The home-rental company is leaning in to hotels and third-party amenities to transform into a 'one-stop shop' for travel
Airbnb is putting more boutique hotel listings on its platform.
Airbnb built a multibillion-dollar hospitality platform by convincing travelers to "forget hotels." Now, it says it's the best place on the internet to book one.
The company is in the midst of a big push into hotel listings, marking a shift from the peer-to-peer house-rental model that's been at the company's core since it was founded in 2008. CEO Brian Chesky said on Airbnb's $(ABNB)$ earnings call last week that the company is "stepping on the gas" to expand its hotel listings as it seeks to become a "one-stop shop" for travel.
"We now believe that we have the best hotel booking product online," Chesky said after the company added thousands of boutique and independent hotels in its second quarter.
Hotels constitute another attempt to diversify the business, after the company launched Airbnb Services and Experiences last year and started allowing travelers to book things like car rentals, grocery delivery and luggage storage through its platform.
Experts say the test for Airbnb going forward will be driving growth in its travel offerings without diluting the "travel like a local" identity that brought the company to prominence. If the company doesn't strike the right balance, it risks the company becoming just another bloated booking agency.
"Will they turn into this larger online travel agency? I think to some extent, they already are," said Katy Nastro, a travel-industry expert at Going, a site that lets customers track flight prices.
Airbnb declined to comment.
Expanding beyond home rentals
Hotels are still a small part of Airbnb's overall business, representing only a single-digit percentage of nights booked with Airbnb this quarter. But the segment grew approximately three times faster than the company's home-rental business, according to Airbnb's last shareholder letter.
See also: Airbnb is seeing some of its fastest growth from this surprising segment
"We have large ambitions in terms of continuing to scale, not only the rate of growth, but obviously the [hotel segment's] contribution to the overall business in the coming years," Airbnb CFO Ellie Mertz said on the earnings call.
For Airbnb's push into hotels, "the timing couldn't be more perfect," Nastro told MarketWatch. Airbnb's stock has remained relatively flat since its IPO in 2020, in part because of persistent headwinds from home-rental restrictions in major urban destinations.
According to Airbnb research, when cities like New York enacted stricter hosting policies, swaths of the company's home-rental footprint effectively disappeared in those areas. Jan Freitag, national director of hospitality analytics at CoStar Group, called Airbnb's hotel expansion both a defensive and offensive move: It fills gaps in Airbnb's supply while opening the platform to travelers it previously sent elsewhere.
Investors are warming to Airbnb's recent momentum, sending shares more than 17% higher in the session following the latest earnings report, which contained upbeat financial results and updates on AI-driven customer service efficiencies, the expansion of alternative revenue models, and more.
Trying to maintain its core ethos
Airbnb's new service offerings operate through third parties, so it's not as if Airbnb itself is bringing food to your door or sitting on a trove of rental cars. Grocery delivery is through Instacart, airport rides are through Welcome Pickups and luggage storage happens through Bounce. Even car rentals are fulfilled through CarTrawler, which connects its users to large rental agencies like Hertz (HTZ), Budget $(CAR)$ and Enterprise.
"That's looking very similar to an Expedia (EXPE) or Booking (BKNG)," Nastro said. Chesky confirmed that Airbnb's partners bear the cost of fulfilling each service while the company is "essentially lead generation for them." That structure lets Airbnb add categories quickly and cheaply, and turns the company into an aggregator of travel products it doesn't directly control.
Airbnb is following a similar path to legacy booking engines by expanding its offerings, but it's trying to keep the unique and curated stay that has set the company apart in the past, Nastro said.
That is evident in who Airbnb partnered with for its hotel expansion. Boutique and independent hotels offer more intimate and destination-based experiences that align with Airbnb's values over robust corporate chains, Nastro explained.
Not a complete pivot
Mertz said that hotels are an "obvious opportunity" to bring supply to high-demand markets limited by regulatory issues. But she acknowledged that homes remain the company's primary business.
Airbnb is being "very selective" about adding hotel inventory, making sure that the chosen offerings strengthen the platform rather than compete with home listings, Mertz said. Programs like its price-match guarantee for select hotels and up to 15% in Airbnb credits toward future bookings encourage travelers to reengage with the platform later.
"Roughly 35% of first-time hotel guests return to Airbnb to book a home," Chesky said, adding that "hotels are making homes stronger."
As the company pursues its comprehensive travel ambitions, the question remains whether the Airbnb of tomorrow will maintain the character that it built its foundation on.
"If they go too far away from their core business model, what is their differentiating factor ... to an Expedia? To a Kayak? To a Priceline?" Nastro said.
-Julian Torres
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