THE AIRBNB WAY : THE PROS & CONS OF ACCOMMODATION DISRUPTION

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The Airbnb platform, which has emerged as a new disruptor for the hospitality business has also raised some vexed questions regarding its use. 

--BY Tamish Giri

Dima Segal and Gadi Rotenberg, a doctor and a young tech entrepreneur, respectively, from Israel, travelled to Nepal in September 2019 and returned to Tel Aviv in mid-November after completing the Lantang Valley and Annapurna Circuit Trek. During their stay in Nepal, they chose to stay in homestays and rooms listed in Airbnb. Like Dima and Gadi, Edith from Bavaria, Germany, and Jessica from Hong Kong also chose to stay in rooms listed in Airbnb during their visits to Nepal, cutting some potential revenue of the hotels and the country’s tax revenue.

Tourist arrival in Nepal is at its peak during the months of September, October, November and December. Like other destinations, Pokhara receives a heavy influx of foreign and domestic tourists during these months. But the reservation of hotel rooms was contrary to tourist arrivals as the reservation of hotel rooms declined.

Bhuwan Sharma, general manager of the Last Resort observed a similar situation during his visit to Pokhara in October last year. He informs that the hotel rooms at a Lake Side hotel where he stayed were mostly vacant. “I was there during October, the tourism season, yet the hotels were mostly empty, the manager of the hotel where I stayed said that hotels in Pokhara are observing footfall in tourist arrivals,” he says.

The manager informed Sharma that they are rarely fully booked and their business has been in a decline as compared to a year ago. According to the hotel manager, the situation was not exceptional to his hotel only. “I was informed that online listing services of the Airbnb platform have been providing accommodation services at minimum charges which has took away their visitors affecting the hotels in the Lake Side area,” Sharma adds.   

Of late, travellers all around the world are adopting to use Airbnb to book their rooms rather than hotels and Nepal has not been an exception. Mainly due to the advancement of technology and availability of rooms and breakfast at reasonable charges, travellers find it appealing. The inexpensive plans have made Airbnb attract a game-changing number of tourists, growing rapidly to more than 500 million guests globally since its inception in August 2008. Nepal is a major tourist attraction for backpackers and hosts with their rooms listed in Airbnb have made the most of it creating a buzz in the hospitality business.   

Airbnb is one of the world’s largest marketplaces in listing unique places to stay. At present, it offers over 7 million accommodations and 40,000 handcrafted activities powered and owned by local hosts. As an economic empowerment engine, it has helped millions of hospitality entrepreneurs to monetise their spaces keeping the financial benefits of tourism in their own communities. It is accessible in 62 languages across 220 plus countries hosting more than half a billion guest arrivals so far.

In the context of Nepal, more than 300 homestays and apartments are listed on Airbnb. Hosts here charge a minimum of USD 9 for a day per room to as much as USD 1,750 for a day’s stay in their apartment and cottage. On reservations made through Airbnb, it only charges as much as 5 percent to a host as a commission on every reservation. Currently, rooms and apartments mostly from Kathmandu, Bhaktapur, Lalitpur, Pokhara, and Chitwan are widely visible on the Airbnb site and app. 

Mason De Kathmandu, situated in Lazimpat is one such property listed on Airbnb operational for the last three years, with 100 percent occupancy all around the year.

“We have three cosy rooms in terms of accommodation to offer – two with a shared bathroom and one with an attached bathroom. The rooms are mostly packed with Chinese visitors all around the year and westerners during the tourism season,” informs Eupen Dahal, manager of Mason De Kathmandu.

A room with a shared bathroom is available at USD 22 per person and a non-shared basis at USD 32 per person with breakfast included. “We do not have to do anything to attract the customers, Airbnb’s website and the app does everything for us by charging a small commission on booking, it is economical and has made our job easier”, he adds. 

He says guests tend to book rooms on Airbnb for longer stays. Similarly, Sid Shahi, who has listed his property Bungmati Retreat on Airbnb, informs that the online platform of Airbnb has made it easier to host a guest. It has also helped foreigners to get comfortable accommodation at reasonable charges, he informs.

During peak season, Bungmati Retreat with its four cosy rooms makes as much as Rs 1.5 million in revenue where foreigners from all over the world book the rooms at an average USD 40 per night. At Bungmati Retreat, rooms are completely occupied during March-April and September-December periods while the occupancy is only 40 percent during other times of the year.   

“We are not here to distort the hotel business, hotels have their own segments and we cannot compete with them in terms of marketing and service. We are solely run by word of mouth in an open market platform,” Sid informs.

Recent research on Airbnb in the US concluded that the increase in the quality of the Airbnb service has a direct adverse impact on hotel performance. The report stated that the higher the average satisfaction scores of an Airbnb property, the lower the revenue per available room (RevPAR) for the hotels in the sample. More specifically, every increase in the review score of an Airbnb property had a negative impact of USD 25.54 on hotel RevPAR for hotels in the sample. 

Similarly, Airbnb rental prices had an effect on hotels’ RevPAR in the luxury segment, with an increase in RevPAR of USD 0.651 for every dollar increase in the average rental price of the Airbnb units.

According to the research, the more Airbnb users are satisfied with their experience, the more likely it is that the demand for hotel rooms will decrease. Hotel managers, therefore, need to be aware of the level of service and price offered by Airbnb and other sharing platforms. It seems like Airbnb hosts, offering service in their locality can no longer be ignored and should be considered while developing revenue management strategies.

