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Wednesday, April 19, 2017

The Hotel Industry’s Sneaky Plot to Take Down Airbnb

The hotel industry doesn't just feel threatened by Airbnb, they are downright terrified.

It is no shocker that the hotel industry has had it in for Airbnb and the entire homesharing economy. However, the New York Times has recently obtained documents that solidify what many free market champions already know: Airbnb has caused an enormous disruption in the traditional hotel sector, and the established industry cartels are determined to regulate homesharing into oblivion.

The Hotel Industry’s attack on Airbnb is just getting started.

You think that business favors free enterprise. Think again. The biggest opponents of genuine competition turn out to be established business interests. They want a free market for themselves but regulation on anyone and anything that threatens their market position.

Regulatory Victories in Manhattan

Governor Andrew Cuomo recently signed new regulations into law that sought to aggressively penalize Airbnb hosts who continued to list properties on the popular homesharing site thereafter. The American Hotel and Lodging Association applauded this market stumbling block as a “notable” accomplishment.

Unfortunately, the first casualties of these new regulations may not agree with the victorious sentiment of the prestigious hotel group, which includes such reputable hotels as Marriott International, Hilton Worldwide, and Hyatt Hotels.

Hank Fried and Tatiana Cames were the first to be penalized for breaking the new restrictions and were fined a combined total of $17,000 for continuing to list properties online after the law had gone into effect.

Hotel moguls have been quick to publicly dismiss the threat Airbnb poses to the industry.

But the war on homesharing is likely to get a lot worse before it gets any better, and according to the New York Times documents, the attack on Airbnb is just getting started.

Dismissing the Competition

Hotel moguls have been quick to publicly dismiss the threat Airbnb poses to its industry, downplaying the company’s rising role in the short-term lodging market. 

In fact, one of the executives of the Marriott Hotel chain belittled the company’s economic impact saying that Airbnb was not, “really making headway in the corporate environment, which is really our bread-and-butter business.”

Airbnb is now estimated to be worth $30 billion.

However, while these comments were made near the end of 2016, the actual numbers and the actions on behalf of the hotel cartels tell a much different story, one that is more accurately reflected in the plan outlined in the New York Time’s recently discovered documents.

The Rise of Homesharing

Airbnb established itself as a startup in 2008 as a platform where users could easy list and rent short-term properties. In less than a decade, the company is now estimated to be worth $30 billion.

If these estimates are true, that is quite an accomplishment considering that the long-established Hilton is only valued at around $19 billion while Marriott was not too far ahead of Airbnb, valued at $35 billion.

For a San Francisco startup to be competing with the “top dogs” of the industry is further proof of how popular the homesharing platform has become with travelers and property owners.

The Hotel moguls have allocated a budget of $5.6 million towards this regulatory fight.

Since its rise in the short-term rental market, Airbnb has had enough of an impact on traditional hotels to cause the first major decrease in hotel prices in years.

Clearly, the hotel industry is missing the bigger picture, which points to a major shift in the demands of travel consumers.

Many prefer the convenience, cost, and experience of Airbnb as opposed to traditional hotels. But, as with all cartels, rather than face legitimate market competition, the hotel industry has used its leverage with influential legislators in order to incrementally regulate the company out of existence.

The Plan of Attack

Just as we have seen with the taxi industry and its ridesharing competitors, the hotel cartels have consistently denied the financial threat homesharing has posed to their industry. Instead, these well-established hotels have pointed to a deep respect of local laws as its main reason for going after this organic market sector.  

Troy Flanagan, the American Hotel and Lodging Association’s Vice President for state and local government affairs reflected this stance by saying, “Airbnb is operating a lodging industry, but it is not playing by the same rules.”

As revealed by the documents obtained by the New York Times, the hotel industry’s extensive three-pronged plan of attack against Airbnb focuses mainly on the following areas:

  1. using lobbyists to influence legislators and state attorneys general in order to restrict the number Airbnb hosts
  2. funding studies that prove that homesharing hosts are “quietly” running hotels out of residential neighborhoods, and
  3. highlighting how Airbnb’s model allows its participants to bypass paying local hotel taxes and obeying state-sanctioned safety regulations.

Working closely with hotel unions, the Association has allocated a budget of $5.6 million towards this regulatory fight and has relied heavily on allies in Washington to further their quest against the homesharing market.

In the newly discovered documents, the hotel industry has mentioned Senators Elizabeth Warren, Brian Schatz, Dianne Feinstein personally by name. It should come as no shock, then, that these same three progressive senators sent a letter to the Federal Trade Commission in July, alerting the agency to their concerns over Airbnb and the larger homesharing economy.

At the end of the day, the market and consumer demand always win.

While the rise of Airbnb clearly shows that consumers are pleased with the homesharing market, this hasn’t stopped the hotel industry from working with local legislators to set strict regulations. In 2016, the hotel cartel was successful at restricting the homesharing market in Los Angeles, San Francisco and Chicago, Utah, Tennessee, and Virginia.

Also contained in the documents is a plan to roll out a testimonial campaign in 2017, “hurt by homesharing,” which will feature those who have felt victimized by the homesharing economy. The document states specifically that the purpose of this campaign is “to provide a counterweight to Airbnb’s strategy of presenting a unified, working-class face.”

Market Innovation Always Wins

Despite comments made to the contrary, the hotel industry seems to be gravely concerned over Airbnb’s success if it is willing to go to these lengths to stop it from growing. Edward Walker, a University of California professor who specializes in grassroots lobbying in the business world expressed that the hotel industry’s desire to mobilize activists against a company like Airbnb is unusual, to say the least.

Well-established sectors are being shaken up by organic market forces that offer modern services that outdated industries are unable or unwilling to compete with. The hotel cartel would rather put up funds to fight innovative companies, rather than make improvements on its own end.

However, at the end of the day, the market and consumer demand always win. New York is a perfect example.

Even after the laws went into effect there were still those willing to take a risk and continue to list properties. So long as there are consumers willing to pay for a service, the government will never fully be able to destroy the homesharing economy.

Walker commented on the long road ahead for the hotel industry by highlighting how Airbnb has already “quite effectively gotten hosts involved in its advocacy work, the hotel industry will have to break with conventional lobbying, too.”

Corporate moguls can sometimes succeed in slowing down market progress through lobbying and regulation. But in the long run, they can’t stop the market from working.

  • Brittany is a writer for the Pacific Legal Foundation. She is a co-host of “The Way The World Works,” a Tuttle Twins podcast for families.