Travel nearly came to a halt at the onset of the pandemic. That was bad news for Airbnb (NASDAQ: ABNB), the global travel facilitator, which saw revenue and reservations drop substantially. Fortunately, several effective vaccines have been developed against the coronavirus, and nearly 3 billion doses have been administered worldwide.
The following drop in infection rates and confidence from vaccinated people are unleashing pent-up demand for travel. As a result, Airbnb is in a great position to serve the masses ready to hit the roads and skies searching for a reprieve.
However, safety concerns could cause travelers to choose a traditional hotel over an Airbnb rental when taking a trip.
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Unfortunate circumstances
Incidents of horrific crimes committed at Airbnb properties are an unfortunate reality. Unlike traditional hotels or resorts, your stay at an Airbnb rental is not likely to be on a property with dedicated staff and security. What's more, several previous renters have had access to the same keys you are using to gain entry to the rental. They could easily make copies and gain entry to the location outside of their reserved days.
Airbnb has noted that less than 0.1% of stays have resulted in a security problem. Still, when you consider that in 2019, there were over 300 million nights and experiences booked through Airbnb, that adds up to 300,000 incidents -- not to mention crimes that go unreported.
Interestingly, Airbnb has invested in teams to respond to issues when they arise -- looking after victims and at times compensating them financially for their troubles. And as part of the company's over 100 upgrades to its systems and overall business services, Airbnb lists several safety feature enhancements. Hopefully, the upgrades can go a long way in reducing horrific outcomes.
What this could mean for investors
Competitively, the safety issue may be a headwind for Airbnb. Hotels and resorts are generally well-staffed, and doors to your hotel room are accessed by cards that previous guests cannot copy. Overall, it's a much safer environment, leading some guests to choose hotels over Airbnb rental.
That could be fine with Airbnb, though. Safety is not where it competes. Airbnb offers better convenience and a vastly wider selection of offerings compared to a hotel or resort. Furthermore, Airbnb is in a better position to prosper as demand for travel rebounds. If a hotel or resort experiences a surge in demand, there is a maximum benefit it can achieve -- once all their rooms have been booked, that's it. They could raise prices to a point, but too much, and this move will lose some customers. Building a new section to add more rooms could be a huge capital investment.
For Airbnb, a surge in demand will incentivize more hosts to list rooms and homes on the site, allowing the company to expand its offering with very little to no capital investment.
Despite the headwind from a competitive disadvantage in safety, Airbnb wins on convenience and selection, which could allow it to continue gaining market share in the estimated $1.2 trillion hotels and resorts category.
