“As we’ve talked to our corporate clients, we don’t see Airbnb as a particular threat,” Starwood Hotels & Resorts CFO Tom Mangas said. “Maybe [Airbnb’s] business model evolves. Given the kind of services that we’re providing at our hotels and what we believe our corporate clients want, we believe that’s a low-risk threat to our business.”

Mangas’ comment rang familiar to other statements hotel executives made this week. Hilton Worldwide CEO Chris Nassetta said the company believes a large portion of Airbnb’s business is incremental. “The bulk of the demand is in higher-rated, high-occupancy, urban markets; it is longer length of stay with a predominantly leisure and value focus and stay occasions where customers are willing to accept inconsistent product with very limited services,” Nassetta said. “We do not believe there is a material impact on the bulk of our markets or with our core business and leisure customers. As we speak to our largest corporate clients, we are confident that Airbnb will not satisfy a meaningful piece of their demand.”

Extended Stay America CEO Gerry Lopez told analysts he’d used Airbnb in “prior lives” and the platform is not a threat to the 30-day-stay segment. It’s worth noting, however, that the company wants to shift to shorter-term, higher-rated stays.

Airbnb has been a player in the alternative lodging space since 2008, and though the company has kind-of, sort-of been part of the corporate travel conversation, it moved directly into the managed travel space in July when it launched Airbnb Business Travel. The platform—which provides travel managers with improved visibility and central billing capabilities, among other tools—has opened the door for travel programs that might otherwise have resisted Airbnb.

“As much as Airbnb makes me nervous, it’s a platform that we’re looking at and researching to see how they would fit into a managed corporate travel program,” said Trish Rothman global travel manager for William Blair. “They’re already doing a lot of things that are trying to partner with us as a managed travel program; they’re putting in security things. They’ve got International SOS that is linked to them on the back end. … In cities like San Francisco, it’s impossible to get a hotel room, so you have to have an alternative if you want to do business in some of these cities.”

After signing an agreement with corporate housing provider BridgeStreet Global Hospitality in October, Airbnb continues to grow its professional inventory.

“Airbnb is no longer sleeping on somebody’s couch,” said PKF Hospitality Research senior managing director Mark Woodworth. Airbnb offered about 250,000 units daily in the United States last year, and Woodworth estimated that about 70 percent of that inventory competes with hotels. The competitive factor is whether a rental offers an entire apartment or house as opposed to shared space.

The Airbnb Effect On New York City Hotels

Nowhere is the potential effect of Airbnb supply on the hotel market more evident in the United States than in New York City, which offers nearly 13,500 active Airbnb listings in Manhattan—one of the city’s five boroughs—alone. That dwarfs the inventory of Los Angeles (8,266), San Francisco (5,530) and Chicago (4,661). Airdna, a Santa Monica, Calif.-based firm that analyzes Airbnb data, reported that entire-place rentals comprise 64 percent of the borough’s listings figure.

At the same time, hoteliers in the city have struggled to raise rates in recent years in spite of record-level occupancy. The average daily rate in the United States grew 4.7 percent during the first three quarters of 2015, according to STR. In New York City, though, ADR was actually down 1.4 percent. Meanwhile, supply grew 3 percent year over year, higher than the national rate of 1 percent, according to STR. What that 3 percent figure doesn’t take into account is the growth of Airbnb, an entity that Woodworth said has the hotel industry “punching at phantoms.”

“If it wasn’t for Airbnb we would be seeing rate growth much stronger than what we are seeing,” Woodworth said. “I can’t prove that; it’s only intuitive at this point, but it makes sense.”

New York’s environment may actually spell good news for buyers. Travel buyers have told GoldSpring Consulting partner Neil Hammond that hoteliers are requesting a small, 1.4 percent increase in rates from last year, and some even are reducing rates from previous years. Others are proposing last room available rates, which have proven increasingly difficult to get during negotiations. “We know capacity has been added to this market, but these results were a pleasant surprise,” Hammond said.

The Hotelier Outlook

Though the hotel executives who responded to Airbnb questions during their earnings calls largely rebuffed the idea that the provider would threaten them significantly, at least in the corporate market, they weren’t entirely dismissive.

“Airbnb is real. It’s here to stay,” said Starwood interim CEO Adam Aron. “The hotel industry has some issues with Airbnb on things like collecting accommodations tax and other issues, but we all have to accept that the shared economy is part of the way the world will work in the 21st century. The world’s hospitality industry is large enough that it can accommodate Airbnb as a major player, as there are dozens of major players in the world’s hotel industry today. And we—not only Starwood but anyone in the industry—will be able to be a strong competitor even with Airbnb alongside.”

Nassetta sang a similar tune, stating there is “every ability for us to coexist.”

