Simon Lehmann and Nicolas Galantini: Harnessing Industry Recovery

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After 19 months of an unprecedented global pandemic, the travel industry—as a whole—has deeply suffered. However, recoveries across the travel industry have not all been equal; and as we now know, leisure vacation rentals with drive-to feeder markets significantly outpaced all other travel verticals—a trend we expect to continue in the near term.

According to the recent Vacation Rental Barometer survey by Generali Global Assistance, 71 percent of US and European travelers are planning to book a vacation rental by the end of 2022. Compared to previous research shared by Phocuswright in 2019, showing that 34 percent of travelers booked a vacation rental, this is a huge shift. Sustaining this booming interest in vacation rentals once travel resumes to pre-pandemic levels would more than double the accessible market for vacation rental managers.

In other words, if you thought that the rise of Airbnb in the previous decade had a massive impact on the vacation rental industry, buckle up for the years to come.

As we consider this significant shift in consumer behavior, here are some questions we should collectively ask ourselves:

  • How can we retain these first timers once staying in a hotel is not deemed as risky as it is right now?
  • How can we implement a regulatory framework that will enable vacation rental businesses to thrive and to be considered as a legitimate hospitality vertical and not simply as a hobby for those with second homes to make an extra buck?
  • How can vacation rental managers capitalize on this upward trend, become more profitable, and build sustainable businesses both financially and operationally?

Of course, none of this will happen overnight, especially when everyone is overwhelmed servicing the increased demand. However, these questions are necessary to raise the bar in the vacation rental industry.

 

1. A Scream for Revenue Management

Revenue management—the process of establishing the right price for the right property at the right time—is still in its infancy in the vacation rental industry when compared to hotels or airlines.

We have already been quite vocal about this topic and have developed our own algorithm to tackle this problem with the AJL Profitability Solution. Nevertheless, if you are not doing any type of proactive revenue management or using any of the tools on the market, you are simply missing out on a lot of revenue.

COVID-19 has created a tremendous change in the demand for vacation rentals. First, the volume of guests interested in vacation rentals as a lodging option has increased. Historical data sets are almost irrelevant now, and every vacation rental management company must make the best decisions they can with the pricing and performance data they have access to.

Additionally, pent-up demand must be considered because the booking pace will change dramatically as any restriction is lifted in a region. For example, Awaze—the largest property management company in the world—saw one booking being made each second in its UK cottage portfolio right after the announcement of easing restrictions by the UK government. If you do not have a solid strategy in place with automated rules and some capacity to anticipate activity as restrictions ease, you will miss out on a lot of potential revenue when such a booking frenzy emerges.

Another factor to consider is the origin of the guests. With international travel partially halted and some important source markets still restricted, it is crucial to consider this aspect when determining rates, the minimum stay requirement, and distribution and marketing. In Europe, for example, property managers who decided not to fall back on their domestic market are and will still be negatively affected by the consequences of the pandemic. Companies that shifted their strategy to target domestic drive-to markets still have a business and are even growing as their strong performance is bringing new homeowners into their property management programs.

Another important consideration―even if it is now normalizing in some markets because of higher consumer confidence―is the booking window (i.e., the time between the reservation date and the arrival date). Indeed, the booking window has shortened for most markets compared to pre-COVID-19 levels, and we can expect continued variation because we are still far from returning to normal.

Finally, market seasonality may have changed. Not because of global warming (although this is a growing concern in several destinations), but simply because the guests who were coming from farther away simply might not be able to come. At the same time, guests coming from regions closer to the destination might not follow the same booking patterns, avoiding what is still perceived as high season in tourist hot spots.

Because of the lack of international travel and the increased appeal of outdoors after months of being locked inside, some winter destinations are offering activities during the summer and are experiencing a highly lucrative summer season for the first time ever. This leads to operational challenges but is also a fantastic case study in adapting your revenue management strategy to capitalize on emerging trends.

Last but not least, remote work and remote learning are enabling families to book outside of the typical holiday weeks and allowing them to stay longer. This dynamic should influence the revenue management strategy as well.

 

2. Standardized Uniqueness

Unlike hotels or serviced apartments, most vacation rentals are unique. Hotels have long- and well-established standardized operating procedures and standardized inventory, whereas vacation rental managers have built their businesses with few best practices and often with little hospitality experience.

Operationally, these challenges might be daunting because of the nature of the inventory and because of unit density, which is lower for vacation rentals. Property managers who have not yet started to implement well-defined procedures and quality control processes in their operational management workflows should consider this—we all must cope with escalating guest expectations and an emphasis on cleanliness and safety.

