Concerns Airbnb, online booking sites could push a quarter of regional motels out of business

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Posted August 01, 2019 06:28:46

Once the staple of the holidaying family or the travelling businessman, the traditional motel now faces a series of digital challenges which could threaten its survival.

Key points:

  • It is estimated that 25 per cent of regional motels could become economically unviable in coming decades
  • More consumers are using overseas-based booking websites to find accommodation, cutting into motel revenue
  • The growing popularity of Airbnb may see more corporate travellers seek alternatives to motels

In Hamilton, in Victoria’s south west, the number of listings on Airbnb outnumbers the number of motels by three to one.

If you Google “accommodation Hamilton”, the top 10 results will be from overseas-based booking agencies, often criticised for their large commission fees as high as 30 per cent.

Put simply — travellers are not only changing what they want from short-term accommodation, but how they find it.

C&D Restructure and Taxation Advisory consultant Kevin Carmody said that could have dire consequences for the industry.

“We expect 25 per cent of motels to just shut the doors,” he said.

“The traditional motel with a restaurant attached it not going to survive over the next 10 years.”

Unprecedented competition

After more than 30 years operating motels in Victoria and Queensland, Mr Carmody now advises landlords looking to recover lost funds from failing hospitality businesses.

He said even people on business trips who usually stayed at motels were looking at services like Airbnb, meaning operators have “got competition from somewhere they’ve never seen before”.

“Especially for the corporate bookings, we’re seeing certainly the airlines and the transport companies looking at alternatives,” he said.

“That’s coming back to the expectation of their staff being not just to have a room and having to eat in town, but having a kitchen or having a greater opportunity to almost have normality.”

Mr Carmody said the growing competition, especially for smaller motel operators, came after years of stagnating room rates.

“Room rates haven’t risen substantially or even with inflation for about 15 to 20 years and it’s just been a continual problem where the margin is just getting thinner and thinner.

“It’s been a race to the bottom — especially in rural areas.”

Online companies a ‘necessary evil’

Hamilton motel owner Lyn Lewis said Airbnb initially had a small impact but from her experience, most business travellers continued to rely on motels.

“There’s been good and bad experiences with Airbnb and so that’s got a few people on guard but because we’re more corporate, we’re not seeing the full impact of it,” she said.

Ms Lewis said of far greater concern was the increasing prevalence of online booking services like Booking.com and Expedia — and the commissions they charged her.

“The booking agencies have us over a barrel,” she said.

“Our prices have had to increase to allow for some of that extra money that’s going out the door.

“They’ve got lots of money that they’re getting from businesses like mine, to spend on advertising.”

Kevin Carmody said motels were unable to offer cheaper prices on their own websites compared to those on online booking services which meant “20 per cent comes off the top and that revenue just doesn’t get replicated”.

In 2018 the Australian Competition and Consumer Commission (ACCC) announced it was investigating whether those contract conditions are legal.

An ACCC spokesperson said the commission could not comment on potential investigations but it noted Expedia’s decision earlier this year to “waive their rights to enforce price party provisions in their contracts with Australian hotels, motels and other accommodation suppliers”.

Cheaper to ‘bulldoze than refresh’

Mr Carmody said many regional motels were built in the 1970s and 80s and were in need of substantial investment.

“Those motels just haven’t had the capital investment into them — they’re looking tired, they’re looking old and they need some love,” he said.

“Profits are no longer there and without profits people are not going to reinvest into their properties.”

But with the high cost of renovation — especially in properties with asbestos — and the need to build to stringent fire codes, Mr Carmody said the motel industry needed to reassess its position.

“People are not just going to pay for a room when they can get a room in a house or a whole house for the same price, so the motel has to offer something else,” he said.

“For a lot of operators, the capital cost is just so difficult.

“In a lot of cases it’s going to be cheaper for them to bulldoze the site rather than try to refresh.”

Uncertain future

Kevin Carmody said the presence of Airbnb and online booking services meant challenging times ahead for motels.

“Unfortunately they have a generic product and now they’re competing with something that in a lot of cases is far superior,” he said.

“We’re seeing a dramatic drop off in smaller operators in particular and usually this was happening in Sydney, Melbourne, Brisbane, but now it’s starting to hit the small country towns and hit them quite hard.”

While Lyn Lewis said her motel still has reliable clientele of corporate visitors, the pressure online booking services put on revenue made her “apprehensive to invest a lot of money”.

“Always the best deal is when you ring the motel directly, particularly in regional centres where you’re dealing with small businesses that are run often by family,” she said.

“If these small businesses close down, it leaves a hole in an regional town.”

Tourism ‘not a zero-sum game’: Airbnb

In a statement, a spokesperson for Airbnb said that since 2014, more than 500,000 companies across the world have organised accommodation with their service.

“The number of millennials using Airbnb for work across [Australia and New Zealand] has increased by 59 per cent compared to 12 months ago, and by 17 per cent for those aged 54 and over,” the spokesperson said.

“For the Airbnb community to grow, no providers have to shrink.

“What’s more, many local and boutique traditional hospitality providers, like country motels, are increasingly deciding to join our community.”

Figures provided by Airbnb show it injected $69.1 million into regional Victoria in 2015-16, and supported more than 600 jobs.

Topics: hospitality, regional, small-business, business-economics-and-finance, ballarat-3350, hamilton-3300

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