“I suspect over time, investors, everybody, will see it for what it is, which is a really good business but a business that is largely distinct from what we do,” he said. “There is every opportunity for both of us to have really successful business models.”

Lopez said Extended Stay America would see whether Airbnb will be a competitor or a potential distributor for the company in the future.

There is no better — or sadder — way to explain how Zak Stone’s father died in a vacation rental than how he did himself this week, so this is how he began the essay he wrote for the online magazine Matter.

“The rope swing looked inviting. Photos of it on Airbnb brought my family to the cottage in Texas. Hanging from a tree as casually as baggy jeans, the swing was the essence of leisure, of Southern hospitality, of escape. When my father decided to give it a try on Thanksgiving morning, the trunk it was tied to broke in half and fell on his head, immediately ending most of his brain activity.”

The death is devastating, but no one should be shocked by it, either. As with any big hotel operation, Airbnb hosts are putting up so many people each night that fatal accidents are almost inevitable.

But the incident — and a second death that Mr. Stone disclosed in the essay in Matter, part of the publishing service Medium — does raise important insurance and safety questions about Airbnb, its competitor HomeAway and hotels themselves at the same time as Airbnb is offering more protection.

Let’s start with insurance. A year ago, Airbnb hosts were on their own when it came to liability, and most of them probably assumed that their homeowner’s insurance would offer coverage if a guest was hurt or worse. But most homeowner’s insurance policies have an explicit exclusion for commercial activity.

Airbnb this year began offering free, automatic secondary coverage for liability, in case a host’s insurance company denied a claim. Last month, Airbnb made that coverage primary. It’s still free, and it covers up to $1 million an incident.

It is not yet clear how friction-free the claims-paying process will be. After the death of Mr. Stone’s father, Louis, his family reached a settlement with the insurance company for his host, not Airbnb or its insurer. According to Mr. Stone, that host had an insurance policy that explicitly covered commercial activity. He said in his essay that Airbnb paid a $2 million settlement for the second death he reported, which was from carbon monoxide poisoning in Taiwan.

HomeAway, which was acquired by Expedia last week for $3.9 billion, takes a different approach to insurance. Rather than offering free liability coverage, it urges homeowners to buy more comprehensive coverage elsewhere. The policy that it recommends includes property and contents damage and loss of business in addition to liability. HomeAway earns a marketing fee when its customers buy from its recommended provider, CBIZ.  So why doesn’t HomeAway offer free coverage like Airbnb? Partly because it would be too expensive to offer the comprehensive policy that prudent homeowners probably should have. But HomeAway’s business is different, too. It matches homeowners and travelers and likens itself to a classified advertising service. While HomeAway did not say this specifically, it is possible that it believes that its process shields the company from potential liability and removes any need to provide automatic coverage for homeowners who list there.

Scott Wolf, the president of CBIZ’s property and casualty program division, said in an interview this week that he could not figure out how every Airbnb customer would ultimately be covered. He pointed to Airbnb’s stated annual limit of $10 million on its policy, which its hosts could exhaust with 10 $1 million claims. He estimated that each policy pays out an average of $100 in liability claims each year (though that average results in large part from a smaller number of claims that are extremely high). If Airbnb has, say, 500,000 listings on average (though there are more occupied properties than that many nights of the year), that is $50 million in claims, which is $40 million more than that annual $10 million cap.

One possibility may be that Airbnb, which has many single travelers staying in single rooms for short periods, simply won’t need to make as many claims as HomeAway travelers do. After all, people who use HomeAway often travel with their families to large rental homes with slippery pool decks and leg-eating trampolines. But Mr. Wolf said that his experience insuring bed-and-breakfast owners suggested that hosts who were in residence were actually more vulnerable to claims than absentee owners. After all, you can’t blame a host for a spill that caused a fall if the host is not there.

Airbnb did not want to go into detail about what it pays for its insurance and the precise policy language. But Nick Papas, a spokesman, said that since it started offering liability coverage in January, eight million people had stayed with an Airbnb host in the United States and fewer than 50 hosts had filed claims. “We are extremely confident in the finances underlying our program,” he said in an emailed statement. “When we were looking to expand it, we had multiple competitive bids from different insurers. The numbers show how low the risk factors are, and they’re eager to work with us.”

As for the safety questions, this seemed the perfect opportunity to figure out once and for all whether Airbnb and HomeAway rentals are more dangerous than hotels: Just ask everyone for the accidental death rate per 100 million room nights and compare. That only works if companies are willing to answer, though. HomeAway offered its number right away: zero deaths, as far as it knows. Mr. Stone disclosed the two Airbnb deaths, and the company would not comment further on its death rate.

