Hotels and airlines, beware of Airbnb

Dubai - Cheaper prices and strong balance sheet make it a serious threat to traditional sectors

Airbnb is the largest, fastest-growing hospitality network in human history, an online global (only 19 per cent of its listings are in the US) home-sharing site with inventory of 5 million rooms whose revenue is growing at 100 per cent a year. Airbnb adds 300,000 news users and 60,000 rooms to its network each week. In contrast, Marriott-Starwood, the world's largest hotel chain, has 1.2 million hotel rooms and exhibits 8 to 10 per cent revenue growth.
In the 1950s, a mere 25 million people in the world travelled beyond their own country. Now 1.2 billion people cross international borders each year, led by 200 million outbound tourists from China alone. The nomadic DNA is still embedded in human beings 10,000 years after the first settled civilisations emerged on the banks of the Euphrates, the Tigris, the Nile, the Indus and the Yangtze. Yet technology is changing the very concept of a home for the 150 million active users who constitute Airbnb's community. Brian Chesky and two roommates founded Air Bed and Breakfast in San Francisco in 2008 as he had only $1,000 in the bank and the rent on his flat was $1,150. So the three friends advertised for guests and served them breakfasts.
Chesky's eureka moment was an insight: a stranger who enters your home is no longer a stranger but a friend. In 2005, Hurricane Katrina displaced the population of New Orleans. White hotels jacked up their prices, thousands of people opened their homes for free to victims of the national disaster.
Airbnb is now valued at $30 billion. Yet Chesky financed his startup in 2008 via credit card debt and selling meals branded as Obama O and Cap'n McCain during the election season of 2008. All its angel investor prospects backed out, one even asking Chesky, "is this the only idea you are working on?" and declining his offer for a 10 per cent stake in the company for a mere $150,000. A decade later, that $150,000 is worth $3 billion. Yet once the Airbnb offering went viral on the Internet, Silicon Valley's top venture capitalists and Google Capital invested in the startup, even though paid search was 9 per cent of advertising budget. I remember Airbnb's first funding round in the Valley at a pre-money valuation of $1 billion in 2011. Seven years later, investors from the UAE who invested in that round have made 30 times their money. Welcome to the surreal, fabulous world of unicorn investing where fairy tales can and do happen. Airbnb is now the world's second most valuable tech startup after Uber.
With $5.6 billion in cash on its balance sheet, Airbnb has no need for an immediate IPO. Airbnb can raise all the money it needs in the private markets from the world's preeminent investors, as attested by its last $850 million mega funding round. The company is also now profitable? Chesky envisions the Airbnb active user community will reach 1 billion by 2025. If so, Airbnb will be the world's first $100 billion unicorn.
Since my wife refuses to use Airbnb (what if the host is an axe murderer, kidnapper or Ebola virus carrier?), I confess I have never experienced the product. Yet my 20-year-old son and his friends, all McGill University undergrads, spent spring break in a penthouse while I remember my Penn friends and I camping on the beach in Fort Lauderdale. The world has changed on a scale unfathomable to the pre-Internet generation. Airbnb now offers even rentals in Tuscan villas, Loire Valley chateaux, Bavarian Alpine castles and Richard Branson's Caribbean island on its platform. Airbnb's next move will be in aviation, tours and co-living. The world's biggest airline will be Airbnb Airline.
Airbnb is going to pose a serious challenge to the hotel and airline industries worldwide. I was shocked when a friend told me he paid a mere $30 a night to stay in an Airbnb room. The traditional hotel could be as doomed to extinction as the shopping malls, travel agents, black-and-white television, bookstores and brontosaurus. Airbnb makes it impossible for hotels to fleece their clients with their higher fees on services or drinks.
The writer is a global equities strategist and fund manager. He can be contacted at mateinkhalid09@gmail.com.