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Is Airbnb larger than SA’s biggest hotel group?

While not the largest hotel-that’s-not-a-hotel operator yet, it’s close…

For all the attention garnered by Uber, with given cars being impounded, drivers being attacked, and politicians being confused at how to regulate, there’s another disruptor rapidly – but quietly – being embraced in South Africa: Airbnb.

And here there aren’t any weird regulatory vagaries. Hundreds of thousands of South Africans have been operating bed and breakfasts and guest houses, with these only growing in popularity over the last decade. Listing your apartment or spare room on Airbnb is similar from a legal point of view (municipal bylaws aren’t difficult to navigate), but because it’s a platform, Airbnb solves the distribution problem too. It’s not as if your house is going to be impounded because you don’t have an operating permit!

I hate the word disruptor. Its become overused (and often used incorrectly to describe anything and everything even vaguely competitive or different).

Except Airbnb is a disruptor. Just like Uber. They’re the two most obvious (and well-known) examples of what’s become known as the ‘on-demand economy’. A service – any service – on demand, typically via a mobile app. Not just because your smartphone is always with you, but because an app knows your location, your identity, enables instant payment… You know the drill.

The effects of Uber will be seen relatively slowly over time. For now, rival taxi cabs have obviously felt the competitive pressure first (it’s remarkable how rates for meter cabs in Cape Town have dropped consistently as Uber’s gathered traction). Next up, car rental companies. Practically every single person I speak to these days no longer hires a car on business trips… they land at their destination, ‘hail’ an Uber and can spend that travel time working or reading. No forms. No queues. Next, private car ownership. And while it doesn’t make a tremendous amount of sense in a sprawling mess like Johannesburg (that hasn’t prevented Mike Stopforth from trying), in a denser city like Cape Town it makes complete sense. A friend of mine ‘semigrated’ a few years back and sold his Beemer. He ‘Ubers’ everywhere. Over the arc of time, this kind of fundamental disruption is going to mean profound change. Two car families become one car families… Those sprawling car dealerships? The service and maintenance charade? Car insurance? Vehicle finance?

But enough about Uber.

Airbnb is interesting to me because it is a clear and present danger to the formal hotel sector. This trend is already taking hold in global cities (it’s amazing to see what happens in a city like San Francisco during huge conferences like Apple’s Worldwide Developer Conference). Cape Town falls into this category. Those foreign tourists aren’t all clamouring to stay in the Radisson or the Hilton. Thing is, Airbnb spots tend to offer a far more authentic experience of a city. Reports from consultancies tell us that’s what ‘millennials’ (another word I hate) want. But it is. More and more travelers are wanting to experience a city with locals. Airbnb offers that. Share an apartment with someone who has a spare room. Get tips and experiences you simply wouldn’t be able to from a concierge. Eat with them.

Friends of mine stayed in spots found and booked on Airbnb during a month-long trip to the US last month. Another friend hopped from one Airbnb spot to another in both recent trips around Europe.

Airbnb offers more typical apartment-type rentals too. But that’s not quite the story the company wants to sell. It will argue vociferously that it’s not a hotel company.

Which would you prefer? A centrally-located apartment to yourself with DStv, uncapped Wi-Fi, a kitchen, a couch, a proper fridge? Or a generic hotel room (complete with ruinous internet charges, overpriced drinks and food and limited TV channels)?

And from a landlord/owner point of view, Airbnb is a solution to many, many problems, chiefly yield. More on that some other time…

If I were the CEO of one of the large hotel groups in the country, I’d be very very worried.

On his brief stopover in SA recently, Brian Chesky, CEO and co-founder of Airbnb, revealed that the company had 30 000 listings in Africa. 9 400 of those are in South Africa.

Now, 9 400 doesn’t sound like a lot. Especially not when there are 1.5 million Airbnb listings worldwide. Except, that 9 400 is massive, when you compare it to total room numbers of the larger hotel groups. It’s also growing at an eye-watering rate, up 138% over the past year.

At the time of its acquisition in 2014 by US hotel giant Marriott, Protea Hospitality Group had 10 148 rooms in seven African countries including South Africa, across 116 hotels. After that deal, Marriott became the largest hotel operator in Africa. Of Protea’s 116 hotels, 79 are in South Africa. Protea’s not the largest hotel group in the country, though.

Tsogo Sun has 13 132 rooms in South Africa (the bulk of its total portfolio of 14 204 rooms). Most of these rooms (5 421) are in the full-service Southern Sun brand, while just under 5 000 are in the derivative brands, Sun Square, Garden Court and Stayeasy (what it terms, ‘Select Service’). A further 1 113 rooms are at luxury properties (Palazzo, Sandton Sun, Suncoast Towers and 54 on Bath), while 1 690 are Sun 1 rooms (in its budget portfolio, previously ‘Formule 1’).

Still think the 9 400 isn’t a lot? That number refers to listings though, and many of those listings will have more than one room. I’d bet that, even on the 9 400 number alone, Airbnb is larger than Protea’s room-base in this country. And on a total room number, it’s probably close to – if not larger than – Tsogo’s hotel portfolio.

