Going Overground and Staying Local

In the first quarter of 2020, and in the immediate aftermath of the COVID pandemic, international tourism fell by 57%: that’s 67 Million travellers who didn’t (and couldn’t) travel, paving the way for an 80% slide in numbers over the year as a whole. In that single, bleak March quarter $80 Billion of tourist revenues disappeared from the global economy at a stroke. And for the year as a whole the equivalent figure is forecast to be an eye watering £910 Billion, placing up to 120 Million jobs at risk within the sector.

According to the UN World Tourism Organisation (“UNWTO”: www.unwto.org), this is by far the worst crisis international tourism has faced since records began in 1950.

So what on earth possessed senior executives at Airbnb to pick last month to list the company’s shares in one of the biggest IPOs of the year? Its not as though they weren’t listening to the same rolling news broadcasts we were, and anguishing over the same newspapers: back in March the company cut back on high end rentals in an attempt to address the issues caused by the slowdown, so it wasn’t as though they weren’t suffering financially too.

Had the Airbnb bean counters gone mad?

Well, not quite…as it turns out they knew exactly what they were doing.

Airbnb shares were listed on NASDAQ on 10 December with a pre offering spread of $55 to $60, but by close of trading the same day they had soared to $68. The company raised $3 Billion to fund ambitious growth strategies and found itself with a market capitalisation of $42 Billion: that’s billions bigger than Ford and Marks and Spencer put together.

Suddenly the shocks and turbulence of March look like a distant memory.

So here’s the question: how do we square all that with such a precipitous and traumatic decline in international travel? Airbnb is, after all, a tourist driven business.

There are three key reasons.

First, and most obviously, the company has a low cost operating platform, with capital costs across its portfolio being more or less carried by individual property owners (or “hosts” as they are quaintly known). A fall in footfall matters less if you don’t have to pay to fix the roof at the same time. That’s why sustainable operations like Eco Hotels (www.redribbon.co) are equally well equipped to deal with sudden slumps in demand, because their bottom line costs are up to 30% lower than larger, energy hungry hotel chains.

Secondly, Airbnb has a strong brand, so it is able to attract a greater share of a smaller pool of travellers; and again that’s something the sustainable hospitality segment has in spades too. Research has consistently shown green credentials are pretty much top of the list when tourists come to decide where to stay, meaning that whilst the tourism sector as a whole has suffered from COVID, those with stronger brand credentials have suffered less.

Thirdly and perhaps most crucially, the pandemic has produced a sharp uptick in Staycations: increasing volumes of domestic travel as lockdown restrictions are eased but international borders stay closed. Faced with the daily apparition of disaffected children locked to their iPhones, remorseless rounds of lockdown drudgery and the same four walls closing in every day, more people then ever are pursuing that most basic of human needs and searching out change in local destinations…especially to attend family occasions, and particularly so during Christmas.

All of which means Market recovery is likely now to be driven at local level, Airbnb is reaping the benefits and wider availability of vaccines will inevitably accelerate the trend faster and further. That’s why UNWTO has predicted Asian markets, and Indian markets in particular, will be the first to bounce back, because they have stronger family and social networks that act as a magnet for localised travel.

Going overground and staying local seem set to change the future…

DISCLAIMER: The views expressed are solely of the author and ETHospitalityWorld.com does not necessarily subscribe to it. ETHospitalityWorld.com shall not be responsible for any damage caused to any person/organisation directly or indirectly.

Article also published in the Economic Times.

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