The sharing economy in travel is experiencing significant growth, with the market size expected to reach $10.7 billion by 2024 in the GCC alone.
The rise of the sharing economy in hospitality is transforming travel across the globe, and the Middle East is no exception. The sharing economy, the peer-to-peer exchange of accommodation and travel experiences through platforms such as Airbnb and Dubizzle, poses both challenges and opportunities for the traditional hospitality industry. In this article, we explore the key trends driving the growth of the sharing economy, its impact on the hospitality industry, and strategic ways industry players can adapt and benefit.
The rise of the sharing economy and peer-to-peer platforms in travel
The sharing economy in travel is experiencing significant growth, with the market size expected to reach $10.7 billion in the GCC alone by 2024. Airbnb, for example, boasts over 7 million accommodations worldwide, with a significant percentage of bookings coming from the Middle East. Local alternatives such as Dubizzle in the UAE and Gathern in Saudi Arabia are also rapidly gaining popularity. These services offer travellers unique stays and personalized travel experiences to suit different tastes and budgets.
Influencing consumer behavior and preferences
One of the most notable impacts of the sharing economy is the shift in consumer behavior toward unique, local experiences. Notably, 70% of peer-to-peer platform users in MENA prefer the authentic experiences offered by Airbnb. This change reflects a broader trend of travelers seeking personalized stays that connect them to local culture and communities. Traditional hotels, which often focus on standardized services, are now faced with the challenge of adapting to these changing preferences.
Economic impact on traditional hospitality
The economic impact on the traditional hospitality industry has been significant. Cities in the MENA region with a high density of Airbnb listings have seen a significant decline in hotel revenue. Hotels in Dubai, for example, are losing up to $250 million per year due to competition from Airbnb, Dubizzle, and other local alternatives. This financial burden means traditional hotels need to innovate and find new ways to compete in an increasingly competitive market.
Regulatory challenges and responses
The rapid growth of the sharing economy is also having a major impact on regulatory responses. More than 100 major cities around the world have introduced strict regulations on short-term rentals to address concerns about housing shortages, noise, and community disruption. In the Middle East, countries such as the UAE and Saudi Arabia have also introduced regulations to manage the impact of peer-to-peer accommodation. This reflects the need to balance innovation with local norms and existing infrastructure. The changing regulatory environment highlights the tension between encouraging innovation and ensuring compliance with local norms and safety standards.
Flexibility and scalability of accommodation supply
One of the benefits of the sharing economy is its flexibility and scalability. Platforms like Airbnb can quickly add new listings to meet demand, especially during peak travel periods or major events. This flexibility helps alleviate accommodation shortages and gives travelers more options. However, it also creates challenges, as traditional hotels cannot easily adjust capacity, which can lead to imbalances between supply and demand.
A strategic approach to the hospitality industry
To overcome the challenges and capitalize on the opportunities presented by the sharing economy, traditional hospitality companies can adopt several strategic approaches.
Focus on value beyond accommodation
While peer-to-peer platforms often offer cheaper options, hotels can differentiate by offering additional value. This could include high-quality amenities, superior service, exclusive access to experiences and events, etc. Thus, by focusing on offering superior value, hotels can attract guests who are willing to pay a premium for a more comprehensive and enriching experience.
Embracing technological advances
For traditional hospitality businesses, leveraging technology is essential to improve guest experience and operational efficiency. Investing in user-friendly booking platforms, mobile check-in services, smart room features, and personalized recommendations. For example, incorporating AI-driven personalized recommendations on travel activities and dining can improve the overall guest experience. These technology enhancements also help hotels stay competitive and meet the changing expectations of modern travelers.
Strategic Partnerships and Collaborations
Collaborating with sharing economy platforms or developing similar peer-to-peer rental models within the hospitality industry can bring strategic advantages. Hotels can explore partnerships for shared services, cross-promotion, and even hosting unique experiences on these platforms. Such collaborations can help traditional hospitality companies reach new customer segments and provide more diverse and attractive options for travelers. According to Simon-Kucher’s global experience, traditional hotels typically see a 15% increase in short-term revenue after listing on AirBnB.
Read: Dubai real estate: A magnet for global wealth
Prioritize sustainability and responsible tourism
With the rise of conscious consumers in the Middle East, the hospitality industry should prioritize sustainability practices and responsible tourism initiatives. Eco-friendly accommodations, efforts to reduce carbon emissions, and supporting local communities can attract travelers who value environmental and social responsibility. For example, to attract GenZ travelers, hotels can partner with local farms to source organic produce and implement trending “farm-to-table” dining concepts. By aligning with these values, hotels can enhance their brand reputation and appeal to a growing segment of environmentally conscious travelers. Recent market research from Simon-Kucher suggests that sustainability-based revenue premiums could increase by up to 11% for the hospitality industry.
In conclusion, the sharing economy has brought about significant changes in the travel and hospitality industry. Although there are challenges, it also provides opportunities for traditional businesses to innovate and adapt. By focusing on value, embracing technology, forming strategic partnerships and embracing sustainability, the hospitality industry can thrive in this evolving environment.
Lovrenz Kessler is Managing Partner, Middle East and Mohit Agrawal The director isDubai Office At Simon Kutcher.
For more editorials, click here.
