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Although the pandemic has been tough on hosts, Daniels professor contends the business is well-positioned for a future rebound in travel

As stay-at-home orders and other restrictions swept across the U.S. in March and April in response to the COVID-19 pandemic, the travel industry came to a virtual halt. Among the companies derailed by the abrupt shutdown was Airbnb, the prototypical sharing economy business that facilitates short-term rentals of spare rooms, basements, condominiums and houses between private parties.

As Airbnb’s rental volumes plummeted, it managed to secure $2 billion worth of fresh financing, although it was still forced to lay off 25% of its employees in early May.

Karen Xie

Nonetheless, Karen Xie, the Betty & Fritz Knoebel fellow and an associate professor in the Fritz Knoebel School of Hospitality Management at the Daniels College of Business, sees the online platform possessing better resiliency than traditional hotel chains.

“Think about a hotel, where you’re talking about 100 rooms and everybody shares the elevators and maybe central air conditioning—that’s going to put people at risk or they’ll be afraid of catching something,” Xie said. “I think we’re going to see a post-pandemic boom in travel in which travelers will gravitate toward the smaller, boutique, and contactless Airbnb experience, but hotels are going to take a longer time to recover.”

Having studied Airbnb since its founding in 2008, Xie recently offered a number of insights about the company in this time of uncertainty.

Q: What has been the immediate impact of the COVID-19 pandemic on Airbnb?

A: Looking at March and April data, research [from Granicus] found that new short-term bookings declined about 50% from previous months. Further compounding the lost revenues was an 85% cancellation rate on existing reservations in the same time period. This has been very damaging for the single-listing hosts who count on Airbnb income to help pay their mortgage. In addition, it’s left many multi-listing hosts who are highly leveraged facing a financial crisis.

Q: How have hosts responded to this dramatic drop off in business?

A: The perception is that many Airbnb hosts started accepting more long-term guests. Yet, my research has found minimal conversions from short- to long-term lodging. Instead, some are offering free lodging to COVID-19 responders through Airbnb’s Frontline stays program and others are taking advantage of the downtime to upgrade or renovate their property to prepare for post-pandemic travelers.

Q: How are hosts working through the financial issues related to the abrupt decline in bookings?

 A: Thanks in part to urgent calls and emails from hosts to members of Congress, the small business loan, unemployment, tax rebate and mortgage relief pieces within the $2 trillion federal stimulus bill apply to many hosts who are struggling. In addition, Airbnb set up a $250 million fund to help hosts affected by COVID-19 related cancellations and separately dedicated $10 million to a Superhost Relief Fund. Within the platform, the majority of hosts are offering deep discounts on future travel, extending their booking windows and remaining flexible on cancellation policies. To entice travelers, they’re promoting things such as thorough cleaning procedures, plenty of toilet paper and amenities such as Netflix and Hulu.

Q: How do you see the business traveler dynamics shifting for Airbnb?

A: Business travel has largely gone away during the pandemic and I believe it’s not coming back. Because everybody got comfortable with Zoom and other virtual meeting technology while we were all under quarantine, I think businesses will take a hard look at the costs of travel. Since we can easily connect without lodging, flights and transportation, we’ll see fewer and fewer business travelers in the future.

Q: What about the leisure travel business?

A: Of course, everyone is waiting to see how the federal and state governments’ policies around travel evolve. Once those are eased, however, I believe leisure travelers will come back because people have to travel for all kinds of different purposes, whether it’s taking kids to college, visiting relatives far from home or traveling for pleasure.

Q: How will Airbnb fit in a post-COVID-19 world?

A: I believe it will do better than the hotel industry because it offers places to stay in quiet neighborhoods with fewer people than in crowded central locations. More specifically, travelers will be looking for small and boutique lodging, so the unique Airbnb properties are going to thrive. I don’t believe, however, that renters will like sharing space with other travelers anymore so the hosts will need to tailor their properties in order to meet those demands.