Airbnb nightly rates shot up 36% in 3 years

It costs a lot more to book a vacation rental these days than it did before the pandemic — despite leaders of the best-known rental platform touting their company as a bargain relative to traditional hotels.

Airbnb this week reported a nearly $2 billion profit for last year, with $319 million in profits coming from just the last three months of the year. What's driving such a hefty haul? Much higher nightly rates than ever before.

The average daily rate of an Airbnb rental is 36% higher today than it was in 2019, the company's chief financial officer, Dave Stephenson, said on an investor call this week. However, company leaders defended the rise in prices by claiming vacation rentals still offer travelers far more value compared to a hotel room.

"I think the benefit that we've had is that even while [rates] are higher, we're providing great value," Stephenson said. "The [rates] on Airbnb still can provide a great location, maybe a fully stocked kitchen, a washer and dryer, all the reasons why you might want to stay at Airbnb versus other alternatives."

Airbnb's rate inflation significantly outpaces that seen at some of the world's largest hotel companies. Marriott's average rates at the end of last year were only 12.8% higher than 2019 levels while Hilton's only increased by 7.8%.

There is no doubt Airbnb exploded in popularity in recent years — and especially during the pandemic — as travelers craved more space and control during the peak of social distancing.

Additional fees and upfront pricing

Of course, along with Airbnb's self-professed great value comes rising criticism that Airbnb is just as guilty of drip pricing as traditional hotels. This is particularly relevant when it comes to cleaning fees that can sometimes swell to several hundred dollars and not appear until a traveler is in the final steps of making a reservation.

Company leaders emphasized recent moves to show upfront pricing where every cost is tabulated and included at the beginning of a listing. And it doesn't appear the new pricing strategy is causing people to return en masse to staying at a regular hotel instead of a vacation rental.

Airbnb's CEO even appeared to dig at the resort fees traditional hotel companies sometimes charge — and maintained his company will be different.

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"In the United States, the convention for travel companies [is to] show a low base rate, and then when you get to check out, there are additional fees. We've heard from our guests. A lot of them want to be able to see the total price upfront," Airbnb CEO Brian Chesky said. "We rolled out total pricing [that] includes all fees before taxes. Since we've rolled it out, the impact on our bookings has been neutral."

Chesky later noted the upfront pricing feature could be turned on or off with a toggle on the company's listing page.

Upfront pricing isn't deterring people from listing their homes and apartments on Airbnb, either. The company added 900,000 new listings last year, a 16% jump. There are now 6.6 million listings on Airbnb.

Chesky chalked some of that growth up to people looking for ways to make money amid so much uncertainty during the pandemic. There are also now various initiatives to make it easier to learn about becoming a host. For example, the company connects new hosts with Superhosts (a term the company applies to top-performing hosts with high guest feedback scores) for one-on-one advice ahead of their first reservation.

"Affordability and great value is one of the key reasons that people use Airbnb, and we have to continue to make sure that we have that value," Chesky said. "As long as people feel like they have the best product at the best value for Airbnb, I think we're going to deliver a huge amount of growth in years to come."

No need for a loyalty program

While Airbnb is clearly the leader of the vacation rental business, there's always chatter over if the company should consider launching a loyalty program to bring in even more business.

Marriott's significantly smaller Homes & Villas platform allows guests to earn and redeem Marriott Bonvoy points. Accor's Onefinestay vacation rental platform works similarly with the Accor Live Limitless loyalty program. Loyalty networks are a growth strategy for traditional hotel companies to enter the vacation rental business.

Airbnb competitor Vrbo will presumably have its own points earning and redemption system as part of a broader Expedia One Key loyalty program expected to launch sometime this year.

But don't expect Airbnb to fight back with a loyalty program of its own.

"On the competitive front, we have a lot of competitors and a lot of different categories. But I think Airbnb kind of stands in a class of its own," Chesky said. "The best loyalty program is building a product people love so much they want to come back ...."

Chesky pointed to Airbnb's brand awareness and its lineup of unique, one-of-a-kind listings as some of the logic behind why the company wouldn't need a loyalty program. Additionally, 90% of Airbnb reservations are booked directly, Chesky said.

"Airbnb is on social media a lot, and a lot of people are talking about Airbnb on social media," he added. "So, we generally have a slightly different approach to distribution, where we think just continually innovating on our product is great."

He also noted there were more than 600,000 articles written about the company last year.

Of course, not all of the coverage was positive.