent for the last few years.

High host retention is also indicated by Airbnb’s cohort analysis. The below chart looks at cumulative revenue generated across time by all hosts that initially signed onto the platform each year. There is typically a 5-10% drop in cohort revenue into year one as hosts discontinue and drop off the platform. The actual share of listings that churn each year is likely higher than this figure as there are many listings that generate $0 revenue.

After year two, if the host remains on the platform, churn reduces significantly. This seems to remain true even as host cohort size grows – the 2018 cohort is nearly four times the size of the 2014 one.

As with guest growth, most of this supply growth comes organically. Contrast that with Expedia Group which spend nearly one billion dollars on a sales team to pound the pavement and sign up hotels. Signing up new hotels is historically a major gripe and hurdle that other online sites pay greatly to overcome. The challenge of onboarding inventory was too great even for Amazon which pointed to this as a reason for its short-lived foray into online hotel booking. That Airbnb continues to grow its hosts organically, is a huge structural cost advantage.

Guest Loyalty and Airbnb Superfans

The other cost advantage is in consumer marketing.

The vast majority of Airbnb’s visits are organic search or direct. Just 23% of its traffic came from paid search in 2019. SimilarWeb estimates that 64% of Airbnb’s web traffic went directly to its website, well above the 36% rate experienced by Booking and Expedia. This comes from a mix of word-of-mouth growth among new users and a fiercely loyal base of existing travelers.

Airbnb has been growing active bookers at a 34% average clip for the last several years. In 2019, it had 54 million active bookers, up from 41 million in 2018, and 30 million in 2017. In 2019, those bookers brought with them 247 million guests (i.e. an average party size of 4.6 per booking).

Studying the revenue retention of guest cohorts at Airbnb reveals an interesting trend. Revenue churn is high in the first year, falling off by ~60-65%. This is to be expected, though in fact we believe this is better than many competitors. But from year three onwards revenue retention begins to grow again.

This tells us that not every guest will get Airbnb; it’s not the right experience for all and some who try it will not return. But Airbnb is clearly able to hook and obsess a specific type of guest with whom it can then deepen its relationship over time.

Once a certain type of traveler catches the Airbnb ‘bug,’ they will shift an ever-growing amount of their travel wallets away from traditional accommodations (or even ‘standard’ rentals) and towards Airbnb.

These ‘superfans’ don’t just spend more with Airbnb all at once, it’s not a single lightbulb moment. But instead they will steadily increase their time and money with Airbnb year-in and year-out over a long period of time.

As a result, 69% of Airbnb revenue in 2019 came from repeat customers that had booked in the past year. That such a devoted customer base was built around Airbnb without the company offering so much as a loyalty program is practically unheard in the travel industry where guests are notoriously mercenary and price sensitive.

Strong Brand Drives Tangible Financial Benefits

Organic word-of-mouth growth and repeat customers aren’t just a win for its marketing team, but one for Airbnb’s finance team as well. This brand loyalty makes what little performance advertising Airbnb does that more effective.

Because Airbnb likely won’t have to pay to reacquire its customers, the lifetime value (LTV) of each guest is probably higher than at Booking Holdings or Expedia Group. This means Airbnb’s advertising return on investment is structurally higher.

Airbnb could simply pocket these savings. Or if they so choose, it can reinvest it. Because the LTV numerator is higher, it can afford to pay for more valuable advertising and outbid competitors while not sacrificing relative returns.

Plus, remember that sales and marketing include three primary components – the supply-side salesforce, brand advertising, and performance advertising. Airbnb has built-in advantages on all three of those prongs.

There is one challenge that Airbnb has that others do not. Its lobbying organizations and grassroot efforts are, at least partially, booked under S&M. Airbnb recorded $342 million in expenses for “field operations and policy” as a part of its sales and marketing expenses in 2019. Other OTAs do not pay these costs because they focus on hotels which have a traditional, non-controversial regulatory and tax structure.

Despite this though, the overall result is that Airbnb is far more efficient on its sales and marketing spend than peers and will likely continue to be so into the future.

Airbnb has indicated that it will focus more on brand advertising, rather than performance advertising going forward. This is not unusual – it is a shift playing out at Expedia and Booking as well – because brand advertising helps make performance advertising more effective. But general audience brand perception is also more important to Airbnb than others. It reinforces the already leading Airbnb brand. And it helps on the public and government relations front as well.

