In a dramatic about-face announced during a video call Monday afternoon with CEO Brian Chesky, Airbnb said it would pay $250 million to hosts impacted by the economic fallout from the novel coronavirus. The new policy arrives as hosts worldwide face mounting financial pressure following the mass cancellation of bookings due to the COVID-19 pandemic.
“Although it may not have felt like it, we are partners,” Chesky wrote in an email sent to hosts Monday. “When your business suffers, our business suffers. We know that right now many of you are struggling, and what you need are actions from us to help, not just words.”
Airbnb will pay out 25 percent of what hosts would normally receive for a canceled booking, based on their individual cancellation policies, for check-ins that were scheduled between March 14 and May 31. The company’s initial response was to fully refund all guests who booked before March 14 with stays planned between March 14 and April 14 that were canceled due to COVID-19-related circumstances. The payments for hosts will apply retroactively, and will be sent to hosts starting in April. Furthermore, the company will create a $10 million Superhost Relief Fund for their most experienced hosts, financed with $1 million in donations from employees, and $9 million contributed by Airbnb executives, including Chesky. Hosts can apply for grants of up to $5,000 starting in April.
Airbnb also lobbied Congress, asking for specific assistance in the stimulus package, such as letting independent contractors take advantage of unemployment assistance (Chesky noted in his letter Monday that hosts can now apply for small business loans and receive unemployment). And on Friday, the company announced an initiative to house 100,000 health care and relief workers responding to the COVID-19 outbreak.
The move came as the short-term rental market has been decimated by recent events. David Wachsmuth, a McGill University professor who studies Airbnb and the short-term rental market, says “all the big Western city markets are seeing bookings just vanish.” Entire businesses based around the Airbnb ecosystem, which made $1.1 billion in revenue in Q4 2019, have suffered crucial losses, not to mention the large number of service staff and cleaners who make significant income from cleaning Airbnb units. For example, Sonder, a venture-backed hospitality company that rents apartments via Airbnb and other services, just laid off 400 people—one-third of its staff.
“The main patterns are pretty clear now,” Wachsmuth says. “There have been enormous and, to the people relying on Airbnb to make money, catastrophic declines worldwide.”
With no idea how long shelter-in-place directives and the resulting economic pause will last, and virtually no demand for short-term rentals, Airbnb host have felt lost. The story has been the same for hosts across the country: Existing April and May bookings were nearly all canceled in mid-March, leaving those months empty, and nobody is booking trips for June or July.
Wachsmuth isn’t surprised the company is pledging to pay hosts, since they’ve gotten criticized for not acting sooner, but he doesn’t think it’ll “stem the bleeding.”
“They’re proposing to pay out 25 percent of what the cancellation fees would’ve been,” he says. “So a host who has a 50 percent refund policy, which is pretty common, would only get back 12.5 percent of what they would’ve earned. You can maybe imagine this tiding some hosts over for a month or so, but if this turns into a many-month slump, I don’t see how this meaningfully changes the trends I was describing before.”
The promise of funds to help hosts comes when many are desperate for income, yet some are left reeling after having recently adjusted their entire business with the expectation that Airbnb wouldn’t be helping them. Julie Mosley, a 38-year-old stay-at-home mom in Denver, had just finished designing and converting the space above her family’s garage into a unit meant for Airbnb, and began hosting guests in February. In the last two weeks, she’s seen a slew of cancellations, and decided to block out March and April dates and try to cancel May and June bookings so she could lease to a single tenant for two months.
“It was hard for me to look at May bookings and wonder if those were actually going to happen,” she says. Last weekend, Mosley spent hours talking with potential June guests, trying to get them to cancel so she could rent to a single, longer-term tenant.
“All nine people obliged, but it felt very awkward and honestly, painful for me to do,” she says. “As of Sunday, Airbnb was offering nothing on its end to support us hosts, so this new announcement is rather baffling.”
Others aren’t sure the fund will amount to much. In 2015, Cortney Bibby, now 38, and her husband traded the Seattle area for the backwoods of Montana, and bought a home with an existing 100-year-old log cabin on the property. which they decided to rent on Airbnb.
