Traditional hotel chains and large resorts have long dominated the accommodation industry because of their strong brand marketing and distribution channels.

But as with so many other industries, the internet is disrupting the traveller accommodation industry. With internet booking platform operators such as Airbnb, Stayz, eDreams and Bookings.com, the internet is providing small accommodation providers with easy access to a global market for travellers, whether it is for business or pleasure.

The accommodation sharing economy is here!

In this article we look at how internet booking platform operators are providing services to small accommodation providers to help build their business, and the legal compliances applicable in Australia. We draw upon information found on Airbnb websites.

How does Airbnb create a marketing position for small accommodation providers?

Airbnb has created a clear marketing position for its hosts.

Airbnb describes itself in this way:

Airbnb connects people to unique travel experiences in more than 34,000 cities and 191 countries.

The focus is on local travel experiences, encouraging guests to live like a local. This clearly differentiates Airbnb listings from large hotels and resorts which market their rooms and in-house dining, gym and business facilities as an ‘all-inclusive’ experience.

Airbnb encourages its hosts to engage with the local community by providing:

• Locally relevant or unique amenities, such as local food or beverage;
• Local maps with personalized recommendations;
• Local tours such as neighbourhood walking tours; and

Airbnb specifically lists these types of accommodation as suitable for Airbnb listings: Bed & Breakfast; Boutique Hotel; Nature/Eco lodge; Timeshare; Serviced Apartment; Hostel.

What four services does Airbnb provide to small accommodation providers?

Airbnb provides these services to small accommodation providers:

(1) Marketing

Until recently, it was hard and expensive for small accommodation providers to market their property for short-term stays. So the traditional hotel chains, with their superior marketing resources, dominated the market.

The small accommodation providers - boutique hotels, resorts, bed and breakfast establishments and serviced / holiday apartment owners engaged specialist booking agents to market their property, and paid a commission often in the range of 15% to 20%. They advertised in accommodation directories, in the print media and in brochures.

Airbnb gives small accommodation providers access to a global marketing platform. Airbnb has over 2 million listings, including 70,000 in Australia. These listings generate over 60 million guest bookings per year. Hosts can list on Airbnb free of charge.

In terms of legal compliance, both the host and the platform must comply with the Australian Consumer Law by not falsely advertising or misrepresenting the property or the price.

Airbnb calls it having an accurate profile and listing.

The profile is the host’s profile, where a photo, a description and a ‘fun fact’ are encouraged.

The listing is for the property, where photos, descriptions of the room and accommodation type, and the amenities within the property are required. These photos and descriptions, and local information such as proximity to transport and to restaurants, must be accurate.

Airbnb will sanction hosts who do not comply by removing their listings.

(2) Bookings Management

Airbnb provides a booking platform. As part of its booking management, it screens both hosts and guests.

It carries out rudimentary background checks on hosts using available public records to check for criminal records, sex offender registrations and membership of a terrorist organisation. These checks are limited and do not guarantee safety. It obtains information from guests, such as passport details, before they are allowed to book.

Hosts have considerable control. Hosts set availability and house rules. Hosts set the rent for the accommodation (the ‘price’) which can be adjusted as desired. Hosts can refuse a booking application, after viewing the guest’s profile, without giving a reason.

Airbnb encourages both hosts and guests to get to know each other when confirming the booking, using the website platform. Various tools are provided, including reviews from other members, verified ID or other identity process on arrival, on-platform member messaging to message the host or guest (with the real email address anonymized) and reservation requirements that hosts can set for their guests. After the stay, hosts and guests are encouraged to review each other – the reviews must be genuine, accurate and not misleading to comply with the Australian Consumer Law.

(3) Payments Platform

Airbnb provides a secure payments platform. The payment is made in advance to Airbnb, which then pays the host. A request by a host to pay outside of the Airbnb payments platform is a violation of the terms of service and may result in removal of their listings.

Airbnb charges hosts a host service fee of 3% of the price for each completed booking. It charges guests a guest service fee of 6% to 12% of the price for each confirmed reservation, the percentage decreasing the higher the amount of the price.

The price must be transparent: it must include all compulsory fees and taxes, to comply with the Australian Consumer Law. For instance, if a service charge such as a cleaning fee is charged on all bookings, this should be included in the price. Any Goods and Services Tax (GST) (i.e. a VAT or bed tax) should also be included, if it is payable by the host.

(4) Property Damage

Small accommodation providers will have business insurance. But cover is often excluded for injuries sustained by guests and property damage by guests, or is available at extra charge.

Airbnb fills these gaps by providing “Host Protection Insurance” to cover injuries and a "Host Guarantee" to cover property damage by guests, at no extra charge, for bookings made through Airbnb. This is how Airbnb describes it:

The Host Protection Insurance programme provides primary liability coverage for up to AUD$1,000,000 per occurrence in the event of a third-party claim of bodily injury or property damage related to an Airbnb stay. It's available to hosts regardless of their other insurance arrangements.

The Airbnb Host Guarantee provides protection for up to AUD$1,000,000 to a host for damages to covered property in the rare event of guest damages above the security deposit or if no security deposit is in place. The Host Guarantee Programme doesn't cover cash and securities, collectibles, rare artwork, jewellery, pets or personal liability. [It] doesn't replace your homeowners or renters insurance.

What town planning compliances are there for small hotels and bed and breakfasts?

Airbnb states that the host is responsible for compliance with local laws.

In Australia, the zoning determines the use for a particular property. Generally speaking, the zoning could be a Tourist Zone, or it could be a Mixed Use Zone, to be a zone where a visitor and tourist accommodation use is permissible.

If the zoning permits visitor and tourist accommodation, then town planning consent is required for specific uses, such as: bed and breakfast accommodation, hotel or motel accommodation, backpackers’ accommodation, eco-tourism facilities, farm stay accommodation and holiday lettings.

These are common conditions of consent:

• An On-Site Manager
• A Plan of Management, covering operating standards, health, amenity and safety standards, staff, guests, security, waste and water efficiency
• A Noise Management Plan
• Annual Certification, including for fire safety
• An Emergency Management and Evacuation Plan for fire
• Compliance with health standards
• Compliance with rooms, recreational facilities and facilities requirements

Serviced Apartments, including Executive Apartments, are different. The zoning is often a Residential Zoning because they are in a building constructed for use as residential apartments. Town planning consent is still required, but the conditions are not onerous because the apartment is rented as a whole (not per room).

If the Serviced Apartments are in block of Strata Title apartments adjacent to owner-occupiers or long-term tenants, this can lead to conflict. The conflict arises from excessive noise at night, and extra wear and tear in the foyers and the elevators by the travellers.

In a recent decision of the Supreme Court of Victoria, the Strata Title management corporation failed in its attempt to bar the use of 14 units in its high-rise building as serviced apartments. The Court upheld the planning approval obtained by the serviced apartment operator, and said that this overrode the by-laws of the Strata Title Apartments which barred short-term rentals.

Conclusions

Airbnb is empowering short-term rental businesses such as small hotels and bed and breakfasts to attract bookings from global travellers.

Airbnb provides these services: marketing, bookings management, payments platform and property damage cover. These services are increasing lodging occupancy and pricing power for small accommodation providers.

Traditional hotels and resorts will be affected by the increasing popularity of internet booking platforms such as Airbnb. They are likely to experience slower revenue growth and weaker profitability.

© Copyright 2022 Cordato Partners