Sales and marketing is a crucial area to understand for any online travel agency. It is the single largest expense and one of the key drivers of profitability at all OTAs. We discuss Airbnb’s marketing in comparison to Expedia and Booking in greater depth here.

Airbnb Is Outside of the Increasingly Professional and Interconnected Vacation Rental Market

Followers of the short-term rental market have long known that Airbnb stands somewhat apart from its industry peers. But disclosures from Airbnb’s S-1, as well as data from leading short-term rental data provider Transparent, paint a stark picture of just how independent Airbnb’s platform is.

Airbnb breaks out its hosts into two buckets: individual vs. professional hosts. But do not be misled, individual hosts can have more than one home listing on the website. In fact, the average individual host has 1.3 listings. Instead the categories are defined by how each host connects to the platform.

Individual hosts are defined as anyone who lists their properties directly on the Airbnb website while a professional host uses an API.

In effect, if you use a channel manager or property management system, you are a professional host, everyone else is an individual host.

The Airbnb platform is loaded with these individual hosts. 90% of Airbnb’s four million hosts were individual hosts, and 79% of those (i.e. 71% of all hosts on the platform) had just a single listing.

This Airbnb-direct category was responsible for 72% of all room nights booked on the platform in 2019 – that’s more than $25 billion in gross bookings from this group. But there is a lot of subtlety here, mostly stemming from that fact, which we discuss above, that occupancy and utilization of listings on Airbnb is quite poor. We know individual hosts are responsible for nearly three-fourths of Airbnb’s bookings but let’s get more granular.

Transparent estimates that 43% of all trips on Airbnb (a good proxy for room nights and bookings) were with hosts who had just a single listing. 18% of trips were for hosts with two listings and 10% of trips were for hosts with three listings. All of these hosts are likely categorized as ‘individuals’ by Airbnb, (and as a check, all of these trips sum to 71% which ties with Airbnb’s self-reported 72% individual share).

So yes, single-listing individual hosts dominate the platform in absolute numbers due to sheer scale, but, pound-for-pound, hosts with multiple listings are far more impactful. Single-property listings represent 71% of all hosts on the platform but generate just 43% of Airbnb’s bookings. “Individual” hosts, but which manage two or three listings via Airbnb’s direct tools, are 19% of the population, but can claim an impressive 28% of platform bookings. Finally, professional hosts that access Airbnb via API tools represent just 1 in 10 users but are responsible for an outsized 29% of bookings.

The new Airbnb disclosures give the impression to a casual viewer that it is a platform dominated by small individual hosts. But let’s inject some nuance into that characterization.

It’s not that Airbnb is a platform dominated by hosts with a single listing or by hobbyists. In fact, the majority of its bookings come from hosts that operate multiple listings. But rather, it’s that Airbnb is a platform of micro-entrepreneurs who are “all-in” on Airbnb.

These micro-entrepreneurs eschew the blossoming landscape of professional property management software in favor of the tools that Airbnb develops in-house. These are still businesses, but they are built around Airbnb’s operational platform.

These hosts who are all-in on Airbnb explain Airbnb’s huge inventory of proprietary listings. Based on data from Transparent just 32% of property listings on Airbnb in the U.S. are cross listed on Vrbo or Booking Holdings. This is an industry-leading figure. For context, in the U.S. 44% of Vrbo listings can be found on another site and a whopping 70% of properties on Booking.com are available elsewhere.

Airbnb also has a leading market share. Transparent estimates that of all the unique homes cumulatively available across the big three vacation rental listing sites in the U.S., a full 69% of them can be found on Airbnb. This is a much larger market share than competitors can boast.

But the question is: can Airbnb continue to maintain a leading market share, drive growth, and retain proprietary host listings all at the same time?

Mac or PC?

Perhaps a good comparison is the Apple vs. Microsoft divide in computing. Airbnb is the modern Apple of the short-term rental world while Expedia and Booking are aiming to be the equivalent of the Windows operating system (or of Google’s Android in the mobile world).

Microsoft opened its Windows operating system up to any software developer or hardware manufacturer that wanted to use it. As a result, it grew to be the largest operating system in the world by far, and offered the most flexibility to users. But many users were overwhelmed by these choices, not to mention that quality varied considerably. Some found Microsoft to be too confusing and the overall experience too hit or miss.