A common viewpoint from pre-COVID-19 “hotel-only” travelers booking a vacation rental for the first time is the expectation to find lodging standards resembling their previous experiences at hotels. A Marriott Bonvoy member booking on Homes & Villas by Marriott International expects some continuity in the experience. Larger spaces are not an excuse for lower cleaning standards, especially when—unlike hotels—there is a substantial cleaning fee charged on top of the rental price.

As with many pain points in the industry, technology will play an important role in making standardization a reality and streamlining processes in an era of staff shortage. For example, companies like Breezeway are supporting property managers in this endeavor to improve their efficiency and standards in property care operations and communications

Let alone the effects of the pandemic on people’s definition of clean, the expectation is very real. According to Booking.com, use of the words “hygiene” and “clean” when it comes to a question related to a property has increased by 60 percent.

For those who want to raise the bar and get closer to hotels in the way they address cleaning and maintenance, there are several different options to achieve this.

First—although this might sound cliché—knowledge is power. Educating oneself about hospitality operations is a great way to understand where the benchmark should be. Then build procedures and teams to get closer to that standard.

After all, the barrier of entry in vacation rentals is quite low, and everyone with access to one property can start building a business. There is no diploma or degree offered in vacation rentals yet; however, the vacation rental community has attempted several times to build this knowledge base. Associations like VRMA are building certification programs, tech companies like Breezeway are offering both templated property checklists in their software as well as a certification on safety, and AJL Atelier has recently collaborated with Hotel.school to build a vacation rental curriculum with experts in the vacation rental field (hotel.school/vacationrental).

Those who proactively go the extra mile to reach a new level of standards and professionalism will not only create efficiencies in their business but also reap the rewards of a larger pool of customers looking to book a vacation rental for their next holiday.

 

3. Direct Booking Growth

As everyone is talking about direct booking, the chance to convert these first timers into repeat customers is also something not to be forgotten. It is the best way to reduce your distribution cost, achieve more freedom from OTAs, and increase the profitability of your business.

At the end of the day, a relevant question to be asked is this: Am I willing to give half of my gross margin to an OTA forever, or shall I invest into my business with the goal of building a sustainable repeat business?

Everyone who read Airbnb’s S-1 filing should understand the importance of repeat customers and brand building in the vacation rental space. The latter goes way beyond a logo stamped onto a towel or placed in the header of an email—it is embedded within the standards upheld and the experience provided to guests.

Compared to the online giants, the main advantage property managers have is their direct interaction with the customers who will spend time in their property. This creates many touch points from which you can position your vacation rental brand and build direct dialogue with your customers.

Providing a great experience to customers is the first step in building this relationship; however, we are seeing companies of all sizes succeed at building a strong repeat or direct channel. It takes time, focus, and resources, but the reward is worth it. Some companies we work with, even with an inventory of just 50 properties, were able to build a direct channel providing 50 percent of their bookings in only a few years. This is a timeline that all managers should set for their business.

 

It’s Not Time to Throw in the Towel

Looking at the different trends we are experiencing industry wide, vacation rental managers can now tackle many new opportunities in their respective markets. The vacation rental product has gained a tremendous amount of traction and visibility with a mainstream audience, and the perception of the entire industry has shifted quickly in just a few months.

It is by far not the time to throw in the towel. After so much uncertainty, the light at the end of the tunnel is extremely bright. Although some might not know what to do with this—like a deer in headlights—others have a very clear understanding of what is ahead.

Asking the right questions and having a candid assessment of your business can help you make the right strategic decisions and execute a clearly defined road map to improve business performance and to become more sustainable.

The entire travel industry is looking at vacation rentals with a mix of envy and surprise, and it is up to all of us to ensure that what took place during COVID-19 was a stepping-stone and not a glass ceiling.

Being part of this journey is our mission, and if you ask us, vacation rentals are only getting started on this road to the top.

 

About Nicolas Galantini

Nicolas is an expert in vacation rental online distribution and has helped property management companies adopt channel management technology and maximize the potential of their inventory. A forward thinker with an in-depth understanding of the tech ecosystem, his focus is to help short-stay businesses expand by automating and sophisticating their operations and distribution.

About Simon Lehmann

Simon Lehmann is one of the world’s foremost experts in the short-term rental and vacation rental industries. He founded and leads  AJL Atelier, a specialized vacation rental and business consultancy while also advising multiple companies as board member and executive chairman. A sought-after speaker, panelist and moderator, Simon loves to broach high-level and technical topics alike, from future trends to the specifics of online distribution in the top five OTAs. Notable among his many achievements, Lehmann was the cofounder and chairman of Vacasa Europe, former president of Phocuswright, and former board member of HomeAway.



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