Name: Airbnb Rode the Pandemic Wave, Now It Faces a Potential Recession
Uploaded: 2022-08-04T09:30:00Z
Duration: 7 min 18 s
Description: Airbnb was formed during the 2008 financial crisis and evolved during the Covid-19 pandemic. WSJ’s Preetika Rana and Airbnb CEO Brian Chesky share insight into the home-sharing giant’s success and what the future might hold for the company. Photo: Lucas Guilkey

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Airbnb was formed during the 2008 financial crisis and evolved during the Covid-19 pandemic. WSJ’s Preetika Rana and Airbnb CEO Brian Chesky share insight into the home-sharing giant’s success and what the future might hold for the company. Photo: Lucas Guilkey

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Airbnb Rode the Pandemic Wave, Now It Faces a Potential Recession

Narrator: This is a tiny home on Airbnb so far this year, this listing has brought in over $20,000 for its host. The typical US host in 2021 earned over $13,800 according to the company.

The tiny home doesn't cost a lot to build and yet I could charge hundreds of dollars a night.

Narrator: Airbnb posted a profit in its second quarter as guests booked a record of stays and experiences and hosts increased prices for rentals amid high inflation, but people didn't book as much as analysts had projected and the company's summer bookings forecast fell short of expectations.

Obviously, it's a dynamic period of time, but I'm still expecting an incredibly strong period of travel, even if people pull back spending some.

Narrator: So, how did the largest home sharing platform in the US navigate it's biggest crises and could it borrow those lessons to weather feat of recession? This is "The Economics of Airbnb."

Airbnb started around the time of the 2008 financial crisis. This was a time when people were really hard hit by the recession and they were look for a way to make an extra buck

Narrator: In 2016, the company launched Airbnb Experiences, which let travelers book classes, tours, and outings. Airbnb also spent more as it grew.

The CEO branched out into all kinds of things, like he wanted to have a media studios, he wanted to branch into transportation.

Narrator: And then the pandemic hit. Business was down 80%, forcing Airbnb to take on $2 billion in debt and pause all non-essential projects.

I hope I never again in my life. I learned a lesson. I think the lesson is, when you try to do new things aside things, they don't work.

Narrator: Summer of 2020 was a turning point for Airbnb.

People started quarantining with their families. Friends started taking staycations while they could work remote. So, that's something that definitely benefited Airbnb.

Narrator: Local travel became its stronghold and people started using the platform for longer stays. The company was one of the hottest public listings of 2020, though its stock price has fallen since then amid of broad market cool off. In August, Airbnb projected record third quarter revenue on the back of higher rental prices, and said it expects to post its first full-year profit this year.

A lot of business have lucky moments, but there's something to be said about getting lucky and also being able to ride that wave and capitalize on it.

Narrator: That's what Airbnb says it has done from the start.

Back then in 2008, a lot of people turned to hosting, because they were losing their homes, high housing prices. And a lot of people, because they didn't have as much money, were looking for more affordable ways to travel than ever before.

That really helped bring a lot of people who were looking for ways to make up for lost income onto the platform. And you can really see them capitalize on timing during the pandemic as well.

Narrator: Airbnb redesigned its app and website to focus on local stays during the pandemic. Last summer, it launched a flexible search feature, which curates trips for people who don't know where they want to go.

The pandemic and remote work gave us that flexibility. You know, we could travel during the week and still work remote. So, Airbnb starts noticing this trend and it says, "Oh, my God, we can, you know, sort of capitalize on this." And they do.

Narrator: In May, Airbnb launched another redesign of its search tool that split homes into more than 50 categories as a way to steer people to places they wouldn't otherwise have picked.

So, what they try to do is, they try to fill existing homes instead of adding more and more homes.

Narrator: Some analysts say, "This is key to the company's future growth since global occupancy rates are low." When it comes to addressing safety issues on its platform, some cities have complained that Airbnb has been too hands-off.

They're not actively monitoring these properties because, frankly, they can't. They don't own them. So that's really where a lot of their problems stem from.

Four people killed, another four hurt, all of it happening in a house rented out on Airbnb.

Narrator: After a 2019 Halloween shooting, the company announced safety measures, including a 24-7 neighborhood hotline to field complaints.

We've banned all parties globally on Airbnb. We have a risky reservation queue where we're looking at any suspicious activity, and we have a pretty hands-on team that's using some pretty advanced, like, machine learning technology to essentially identify anything we think is suspicious. If it is, we'll continue to seek more information.

Narrator: The company says, "The number of party complaints have dropped 44% in the last two years." Airbnb has also been trying to reduce that rate further by doing things like blocking one or two-night stays on New Year's Eve and Halloween for guests without a history of positive reviews, but incidents keep happening.

Earlier this year, we had a shooting in Pittsburgh, and again, you know, people were injured.

Narrator: City officials have also blamed Airbnb for ruining the long-term rental market in some small communities.

What's happened is a lot of people are just snapping up properties and renting them, and as a result, locals don't have enough properties to rent long-term. Airbnb doesn't think that it's actually affected the long-term rental market, but, you know, if you ask city officials, they have a different story.

Narrator: For example, in 2020, the mayor of Sedona, Arizona, a tourist hotspot, said that the demand for Airbnb rentals worsened the shortage of affordable housing and demolished long-term rental markets.

If we are, you know, part of the problem, we are going to work with cities. That's why we've done numerous agreements with cities to create restrictions. We actually do want Airbnb to get more and more into long-term housing. We want people to really feel invested in the community.

One of the things that Airbnb is doing now is it's trying to direct people to areas where it has supply. And that sort of also takes load off of certain places that everyone might go to and that might get sort of overburdened.

Narrator: In April, Airbnb announced that its employees can work from almost anywhere without a pay cut.

So, if more businesses do follow Airbnb's lead, Airbnb stands to gain in its home rental business. Because that would mean more digital nomads, more people traveling, and likely booking more Airbnbs.

Narrator: But some travelers are concerned about rising nightly rates. And some analysts believe that hotel chains and competitors like Expedia Group stand to gain as business travel picks up this year. So the question is, can Airbnb keep up the momentum?

We're an incredibly lean company. We've already been preparing for a storm that we thought was inevitable for years to come.

Narrator: Airbnb dramatically cut costs during the pandemic, and analysts have credited the company for keeping those down even as travel rebounded. While a potential economic downturn could decrease demand, Airbnb says it could also bring more hosts to the platform.

As the economy is going to be slowing down, I think more and more people are gonna be interested in saving money. And I think they're also going to be interested in new ways to make money.

Narrator: And unlike hotels with fixed properties, Airbnb can adapt quickly by spotlighting properties that serve travelers' changing needs, like it did during the switch to local travel.

I think even as we're entering a recession, people have been kind of isolated for years, and they're yearning to get out. And the one thing I think you're gonna see them spend money on is they're gonna continue to travel.

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