Cuba, Airbnb, and the Future of Flexible Accommodation

by Ian McHenry
Tuesday, April 7 2015

Airbnb announced last week that it was launching in Cuba with over 1,000 listings. Beyond being a significant milestone in the normalization of relations with Cuba and a sign of the pent-up demand for travel to this beautiful island, it is also a significant milestone for the accommodation industry.

Flexible accommodation options, which we define as short-term rentals that can as easily accommodate travelers one month and long-term tenants the next, are one of the most important developments in the overall accommodation industry. They allow a destination to quickly "spin-up" the supply of rooms to meet increased demand without the need to build new hotels. Then, when demand goes back to normal, those rooms magically get reabsorbed into the housing supply for long-term tenants.

Just as Uber can bring more drivers onto the road during periods of increased demand, and as software engineers can quickly spin up new servers to accommodate brief periods of increased traffic to their website, now cities can spin up more rooms to meet a brief surge in demand.

This isn't a foreign concept for Cuba, which has relied on a vast network of casas particulares to house tourists for several decades, without needing to build a huge hotel infrastructure.

It's an amazing time when, instead of needing to plan years ahead and physically build hotels to accommodate a predicted increase in travellers, we can simply use the existing homes in a city to meet increased demand. Especially for major events like the Olympics where previously the host city would build brand new hotels to accommodate the three-week surge of visitors, now we see companies like Airbnb emerging as official accommodation options.

So what does this mean for hotels?

For one, it means a brave new world when it comes to pricing. Hotels have traditionally relied on a static number of competitors and rooms in their market. If a big event like Dreamforce brought over 100,000 visitors to town, they could project fairly accurately how booked up the city would be and how much they could charge to maximize revenue. Now, with supply changing rapidly (New York added over 10,000 Airbnb listings in 2014, which is more than 10% of all the hotel rooms), hotels aren't able to predict demand as well and their old models are breaking.

Ironically, the individuals and the small mom-and-pop companies managing these Airbnbs and short-term rentals are better able to adapt and price in this kind of market (using next-generation dynamic pricing tools like Beyond Pricing), while hotels are left wondering why average daily rates and occupancy are dropping.

For Cuba and Rio and for hotel markets around the world, it's more important than ever to pay attention to this brave new world of flexible accommodation. As a hotel, your competitor is no longer the 3-star hotel down the block but the 1,000 microhoteliers who can open up their home on a moment's notice and may be more nimble and in-touch with the quickly changing landscape.