Apple on the other hand tightly controlled its user experience, designing its own hardware and implementing much stricter requirements for software developers. It retained a distinctive, design-driven approach; obsessed with the user experience. And as a result, it earned a loyal fanbase willing to follow it anywhere and pay seemingly any price. Though Apple was an innovator, it invented the first modern graphical computer desktop and the first modern smartphone, its curated approach ultimately caused it to cede market share to rivals.

The analog seems clear to us. Even down to the design driven first-principles. Afterall Airbnb co-founders Brian Chesky and Joseph Gebbia met at the Rhode Island School of Design and came up with the idea to host attendees at a design conference.

Airbnb innovated and disrupted short-term rentals leading to the wave of professionalization we are experiencing today. Yet Airbnb may not, in the final tally, be the biggest winner, as the Microsoft analog makes clear. Its distinctive approach to acquiring and marketing inventory – highlighting yurts in Mongolia over two-bedroom condos in Boca Raton – simply cannot be scaled indefinitely. Something has to give.

This is one of Airbnb’s great challenges: how to scale its platform, adding and marketing “boring” vacation rentals, without diluting its idiosyncratic brand positioning? A hard truth is that it may not be possible.

Previously it seemed that Airbnb was trying to move into the mass market. It spent $441 million to acquire HotelTonight, adding traditional hotel rooms to its platforms. And there was even a rumor that it was building its own airline. At the very least, CEO Brian Chesky had said that he wanted Airbnb to be an Amazon-esque “one-stop shop” for travel.

With the current crisis, Airbnb Chief Executive Brian Chesky told Skift that he wants to rededicate the business back towards its core hosting business. “A crisis clarifies what you have and why you still have it… and gives you clarity about what’s truly important,” he said. Chesky sees the core mission of Airbnb as making human connections which will mean doubling down on Airbnb’s unique stays.

To be clear, this approach comes with many benefits. Airbnb’s special brand – it is the only travel company we can think of that is also a verb – is what creates many of its above strengths. Distinctive listings and hosts are the primary reason why Airbnb enjoys the strong host retention and repeat guest traffic. And that means it does not need to sink billions of dollars into performance advertising like Booking or Expedia do. Apple is after all, one of the most profitable companies in the world.

But Chesky and investors should come to terms with the fact that this strategy may well concede Airbnb’s currently leading market share to rivals like Booking and Vrbo.

Airbnb’s Coronavirus Response

Platform Trends During COVID-19

Airbnb, like the rest of the travel industry, has been severely impacted by the coronavirus pandemic.

It responded with cuts like so many other companies. It laid off nearly a quarter of its employees, around 1,900 employees. Notably, Airbnb effectively shut down its entire marketing department. While many other travel businesses scaled back their advertising, most still maintained some level of spend. We believe that Airbnb has made the most dramatic advertising cuts out of its peer group.

Although Airbnb first saw the impact in Asia, Airbnb skews heavily towards the U.S. and so it was not until March, when America went into lockdown, that its finances were heavily impacted.

New bookings on Airbnb’s platform fell from $4 billion in February, to $2.0 billion in March, and finally bottomed at $0.8 billion in April.

Though April was the bottom in terms of incoming new bookings (consistent with our findings from the Skift Recovery Index), from a cash flow perspective, March was the worst. That’s because Airbnb was flooded with a wave of cancellations that, controversially, it chose to honor regardless of the underlying host policy. Guests requested $2.9 billion in cancellations in March, 23.1 million room nights. As a result, in that month Airbnb actually paid out $0.9 billion in gross bookings.

Airbnb upset many hosts by going over their head in accepting cancellations, overriding any individual policy. As we discussed above, Airbnb needs to maintain a delicate balance of both host and guest retention. While this move upset a sizable community of hosts, we believe it was probably the right decision in the end.

In standing with guests in the face of an unprecedented pandemic, Airbnb has done much to earn goodwill amongst new customers, and most importantly, repeat travelers who, recall, generate 69% of Airbnb’s revenue. Even if Airbnb had not intervened, the outcome would likely have been similar for many hosts who would have otherwise experienced the same surge of chargebacks that other travel providers with inflexible cancellation policies experienced.

