This article first appeared in The Edge Malaysia Weekly on May 18, 2020 - May 24, 2020
THE tourism industry has been hard hit by the Covid-19 pandemic, and home-sharing platform Airbnb is no exception.
The gig economy start-up, founded in 2008, is not faring well in its first major downturn, with Airbnb operators saying they had never imagined such a crisis plaguing the travel industry.
An Airbnb operator, who declines to be named and has over 60 units in his portfolio, has cut rentals by about 40% to keep his tenants.
Despite the circumstances, his Airbnb operation still recorded an occupancy rate of 83% last month, owing to the strategic location of the units, which are mostly within a condominium in Kuala Lumpur city centre.
Prior to the implementation of the Movement Control Order (MCO), the units — most of which are rented — were generally 90% tenanted.
“Things are a bit different for us as we’re running it as a company, so we have a certain amount of cash reserves, which will last for a long time. It’s not my first business, so I know the importance of cash reserves,” he tells The Edge.
He says most of the existing guests had their flights cancelled, which has contributed to his business.
“Prices are low now, so they [the guests] are quite okay. We have a lot of guests still staying with us since the lockdown. They got stuck and they kept staying,” he says, adding that most are foreigners who could not get a flight back to their home countries.
The operator believes that experienced hosts will be able to survive the impact of the pandemic.
“[But] it would be harder for other operators. I’ve seen many operators just pack and go off. They didn’t even inform the [property] owners and didn’t do a proper handover. The owners also didn’t know their tenants [who are Airbnb operators] had left.”
He notes that although some Airbnb operators secured a 50% cut in rental from unit owners, they decided to quit the business because of the gloomy outlook. Nonetheless, he is of the view that the situation may recover in the next six months.
“If can get back to the 2019 level, that would be really great.”
Due to the rising number of hotel closures, he believes Airbnb operators could reap the benefits when fear of the pandemic eases, albeit for a short period of time.
“It will be [this way] for a short period. For less than a year, we might be able to make more than usual [bookings]. But supply and demand will always balance out, when more people start investing in homestays and supply increases.”
Long-term rental option
For individual Airbnb operators like Hendy Tan, however, the MCO has been a source of acute hardship.
“I started managing my unit in Cyberjaya two years ago after the delivery of vacant possession. My monthly instalment is about RM2,200 and the returns were quite okay as I used to get between RM1,800 and RM2,500, with up to RM3,500 during the peak season.”
However, as the Covid-19 pandemic started to hit Malaysia in February, bookings fell significantly, with zero income in March.
Due to the travel restrictions, Tan made the decision to convert his unit into one for long-term rental at RM1,800 per month.
“At least, I can secure a consistent income every month to pay for my monthly housing loan instalment.”
He says the six-month moratorium on loans introduced by the government could help relieve financial pressure if the operators are keen to continue running their Airbnb operations.
To help hosts around the globe ride out the virus outbreak, Airbnb is offering a special facility, but at its sole discretion and with conditions — for example, how long they have been a superhost and how badly their earnings have been impacted. Tan says he was notified of the special facility, but did not receive an invitation to participate in the programme.
Airbnb kickstarted a fund worth US$17 million (RM73.8 million) to help affected hosts. It has also set aside US$250 million to share the cost of Covid-19 cancellations. Approved hosts will receive relief grants of up to US$5,000 based on financial need, according to an email sent to hosts.
Breaking even good enough for now
Owing to the current circumstances, Sync Management & Education founder Eric Wong says breaking even is “good enough” for the time being.
“Now we don’t make money. We just want to break even and get back the cost. For weekly stays, I will offer a 40% discount, for monthly stays a 50% discount and for daily stays, a 20% to 30% discount.”
As Airbnb Malaysia ambassadors for 2018, Eric and his brother Elvin currently manage over 250 units.
“Now, booking is less than 10%. A lot of bookings have been cancelled,” says Eric.
For cancelled bookings, they have received a 25% refund from Airbnb.
“Let’s say, for a RM1,000 confirmed booking, they (Airbnb) returned RM1,000 to the guest, and they also paid us RM250,” Eric explains.
As many businesses have reopened, he foresees a recovery soon.
“People will start to travel and we will see some business coming in. But given the many empty units now, there are a lot of choices in the market. You [also] need to sanitise the units so that people will have more confidence to stay in your units.”
Bookings for short-term stay down 70%
According to data from AirDNA, a provider of short-term vacation rental data and analytics, new bookings for short-term accommodations in Malaysia declined 70% to 5,000 in April from its recent peak of 17,000 for the week of Feb 24 to March 1.
Occupancy also dropped to a low of 23.1% for the week of May 11 to 17. During the same period last year, it was 37.7%. The average daily rate stood at US$39 for the week of May 11 to 17, lower than the US$44 a year ago.
Airbnb China, on the other hand, reported a strong rebound in bookings in the first half of April, which surged over 200% compared with March.
The number of bookings for the week of April 13 in 10 big Chinese cities, including Shanghai and Guangzhou, was up nearly 80% from the week of March 16.
Despite a sharp fall in bookings, most of the hosts are not giving up on their plans to host guests, according to Airbnb.
“We are heartened that 92% of hosts have told us they plan to host at least as often as before the pandemic once travel resumes, and we are making investments that will strengthen and grow our business in the post-pandemic world,” an Airbnb spokesperson tells The Edge.
“We are also sharing listing tips with our Airbnb hosts and how to reassure guests and secure future bookings.”
The spokesperson also sees growth momentum returning to the travel industry, which made up more than 10% of global gross domestic product (GDP) last year.
“This kind of momentum can’t be paused for long, but as travel recovers, it will look different. Airbnb believes that people will seek out nearby things to do and places to visit. They will want longer stay options for family, work and study; and they will look for sites and activities away from tourist hotspots ... all creating new ways for regular people and communities to benefit from travel and tourism.”
Airbnb states that its high standards require listings to offer a certain level of cleanliness, and it responds to reports when those expectations are not being met.
To date, 94% of all Airbnb reviews show that guests are satisfied with cleanliness, scoring it at four or five stars after their stays.
Airbnb has also joined other industry players in urging the Malaysian government to consider including tourism entrepreneurs involved in the industry through new business models and platforms in its stimulus packages. These include individuals who are hosting short-term rental accommodation or providing local activities through internet platforms.
In 2018, Airbnb’s host and guest community generated about RM3 billion in estimated direct economic impact in Malaysia. It welcomed more than 3.25 million guests in the country for the July 2018 to July 2019 period, representing a 73% surge year on year.
Last year, Malaysia was the fastest-growing market for Airbnb in Southeast Asia for the second year running.
However, as the pandemic crushes the travel industry, Airbnb is retrenching about 25% of its workforce.
“We are collectively living through the most harrowing crisis of our lifetime, and as it began to unfold, global travel came to a standstill,” Airbnb CEO and co-founder Brian Chesky noted in an email to employees informing them of the layoffs early this month.
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