Despite Airbnb’s growth in Nepal, government officials do not seem to be aware of the operation of Airbnb and its impact on tax revenue. Hoteliers, however, have expressed concerns over the increasing use of Airbnb by tourists in Nepal. 

“I am not aware of the actual market size of Airbnb in Nepal but I think it is illegal to host guests via Airbnb because they are not registered in Nepal and they don’t pay any taxes to the country. In the context of a hotel, registration is mandatory before operation and hotels are a major source of tax revenue for the country,” opines Upaul Majumdar, general manager of Soaltee Hotel. 

He informs that in today’s digital era, Airbnb has emerged as a new disruptor of the hospitality business. “In the context of Nepal, the main concern is its impact on the country’s revenue. At a time when we are already affected by a platform like WeChat, Airbnb can also result in a loss of income to the country if not brought into regulatory purview,” he adds.

“However, I don’t think services like Airbnb has created an impact on the business of 5-star hotels in Nepal because the services and facilities of Airbnb do not come close to the standard of five-star hotels. It has a marginal impact on our business,” he informs. 

Analysing the scenario of Airbnb mushrooming, hoteliers have been appealing to the government to bring services like Airbnb into the tax bracket. Shreejana Rana, president of Hotel Association of Nepal says that Airbnb has been disrupting the hotel sector because they are not registered with any governing body and there is no organised office to monitor such a business model. 

“Airbnb owners are free to charge any price per night, not keeping in mind the services and facilities offered to the guests. With no proper monitoring body the taxes they pay are not scrutinised,” she says. She additionally informs that hoteliers and hotel owners, members of HAN are using their clout to push the government to streamline services like Airbnb. “They have to be registered with the governing body and be monitored by the tax office to make sure they pay all their taxes as per the law of the land,” she adds.

HAN is gravely concerned about the detrimental effect Airbnb’s have on the development of established hotels in Nepal. The umbrella organisation of Nepali hoteliers had proposed that the issue of this unregulated sector and regulatory measures be incorporated in the Tourism Act, 2076. “HAN is also in communication with organisers of such initiatives in several other countries to create a healthy, secure and better-organised business and hospitality sector,” says Rana. 

Upon receiving such appeals from hoteliers, Kedhar Bahadur Adhikari, secretary for Ministry of Culture, Tourism and Civil Aviation told New Business Age that his ministry is concerned about the issue. “Discussion is going on; we will soon draft a new set of regulations to bring services like Airbnb in the tax bracket. They will definitely be brought to regulatory purview.”

Airbnb is slowly disrupting the accommodation industry globally, going beyond the supplemental role claimed by its founders. The impact of the sharing economy is not related so much to the volume of the offers on online platforms but rather to the pricing and price-to-value proposition as perceived by guests.

There must be government oversight

What impact has services like Airbnb created in the hotel sector of Nepal?
So far, Airbnb is present in major tourist destinations such as Kathmandu, Pokhara, Bandipur etc. It offers tourists a cheaper option for accommodation. While this can increases the inflow of tourist in the country, there are issues such as reliability, poor services, trust and complaints related to such services.

How is it disrupting or distorting the hotel sector?
This has definitely been a disrupting influence in the hotel sector. Airbnb rooms and properties in Nepal are not registered with any governing body and there is no official body to monitor this kind of business. The property owners using the Airbnb platform are free to charge any price per night to their guests, not keeping in mind the quality of the services and facilities they offer guests. With no proper monitoring body the taxes they pay are not scrutinised and their guests have no guarantee of getting quality services. The presence of Airbnb rooms of any quality also impacts the quality and development of the hotel sector.

What are hoteliers doing to face the competition created by such services?
Hoteliers and hotel owners who are members of HAN must use their influence to drive the government to regulate services like Airbnb. We are showing by doing that those who provide lodging services using platforms like Airbnb cannot compete with the quality and value of our services and product. 

What needs to be done to bring such services into regulatory purview?
Airbnb properties can destabilise not only the hospitality industry but also the neighbourhood in which they operate. Many countries and cities around the world, from the United States, Europe, Asia to Australia, have passed stringent laws to control this segment. Regulations range from rigorous laws governing short-term rentals (i.e. not allowing short-term rentals in apartment buildings) to requiring all those providing lodging services using Airbnb platform to be licensed. While all hotels in Nepal must register before opening for business there is no such requirement for properties that use Airbnb. Rules that were enacted to encourage homestays to develop areas off the beaten track are being used by commercial operations such as apartments and guesthouses to circumvent the law of the land.

There must be government oversight over Airbnb properties. They must be brought under the umbrella of standards and regulations that apply to the hospitality industry. They must be officially registered and monitored by the tax office to make sure they are paying all their taxes as per the law of the land. All of us in the industry can be counted on to support the government on this. But it is the government that must have the will to regulate and take necessary actions. The current situation is not one that just damages the hospitality industry. The loss of revenue to the government from unpaid taxes is incalculable.

What steps is HAN taking in this regard?
HAN is gravely concerned of the detrimental effect Airbnbs have on the development of established hotels in Nepal. It proposed that the issue of this unregulated sector and regulatory measures be incorporated in the Tourism Act, 2076. HAN is also in communication with organisers of such initiatives in a number of other countries to create a healthy, secure and better-organised business and hospitality sector.

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