The American Hotel & Lodging Association does not track industrywide rates. A Hyatt spokeswoman would not disclose its rate or explain why it refused to share it, and an InterContinental Hotels Group spokesman declined to comment. Best Western and Starwood said they did not have the data. Felicia McLemore, a Marriott spokeswoman, and Christine Miller, a Hilton spokeswoman, did not respond to repeated requests for comment on their companies’ death rates.

Without good data, we’re all flailing about looking for anecdotes. So let’s start with those nondisclosing hotels. On two separate occasions within weeks of one another in 2013, three people died from carbon monoxide poisoning in the same Best Western hotel in North Carolina. A USA Today investigation that same year turned up eight deaths and 170 other people treated for carbon monoxide poisoning in hotels in the three previous years. Best Western said the company now had an industry-leading carbon monoxide detection and alarm system.

On the fire front, hotels and motels averaged 3,700 a year from 2006 to 2010, according to the National Fire Protection Association, resulting in an average of 12 deaths, excluding emergency personnel, and 143 injuries a year.

We know less about Airbnb and HomeAway, but one thing we know for sure is that their hosts need not follow the myriad regulations about exits and doors and alarms that hotels and motels do. The companies could inspect each property for safety, but they don’t.

And according to Liz Krueger, a New York state senator who has frequently tangled with the home renting companies, it would be better if somebody else did it. “They’d be self-declaring, and it wouldn’t be a governmental entity,” she said. “Call me a supporter of government, because I am, but I think there is a reason you want a third party doing the evaluation as opposed to an interested party who would have a reason not to document the correct things.”

Still, who knows if a government inspector would have noticed the dead tree that killed Mr. Stone’s father or the water heater reportedly at issue in the Taiwan death. Paying strangers to stay in their homes requires that we assume some risk, and we may simply have to get comfortable that we may never know exactly how much risk.

If you’re a host renting out a home or a room, tell your homeowner’s insurance company, even if you think Airbnb’s liability coverage gives you most of the protection you need. After all, your guest’s lawyer will probably sue your insurance company, too, if there is an injury on your property. Make sure that your guests know how to get out in an emergency and that your home has many alarms and is free of unnecessary hazards.

Paying guests should check batteries on fire and carbon monoxide detectors, be wary of kitchen equipment or outdoor toys they don’t normally use and keep a special eye out for things that could harm small children.

Still, let’s give the new players in lodging some credit where it is due. More insurance coverage is better than less, and urging people to be aware of their risks is a welcome evolution in how these companies operate.

View the original article here.

About the Author:

Ron Lieber is the “Your Money” columnist for The New York Times. “The Opposite of Spoiled,” his guide to teaching kids about money and values, will be published by Harper Collins in February, 2015.

Though press is not always a reliable barometer of public opinion, the most publicized reactions to the Schneiderman investigation have been negative.  AirBNB is popular with travelers and hosts, who have turned out in large numbers to petition against Schneiderman’s enforcement efforts.  At the time of this writing, the petition to legalize AirBNB rentals in New York City has gathered close to 240,000 signatures.  To put the significance of this number into perspective, consider that U.S. Congressional candidates need 1,000 signatures on a petition to be placed on the election ballot, and a petition submitted to the White House needs to collect 25,000 signatures before it receives an official response.

AirBNB’s following probably has less to do with the institutional loyalty of its customers and more to do with the rock-bottom rates of AirBNB rentals.  Because AirBNB hosts have low to no overhead, they are often able to underprice conventional hotels by wide margins.  In lower Manhattan, efficiency hotel suites start around $250-$300 per night.  By comparison, a vacationer can rent a full studio or 1-bedroom apartment in the same locations for $100-$200 per night.

So perhaps it comes as no surprise that AirBNB’s customers have bristled at this crackdown, even going so far as to accuse the New York law of suppressing “innovation.”  But it is hardly clear that it is AirBNB’s “innovation” – and not hosts’ avoidance (or ignorance) of the legal complexities of running a hotel business – that makes these savings possible.  Most AirBNB hosts operate in a legal limbo, complying neither with landlord-tenant laws (many hosts in New York City are tenants themselves), nor with the various layers of red tape applicable to hotels.   Yet in New York – as in most states – a lessor who is not subject to one of these regulatory schemes is, by definition, subject to the other.

New York’s law is somewhat unique, in that it prohibits units subject to New York’s Multiple Dwelling Law from being let for anything other than “permanent resident purposes” (30 or more consecutive days).  This law has been on the book for decades – its original purpose was to protect the rental housing supply in New York’s high-density living areas.  The 2010 amendments to the Multiple Dwelling Law simply eliminated loopholes in the text of the statute that permitted “illegal hotels” to skirt the law and lease out apartments in multiple dwelling buildings to shorter-term occupants.  The legal battle unfolding in New York is based solely on these recent amendments, and thus targets only AirBNB hosts who operate out of “multiple dwellings.”