Airbnb highlighted four key changes in consumer behavior on its platform due to COVID-19:

• A shift towards domestic travel: cross border travel accounted for 49% of Airbnb’s room nights in 2019, so the closing of international traffic has been a major blow for the company. Domestic has grown in response, but not enough to offset international losses.
• A shift towards short-distance travel: Gross bookings sold for trips shorter than 500 miles grew 38% year-on-year in September. In June the y/y growth rate peaked at +66%. Trips with a distance of more than 500 miles have been declining at a 50%+ y/y rate for every month since the start of the pandemic.
• A shift towards rural destinations: We have written extensively about the shift in demand for small towns and outdoor spaces in our Monthly U.S. Travel Tracker series. Airbnb saw its top 20 cities fall from accounting for 13% of room nights and experiences booked pre-COVID to just 8% in the current environment.
• A shift towards long-term stays: Unsurprising given that more individuals than ever before in history can now take advantage of the ability to work remotely. In September, room nights for stays of 27 or less days fell by 31%, while room nights for stays of 28 days or longer rose by 28%. Taking into account higher daily rates that come with these rentals (meaning guests are likely renting whole homes, not apartments) the gross booking value of 28+ night stays rose 50% y/y in September.

During COVID Airbnb has outperformed broad travel, underperformed short-term rentals

Airbnb saw a sharp rebound starting in May that peaked in June and July. Trends have since weakened into September but remain well above the April lows. The most recent data, for the month of September, showed Airbnb’s gross bookings before cancellations were down -9% year-on-year. Including the net effect of cancellations and refunds, they were down -17% from the same time last year.

Whether that’s good or bad depends very much on where you sit. A hotelier would likely look at those numbers with jealousy – down only 17%! And a cruise executive would be ecstatic to show those numbers to his board. But other peers in the short-term rental industry may not be so impressed.

On Expedia’s third-quarter conference call, CEO Peter Kern said that Vrbo posted year-on-year growth of gross bookings, net of cancellations, for that period. Booking Holdings similarly saw year-on-year growth from its alternative accommodations business in the third quarter. David Goulden, the CFO of Booking Holdings, added that the domestic piece of his alternative accommodation business actually grew by double digits.

This implies that Airbnb may be underperforming its short-term rental peers by 20 percentage points of growth or more.

True, some of this is just by dint of pure luck, Airbnb was skewed towards urban apartments at a time when people were fleeing cities and craving space. Also, Airbnb is tilted heavily towards international travel. In fairness Airbnb, like Booking, also saw double digit growth in domestic room nights on its platform in the third quarter, but that was not enough to offset 60%+ declines in international bookings in the final tally. These may not be permanent changes, but they will likely persist as headwinds for the foreseeable future.

Some of Airbnb’s challenges relative to the broader sub-industry may also have to do with larger structural challenges. For instance, there has been an increased consumer preference for professional cleaning. Right or wrong, we suspect many consumers do not perceive Airbnb as being a leader in this field as all cleaning is ultimately up to the individual hosts. This is a disadvantage compared to a professional property manager, which as we discussed above, account for just 10% of listings on the platform. We suspect that a guest preference for cleanliness, and therefore for professionally managed properties, may remain sticky beyond the path of this crisis.

Regardless of the reason, it’s never a good thing to see Airbnb underperforming its largest rivals by such a significant margin.

Industry response: Long-term shift towards short-term rentals?

The short-term rental industry saw a massive influx of new customers this summer as travelers shifted en masse away from traditional hotels and into alternative accommodations. This was clearly a one-off event and there are already signs that the tide is receding. Booking Holdings, for instance, saw its domestic alternative accommodations business revert back to a year-on-year decline in October after posting positive growth in the third quarter.

But even though this high-water mark will not be permanent, it is also unlikely to fully revert back to the way things once were. We know from our research that customers like the short-term rental experience after they try it once. Our above work around superfans who, once exposed to Airbnb, return to and grow with the platform speaks to this. And it seems a whole generation just got the chance to experience the product for the first time.

Despite the terrible circumstances, this crisis can be an opportunity for the short-term rental market. We estimate that even just a 1% domestic mix shift within the U.S. away from traditional lodging and into alternative accommodations is worth $27 billion annually – that’s almost a whole second Airbnb worth of bookings. The global opportunity is even larger.