Five years later, the Bibbys successfully rent two of their own properties, including an upscale tree house, and manage a handful of others nearby, making 25 percent of their income from Airbnb. That’s made the impact of the coronavirus—which caused 90 percent of their existing bookings for the year to evaporate in the space of a few weeks in mid-March—that much harder to take.
“Typically at this time of the year, I’m scheduling anywhere from two to 10 bookings everyday, and now it’s nothing,” she says. “There’s no activity, nobody is asking questions, there’s nothing happening. If this goes on for several months, it’ll impact our ability to pay mortgage and car payments.”
The policy looks generous on the surface, she says, but agrees with Wachsmuth that the 25 percent cancellation payout won’t be much. Her cancellation policy is 50 percent payout if a guest backs out within five days; most of her COVID-19 cancellations were more than five days out, so she doesn’t believe they’ll qualify for the payout.
“Ask me again after I get my check,” she says.
Cynthia, a Vancouver-based host who prefers not to use her last name to maintain her privacy, runs AirHostsForum, a global online gathering place for hosts. She says the community had been starkly divided on the company’s response before Chesky’s letter.
“The hosts who were more experienced felt Airbnb had no obligations to hosts,” she says, and weren’t surprised by the company’s initial reaction, whereas newer hosts “felt Airbnb was screwing them over and needed to do something to rectify the situation.”
The company’s decision is the latest shift in a string of policy changes related to the pandemic. The company said its initial policy of offering full refunds to guests was meant to avoid “creating a public health hazard.” The move was met with mixed reviews, with some hosts feeling they found out about key policy changes late, and others calling the move necessary.
Despite relying on contractors and a gig-economy model that frees them from expensive fixed assets, Airbnb has to face its own difficult financial situation. Guesty, a property management company that operates short-term rentals on Airbnb and other platforms, says new reservations are down 50 percent in urban markets due to coronavirus, and up to 70 percent in some markets. Last week, Airbnb announced it would stop any and all marketing this year, and the founders will take no salary for the next six months while top executives will take a 50 percent salary cut. Spending $250 million on hosts will be a significant investment in this environment.
Wachsmuth believes Airbnb can likely weather a storm like this for a few months. But even that rosy scenario may lead to a huge revenue drop for most of the year. Airbnb makes money off a service fee for every bookings, usually just under 14.2 percent of the rental (it varies based on a variety of booking factors). A precipitous drop in bookings will results in a significant hit to revenue.
“It’s possible that when the economy reopens, travel restrictions stay in place,” he says. “A year or more of really reduced travel will lead to a real decline in the sector overall, not just in a couple of markets.”
For the hosts that can hang on throughout the economic shutdown, the travel landscape that greets them on the other will likely remain somewhat uncertain. Wachsmuth says he predicts a massive price war between hotels and short-term rentals. Hotels can only operate as guest lodging, and will lower prices as much as possible to fill up rooms and drive ancillary income, like food and beverage sales.
Individual Airbnb hosts don’t have the resources of the hotel chains, and may be unable to last through a long-term price war. They may instead pursue other options, including placing their short-term rental on the regular, long-term lease marker. Wachsmuth says he’s seen a “flood” of fully furnished former Airbnb units hit rental markets in major cities over the last few weeks.
“Hotels don’t have an alternative, they need to fill the beds,” he says. “Hosts can switch.”
Lucas Carpenter, a 37-year-old singer-songwriter in Nashville who rents a private suite in his house to tourists, doesn’t plan to move away from short-term rentals even as the outbreak continues to grow. Since buying a house six years ago and fixing up a spare bedroom for Airbnb, he’s become a superhost and welcomed hundreds of visitors. As different closures and shelter-in-place orders have rolled out—Nashville closed its bars on March 16—Carpenter says potential guests have messaged him about whether it’s worth showing up. He’s torn, and while he hasn’t cut his rates or stopped taking reservations, he has recommended those who ask against coming, since he “didn’t want people to show up, have nothing to do, and give me a poor review.”
“I don’t feel comfortable having folks, and haven’t worked hard to get them there,” he says. “But I will take the money if they book. The truth is, there are still people who have to travel.”