Not all states have statutes analogous to New York’s Multiple Dwelling Law.   But most if not all states regulate hotels and residential landlords extensively.  And in most if not all states, a person who charges money for the privilege of occupying a room necessarily falls into at least one of these two categories.

For instance, California’s landlord-tenant law applies to “all persons who hire dwelling units located within this state,” with limited carve-outs for hotels, motels and time shares.  Under California law, an AirBNB host is deemed to be either a landlord or an innkeeper – there is no gray area in between.  Innkeepers and hoteliers in California are subject to special taxes, bailment obligations, and a labyrinth of other legal duties imposed by statute, regulation and case law.  Landlords in California are required to maintain the habitability of all residential premises, must make necessary repairs and provide a range of other services, have limited rights of entry upon rented premises, and generally cannot evict tenants without going to court.  Washington and Oregon make the similar distinctions between innkeepers and landlords, and impose equally complex legal obligations on both groups.

Whether AirBNB hosts are considered innkeepers or landlords under the laws of these states, they are operating in highly regulated spheres with high compliance costs that have, in the past, imposed barriers to market entry.  AirBNB hosts have avoided these costs, but they have done so largely by ignoring the law.  With this advantage, they are able to offer prices that law abiders can seldom match.

The critical question is: if these regulations exist for the benefit of consumers, why shouldn’t AirBNB hosts have to obey them?  Or, if these laws stifle innovation and harm consumers, why should they apply to anyone?  Shouldn’t hotels be free to compete with AirBNB hosts on the same terms?

This double standard has not gone unnoticed by those holding the short end of the stick in the hospitality industry.  Against the backdrop of the Schneiderman investigation, the Hotel Association of New York City has aired its own plans of bringing a private class action lawsuit against AirBNB on behalf of  its constituents.  The putative basis of this lawsuit – failure by AirBNB hosts to pay transient lodging taxes imposed under state law – would conceivably be applicable to AirBNB hosts outside of New York as well.

While there may be ample legal basis for such a lawsuit, this sort of litigation is not without its drawbacks.  AirBNB has many supporters, especially in younger demographics, and it has defenders in local news media (the New York Times, Huffington Post and NPR have all given AirBNB sympathetic coverage).   Websites have been spinning the Schneiderman investigation of AirBNB as a populist David vs. Goliath story — similar to the crackdown underway elsewhere against Uber, Lyft, Sidecar and other ride-share companies.  There is a risk that hotels could be singled out as the villains of this story if they are perceived to be acting out of self interest rather than fairness– and the direct involvement of industry groups in a private lawsuit would increase this risk.

The Recording Industry Association of America’s (RIAA’s) efforts to prosecute music piracy tell a cautionary tale.  In hindsight, the prevailing view is that the RIAA’s lawsuits against music downloaders backfired by fueling an “us versus them” mentality in which the RIAA became the enemy.  For a time, the RIAA had the distinction of being chosen as the “worst company in the world” by readers of the Consumerist blog.  And yet, for all the RIAA paid in money and reputation, it achieved very little —online music piracy happens more now than ever.    Perhaps this is why the RIAA, after years of pursuing copyright infringers in court, has now sheared away half its workforce and diverted funding from litigation to lobbying efforts.

Most of the present AirBNB reportage is focused on the Schneiderman crackdown, which might be a boon to hotels that wish to see the company subject to stricter rules.  To the extent that AirBNB’s competitors can level the playing field without entering the spotlight themselves, they stand to achieve a double-win.   If the time comes for industry groups to take a more active role in pushing for regulation, they may wish to consider softer alternatives to litigation.  Lobbying and public awareness efforts could send a more positive message that would not be perceived as undermining consumer choice.  The right messaging could go a long way to winning this fight.

What hotels are after – fair play – is in fact pro-competitive.  Competition is not supposed to be a “race to the bottom” in which the winner is the business that cuts the most corners or does the best job of disguising a dangerous product.  Let hotels do what AirBNB does, or make AirBNB do what hotels have to do.  Wouldn’t it provide consumers with the most choice and value if hotels were free to compete with AirBNB on AirBNB’s terms?

Politicians appear to be receptive to hotels’ views on this issue.  The crackdown taking place in New York is based on a law that was passed in 2010.  AirBNB only launched in 2008.  Paris and Berlin have already taken steps to pass similar legislation.  These are promising signs that suggest a solution that does not require litigation might lie within reach.

Feel free to email me or Greg Duff if you would like to know more about this issue, or how we can help.

Originally published on Duff on Hospitality.