The Broader Industry Context – 2020 Market Overview

This shift is closer than we might think. We are seeing an increasing convergence between different accommodation sectors. Short-term rentals and vacation rentals have become synonymous with Airbnb; serviced apartments, aparthotels, boutique hotels, and even big box hotels are also increasingly found on the platform, or all mixed together in search results from booking platforms like Expedia and Booking.com.

It is becoming harder to define what’s included in the short-term rental or vacation rental sector, and in normal times we would have expected to see this convergence continue unabated.

The pandemic, however, has shown us that the chasm between hotels and short-term rentals, at least for now, has become wider again. Data is showing that vacation rentals have been performing better than hotels during the pandemic, as consumers are looking for more spacious and secluded properties in rural areas.

In terms of occupancy rates vacation rentals are still outperforming hotels. In the U.S. for example, vacation rentals moved above 2019 levels in terms of occupancy. Hotels are still at only about 70% of last year’s levels.

Market Sizing

Skift Research estimates that global gross bookings of short-term rental properties grew 4% in 2019 to a total of $116 billion. Five companies — Airbnb, Booking Holdings with its Booking.com and Agoda platforms, Expedia Group with Vrbo/HomeAway, Chinese platform Tujia, and Tripadvisor (with a declining market share) — processed 64% of all bookings, which is up from only 15% in 2015.

Airbnb is the main beneficiary of the growth in short-term rental demand, with gross bookings for rentals estimated to total $37 billion in 2019. Despite the fact that vacation rentals have outperformed hotels during the pandemic, we still expect all companies to suffer from a major decline in demand, with 2020 results considerably lower than 2019.

Continued rise of property managers

While the short-term rental booking landscape has become highly consolidated, in many other aspects the sector remains extremely fragmented. There are millions of independent hosts, over 100,000 property managers, and thousands of business-to-business vendors supporting the renting out of first and second homes, villas, houseboats, yurts, and any other type of accommodation imaginable.

At the beginning of this year, in our annual Megatrends, we wrote that branded home managers and players would “find rich pickings in 2020.” The year could not have turned out much worse, especially for those home managers that work with a masterlease model. Signing multiple-year lease contracts while business is booming has come to haunt some players, with Stay Alfred, Lyric, and Domio forced to cease trading, while players like Sonder have had to downsize considerably to survive.

Despite the collapse of these companies, branded home managers are expected to be well positioned to come out of this pandemic in a strong position. Demand for branded rentals, as well as professionally managed rentals, will return as travelers are increasingly looking for trusted experiences. According to data from Transparent, around 15% of properties are available on more than one platform. As professional managers are expected to increase their share over the coming years, and as Airbnb will be looking to professional managers to continue its growth, exclusivity will become harder to attain. Professional managers will certainly play the market and put properties on multiple platforms, and use ever-improving distribution technology to manage the different channels.

The Short-Term Rental Ecosystem

While Airbnb has undoubtedly had the largest impact on increasing the industry’s size and status, there is an entire ecosystem around modern vacation rentals which has grown strongly as technology has become more advanced, affordable, and accessible. The diagram below provides Skift Research’s view of today’s short-term rental ecosystem.

There are many more vendors like interior designers, photographers, consultants, lawyers, accountants, and manufacturers who are at the fringes of this ecosystem and benefit from the growth of short-term rentals as well.

Conclusion

The short-term rental ecosystem continues to grow and blossom. The global pandemic has only emphasized the need for continued innovation and professionalization within the space. How Airbnb, as the most prominent company in the space, chooses to engage with the broader short-term community will drive the future of this industry.

Airbnb has many opportunities and strengths. But it also faces a troubling paradox. How to grow its platform without diluting the unique and proprietary inventory that gave rise to its brand in the first place?

No matter what approach it takes to solving this challenge Airbnb is, and will remain, one of the most exciting companies in the travel industry.

For those that want to learn even more about Airbnb, Skift Research has also published a series of short, targeted articles that are complementary to this report:

• Comparing Airbnb to Hotels Is a Mistake, IPO Investors Need to Remember That
• Airbnb Well-Positioned Versus Peers Despite Pandemic Setback, IPO Filing Reveals
• Airbnb Gets More Brand Punch From Its Marketing Spend, Numbers Show
• How Seasonality Drives Airbnb’s Volatile Earnings: Skift Research Analysis