And if not now, what about six months’ time?

(By contrast, City Lodge has around 6 500 rooms in South Africa. It operates 54 hotels in sub-Saharan Africa, of which 51 are in SA. Occupancies, according to its results for the six months to December 31 2014, averaged 68% across its portfolio. And Sun International operates 3 113 hotel rooms in South Africa, across three standalone hotels and 10 casino properties (nearly half of those rooms are at its sprawling Sun City complex).)

Airbnb’s Chesky also revealed that 300 000 people are sleeping in the 30 000 homes/rooms listed on the service across the continent each night. There’s something baffling about those numbers. If they’re right (and there’s no reason to doubt them), that means each listing has ten people, on average, staying in it each night. It doesn’t quite seem to add up.

Hotel operators will look at this threat with great skepticism. After all, they’re still ‘doing fine’ despite the B&B boom of the 2000s. They’ll also probably talk about “categories of traveler” and insist that their focus on the “corporate market” (or whichever segment they target) means they won’t be affected. Of course, there are categories of traveler who do prefer hotels. But, the fact that Airbnb solves the distribution and booking problem seamlessly means this time, it really is different.

According to Airbnb, the number of people staying in homes, apartments and rooms in South Africa booked through the service is up 257% in the last year. A report on Memeburn also cites the number of South Africans using Airbnb to book places to stay having increased by 163%. That’s not all domestic travel, however.

Those overseas tourists (the ones who are still coming, despite efforts by the Department of Home Affairs to ensure otherwise) aren’t booking stays on the websites of giant, global hotel brands (or even aggregator-behemoth Booking.com). Chat to a few tourists in Cape Town and Johannesburg… You’ll be surprised by what you hear. Increasingly, these travellers are not booking accommodation for their entire trips (or at all). They’re not even booking in advance. They land in a city, open the Airbnb app, and find a spot to stay. Or they’ll book the first few nights and make it up from there. Serendipity. Discovery. Something different.

And I can guarantee you’re starting to see increasing numbers of local business travelers preferring to stay at an apartment (ie. not in a hotel). This may take a while to surface at giant corporates with travel policies (and departments!), but that’s not the biggest chunk of the market.

Right now, everything seems fine for the hotel sector. It’s finally recovered from the significant overcapacity as a result of the 2010 FIFA World Cup. City Lodge, in it’s most recent results, points to “limited supply of new hotel capacity” as a driver of the trend in higher occupancies. Maybe the status quo will persist for a while still.

That’s the thing about disruption. It tends to happen slowly, almost unnoticeably. And then all at once.

* Hilton Tarrant works at immedia. He can still be contacted at hilton@moneyweb.co.za

** The hotel room figures are published figures (in annual reports) as at: March 31 2014 for Tsogo Sun, June 30 2014 for City Lodge and June 30 2014 for Sun International.

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Booking a place with Airbnb is not as simple as the writer makes it out. I travelled around Europe a few months ago using mainly Airbnb.
Here are my observations:
1 Generally you can not just arrive into a city and book at the last minute like a hotel. You request a booking, then the host responds (sometimes after a few minutes, sometimes after a few hours), then you agree on the terms, then you arrange the meeting and picking up the keys. In most cases this takes several emails and often several hours, since most hosts are not doing this full time.
2 Hosts can even refuse you if the comments about you from your previous hosts are unfavourable, which does not happen in case of hotels.
3 Sometimes hosts can even cancel in the last minute for personal reason.
4 If you do not have free or cheap internet connection the roaming charges can push up the cost drastically. Checking the pictures and location of a prospective accommodation can pile up the megabytes.

My recommendation is to check out the comments of the previous guests and try to book at least 2-3 days in advance.

Hilton, you forgot to mention LekkeSlaap ! The business model is so similar, how will it play out ?

You should always expect something weird when staying with AirBnB: The first time I used it, the host got very weird towards the end of the stay (clearly not used to strangers). The second time, the host expected us to top up the prepaid electricity when it ran out toward the end of the stay and didn’t offer to refund me the expense.

You need to see AirBnB as an adventure, otherwise you’ll end up being disappointed.

Hahahaha, The Hilton, on yet another one of his ‘angry at the unknown’ rants, rambling on and on and on.
Absolutely love this guy.

Nevertheless, I feel your assessment of the impact of Airbnb on the more established hotels is grossly exaggerated, given that both markets have co-existed for many years.
How many of the travelers you spoke to are new travelers to South Africa vs those who have ‘downgraded’ to Airbnb ?

Airbnb, in its current format, as you correctly state, is more for those looking for ‘a spot to stay’ to lay their heads for the night, and wiling to for-go all the creature comforts a regular hotel offers, I dare say, perhaps the more budget-conscious ?

Add to that, the fact that, Unlike Uber, Airbnb is just a central online platform that acts solely as an intermediary between buyer and seller, whereas Uber has a more hands-on approach over the entire process, from you logging onto the app, to you stepping out the vehicle, which therefore means that this is not exactly an apples vs apples comparison, but point taken.

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