The resumption of air transport gives a big boost to vacation rentals
Although air travel has yet to fully recover from the disruptions of the past two years, consumers are flying in greater numbers in 2022, providing a strong comeback for the industry.
The Transportation Security Administration says nearly 230 million people have flown so far this year, up 71% year-over-year and 46% more than in 2020. Although it is still lower than the 269 million people who flew in 2019 at the same time of year, air travel is back, baby!
It appears in Airbnbit is (ABNB -5.07%) nights and experiences booked, a key growth indicator for the vacation rental company, which topped 100 million for the first time in the first quarter. In fact, gross nights booked in urban areas increased by 80% over the period, surpassing 2019 levels, while trips in non-urban areas were 80% higher than in 2019.
And while everyone expects summer travel to be even stronger, before you break out the confetti and champagne, know that clouds are forming on the horizon for the hospitality industry.
A risky future
The Federal Reserve just raised interest rates by half a percentage point and said it was willing to raise them another half a percentage point in June and July to help fight runaway inflation . Earlier, St. Louis Fed President James Bullard said it was a “fantasy” to believe inflation could be fought without a dramatic rise in interest rates, noting approvingly that the former Fed Chairman Paul Volcker increased them to 20% in the early 1980s.
It also had the effect of bringing the economy to a halt, but Bullard said backtracking may be needed to get inflation under control.
Consumers are already feeling the impact of rising prices and the economy contracted more than 1% in the first quarter, meaning the Fed’s brakes could bring non-essential travel to a screeching halt.
Airbnb stock has fallen 13% since the Fed announced its interest rate, giving up all the gains it had enjoyed the day after its excellent earnings report was released.
stay and rest
Long-term stays, those lasting 28 days or more, are a catalyst for hope for Airbnb’s future, and they have become the vacation rental leader’s fastest-growing segment in terms of trip duration. As a percentage of its business, extended stay footfall has doubled since the first quarter of 2019 and now represents 21% of gross nights booked on Airbnb, compared to 13% three years ago. Overall, 48% of gross nights booked were for stays of at least seven nights.
The strength of this category helped Airbnb increase revenue by 70% year-over-year to $1.5 billion. This number also benefited from higher average daily rates (ADRs), $168 for the quarter, up 31% from 2019 and 5% year-over-year.
Still, that makes the cost of staying at an Airbnb comparable to a night in a hotel. One of the original benefits of staying at an Airbnb was the lower cost, but hotel ADRs are around $150, meaning Airbnb is no longer the low-cost leader.
There are certainly other benefits to staying with the vacation rental company, but especially during times of inflation or an economic downturn, travelers can become more price sensitive when deciding where to stay.
Troubled Times Ahead
Still, Airbnb has used the resumption of travel to its advantage. Although it reported a net loss of $19 million for the first quarter, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) totaled $229 million, compared to a loss of $59 million at the end of the year. same period last year. And the company expects to report net profits for the first time this year.
Airbnb also saved up a war chest, ending the first quarter with $8.3 billion in cash and cash equivalents, which, coupled with less than $2 billion in long-term debt, gives it plenty of flexibility.
The company produced $1.2 billion in free cash flow last quarter, putting it on a solid path, but investors should remain cautious about buying as Airbnb’s valuation remains elevated. The growth stock could be down 18% since the start of the year, but it could fall even further if economic difficulties reduce travel demand in the months ahead.