Online Travel Agents (OTAs) like HomeAway and Airbnb are in a constant cycle of change and innovation. Whether they're seeking to compete with each other, adapt to changes in traveler preferences, or push their platform forward ahead of the competition, their primary goal is to increase earnings for their investors and shareholders. Because their responsibility is to shareholders, changes are often made despite of the impact on travelers or homeowners. All that said, the changes that have occurred in the past year impact how homeowners and property managers do business.
While Airbnb has always collected traveler fees as a part of their business model, HomeAway introduced their traveler fee in early 2016. These traveler fees are charged to the traveler at the time of booking and the revenue go directly to the OTAs. OTA fees increased in the past year and range from 8-12% (from 3-6% previously) of the rental total. These charges, while paid by the guest, have a direct impact on every owner. Consumers have budgets and every fee applied to the stay impacts what you can charge in rent. If a consumer is willing to spend up to 12% more, the property owner should be able to capture that in rent instead of the OTA.
Communication is another area where HomeAway has changed their model to emulate Airbnb. Airbnb and HomeAway now operate with closed communication that anonymizes and redacts owner and guest contact information. The goal of this anonymization is to keep all transactions on their platform. This is another area that can harm an owner or property manager as the interaction is extremely sterile and the consumer doesn't have information about who they are doing business with. Not only does this limit interaction with guests, but it seeks to keep guests loyal to the OTA so they can continue to receive commissions and traveler fees for future stays, eroding the profits and future profitability of homeowners. Every stay made on an OTA, whether the first or the tenth, are subject to the same fees.
Commissions and Matchback Fees:
Airbnb charges a commission fee for each reservation made through their platform in addition to the traveler fee, this fee comes out of the pocket of the owner. HomeAway has previously offered two formats of payment – first is the subscription model in which an owner pays an annual fee to have their listing present on HomeAway's platform and subsidiary sites. The second model is pay per booking which captures a commission on every reservation made. HomeAway announced in October that not only will they be increasing their subscription fees, but they are introducing a "Matchback Fee." Matchback Fees are 10% of the rent total and are levied on all reservations HomeAway identifies as originating on their site. The chief concern here is that HomeAway identifies reservations as originating on their site if the email address was used to submit an inquiry in the past 60 days. We know through extensive industry research that consumers visit many sites in the research phase before making their reservation. If a guest inquires with a HomeAway site but then books with another source like IslandRealty.com and HomeAway matches the email address, they charge a 10% commission, essentially taking credit for a booking they did not make.
The OTAs are making efforts to standardize many aspects of the reservations process. Much like the hotel industry, we have seen more and more consolidation and standardization of cancellation policies. We fully expect the market shift to be towards a more traveler friendly standard cancellation policy as that is what travelers demand. For instance, Airbnb requires every listing to select between one of their standard cancellation policies. While HomeAway does not yet require a standard cancellation policy, they have begun suggesting it to property managers and homeowners as a means of making their listing appear higher in search within the HomeAway marketplace. We anticipate in the coming years that the entire industry will be subject to these changes and be forced to adopt standardized cancellation policies or be left behind.
Standardized Pricing Modules:
One of the largest hurdles for OTAs is adapting to the many pricing structures of owners, managers, and municipalities using their sites. Instead of adapting their platform to support varied pricing policies, the OTAs are increasingly asking for conformity from anyone who would like to do business on their site. HomeAway specifically has notified property managers that they must switch to nightly rates in order for rates to be presented accurately to consumers and for listings to be competitive within the marketplace. We anticipate this will not be the end of the pricing conversation. The OTAs require pricing parity (same price across all sites) from hotels and we imagine Airbnb and HomeAway aren't too far away from requiring the same. Unfortunately if the pricing parity requirement happens, owners and property managers listing inventory on OTAs would have to reduce rental rates in order to achieve the same total price once fees to the OTAs are factored in. For example if the rent on a unit is $1000 at IslandRealty.com and HomeAway charges a 10% fee per booking, the rent to an owner would be $900 on a booking made through HomeAway even though the price to a guest, would be the same. The market dictates the price that anyone can charge and the OTAs are slicing 8-12% off the top in traveler fees in addition to the subscription or commission fees charged per booking by an OTA. The net effect can be around 20% you're not able to capture in rent. Ultimately, it will only diminish the profits of a property owner.
We share this with you in an effort to keep you up to date as the vacation rental industry changes. The team at Island Realty is working extremely hard to protect you from these changes. Island Realty as a professional property management company is highly engaged in the industry nationally has been closely monitoring this evolution. In anticipation of many of these changes we have invested significant resources in marketing, technology, IslandRealty.com and many other areas to ensure our business partners' best interests. We are fortunate to be in a position that we can sustain bookings independent of these OTAs. We are confident that we will continue to see growth for our owners and partners despite many of these changes across the industry.