The Caribbean is in the midst of a battle for accommodation dollars. Hotel prices in the region have been rising steadily, putting them out of reach for some travellers. Enter Airbnb, which has been only too happy to fill the gap, forcing governments and tourism stakeholders to embrace the new reality of the shared economy and what that means for the Caribbean’s biggest industry.
Hotels in danger
Hotel occupancy across the Caribbean has been in steady decline, according to hospitality research firm STR. In its most recent report, STR noted occupancy rates of 62.5 per cent in August, a 5.6 per cent drop from August 2018. For the year so far, STR recorded a 2.6 per cent decline to 67.5 per cent in its survey of almost 2,000 hotels across the region.
There are many reasons for this dip, and overall the sector remains healthy, but there is one factor that is having an undeniable impact: tourists tightening their belts and rejecting the soaring prices of hotel rooms for cheaper and more homely options.
The Airbnb model of inviting guests to stay in private homes has obvious appeal. Aside from the inviting price point, the platform is extremely flexible, offering a range of properties in different locations. Want to share a house with locals? No problem. Prefer a cosy villa all to yourself? That’s available. By browsing an easy, intuitive interface, travellers can find exactly what they are looking for with just a few clicks.
Airbnb has enjoyed explosive growth since it emerged in 2008. Selling off some shares in March this year, the home-sharing giant put its approximate value at around US$35 billion and is reported to have made more than US$1 billion in revenue in the second quarter of 2019. There are now more than 7 million Airbnb listings worldwide, in some 100,000 cities and 190 countries. On any given night, an average of 2 million people are booking into an Airbnb somewhere in the world. And many of them are vacationing in the Caribbean.
From Puerto Rico to the Bahamas, Airbnb has a strong and established presence in the Caribbean. This spring, St Thomas in the US Virgin Islands became one of the company’s fastest growing destinations with a 338 per cent rise in bookings from 2018. The top ten Caribbean Airbnb destinations in 2018 included the US Virgin Islands, Puerto Rico and the Cayman Islands in the top three spots. Grenada, Jamaica and Martinique also made the list, while Saint Lucia just squeaked in, at number ten.
Caribbean backlash
More Airbnbs mean more tourists to the islands, but not every destination in the Caribbean has welcomed the home rental chain. For as long as there’s been Caribbean tourism, island governments have enjoyed mutually profitable relationships with big brand hotels and resorts. To some extent, this cosy co-existence is predicated on hotels maintaining their dominance.
Airbnb not only threatens the market monopoly, it also hits governments where it hurts — their tax revenue. When it first appeared, the rental platform slipped under the radar, allowing citizens to generate income from the hospitality sector without paying the usual occupancy taxes. As the model grew, it became evident that Airbnb was not the flash in the pan that many stakeholders hoped, but rather a new normal.
Now the company has signed numerous agreements with governments across the region including Jamaica, the US Virgin Islands, Antigua and Barbuda and, most recently, Martinique. These Memorandums of Understanding are primarily a means of collecting tax revenues but also encompass joint initiatives for community-based experiences and collaborative marketing efforts.
Signing the region’s first Airbnb MoU in 2017, the Governor of the US Virgin Islands, Kenneth Mapp, said: “This is good for our government because it streamlines the collection process and enables more of our residents to participate in the visitor industry. Our hospitality sector will also greatly benefit from the promotional reach of this multi-billion dollar organisation.”
Although Saint Lucia has no formal agreement with Airbnb yet, the prime minister has indicated that it is coming, as the country’s tourism industry looks to “re-pivot”, and added: “Tourism destinations all around the world, including some right here in the Caribbean, have identified the sharing economy as missed revenue opportunities and are working with the technology facilitators, like Airbnb, to capture this sector’s fair share of taxation. We are pursuing our own agreement with Airbnb so that those who benefit from the sharing economy contribute to the development of our tourism product.”
What’s next?
Airbnb has come a long way from its roots as a gutsy start-up. With the company’s value nearing US$40 billion, it has surpassed some of the biggest names in Caribbean hospitality, such as Sandals Resorts and the Hilton group.
Last month the company announced plans to go public in 2020 in one of the most hotly anticipated IPOs in the digital era. As it continues to amass profits, influence and market share, Airbnb is moving away from its entrepreneurial ethos to becoming just another hospitality behemoth. Earlier this year the company further blurred the lines between its low-cost shared rental model and the standard hotel fare by announcing a ‘hotel-style’ offering in New York. Teaming up with US developer RXR Realty, the group will convert commercial properties in the Rockefeller Center into apartment-hotel accommodation to give guests ‘the features of a luxury hotel with all the comforts of home’.
Not content with edging into the hotel space, Airbnb has also indicated its desire to become a one-stop shop for travellers, offering transportation options alongside accommodation. While the company has so far remained tight-lipped on plans to partner with transportation providers, it has been working on becoming a full-service travel experience since 2016 and this year hired airline industry veteran Fred Reid to head up its transportation department.
Airbnb may be muscling in on tourism’s turf, but only time will tell how this will play out in the Caribbean where small island economies are heavily tied to the resort business model. Taking the optimistic view, Airbnb will put more tourism revenue directly into the hands of citizens (a typical Caribbean host can earn around US$3,900 a year according to the Caribbean Tourism Organisation), promote community-based tourism and generate experiences that give visitors a real insight into the islands. It will also force hotels to innovate as competition heats up.
On the other hand, there is a dark side to the rental platform. Banned in several cities around the world, Airbnb has raised concerns over mass tourism, reduced affordable housing and the safety of both hosts and guests.
One thing is certain — the rental platform isn’t going anywhere; and if island tourism industries are to keep their edge, they need to be flexible enough to encompass new disruptions. In summarising Saint Lucia’s response to the Airbnb juggernaut, the prime minister commented: “This relatively new market segment is proving more lucrative than traditional accommodation since spend is on-island and touches a wider supply base of goods and services. This is not to say that we will be abandoning or minimising our effort to secure investment in new hotels or the expansion of existing properties, but we must cover all our bases in a changing market place.”
