Hotel Industry Using Government to Crush Airbnb
April 17, 2017 by Michael Tennant
Whenever an entrepreneur enters the marketplace, one can be certain that established firms in the same industry will try to use the power of the state to crush their upstart competitor, particularly if he begins taking market share from them. Such is the case with Airbnb, which has seen a significant increase in opposition from all levels of government thanks to a concerted effort on the part of the hotel industry, reports the New York Times.
The Times obtained copies of documents recently presented to the board of the American Hotel and Lodging Association, a trade group that includes such juggernauts as Marriott International and Hilton Worldwide. “In the documents,” writes the paper, “the group sketched out the progress it had already made against Airbnb, and described how it planned to rein in the start-up in the future.” The November board meeting’s minutes said the plan was a “multipronged, national campaign approach at the local, state and federal level.”
That the industry would want to put Airbnb out of business is quite understandable. According to Hospitality Net, a hotel-industry website, a report commissioned by the Hotel Association estimated that Airbnb costs hotels about $450 million in direct revenue per year, with additional losses in the form of lost food and beverage sales and other service fees. The Times says Airbnb, which enables people to rent out unused living space on a short-term basis, “has raised more than $3 billion and secured a $1 billion line of credit” and is valued at about $30 billion. In addition, the increase in the supply of lodging has naturally depressed its price, even during peak periods such as holidays, which has also cut into hotels’ bottom lines.
Government, meanwhile, resents the fact that Airbnb isn’t subject to the onerous taxes it levies on hotel rooms. Hospitality Net reports that local, state, and federal governments miss out on (i.e., are unable to confiscate) $226 million in tax revenues per year from the reduction in hotel stays in New York City alone.
Thus, it isn’t hard to see why the hotel industry and politicians would join forces to take down Airbnb.
Indeed, the documents obtained by the Times list one of the Hotel Association’s objectives: “Build on the success of 2016 efforts to ensure comprehensive legislation in key markets around the country and create a receptive environment to launch a wave of strong bills at the state level while advancing a national narrative that furthers the focus on reining in commercial operators and the need for commonsense regulations on short-term rentals.”
In other words, use government to cripple, if not destroy, Airbnb.
The group’s efforts have already borne fruit. New York Governor Andrew Cuomo (D) signed legislation in October imposing fines of up to $7,500 on New York City apartment dwellers merely for listing their apartments on Airbnb or similar websites. Senators Brian Schatz (D-Hawaii), Elizabeth Warren (D-Mass.), and Dianne Feinstein (D-Calif.) — like Cuomo, members of the party that supposedly defends the little guy from big corporations — sent a letter to the Federal Trade Commission in July “raising concerns about the short-term rental industry,” according to the documents.
Furthermore, writes the Times:
The association also met with legislators and attorneys general in dozens of other states to discuss how Airbnb hosts often do not comply with rules imposed on hotels, like anti-discrimination legislation, local tax collection laws, and safety and fire inspection standards. In some markets, the group said, Airbnb is dodging payment of local lodging taxes. In other places, it encouraged officials not to collect taxes from Airbnb hosts so as not to legitimize short-term rentals.
The association claimed legal and regulatory victories last year in Chicago, San Francisco and Los Angeles, as well as in states like Virginia, Tennessee and Utah, where laws were being passed to restrict Airbnb activity. The organization also funded research conducted by a professor at Pennsylvania State University to show that many Airbnb hosts were breaking the law….
This year, the association plans to fund more anti-Airbnb research and roll out a testimonial campaign of people hurt by home sharing, “to provide a counterweight to Airbnb’s strategy of presenting a unified, working-class face,” according to the group’s documents.
In short, as Airbnb spokesman Nick Papas told the newspaper, “The hotel cartel is intent on short-sheeting the middle class so they can keep price-gouging consumers.”
The industry, of course, denies that its efforts have anything at all to do with declining profits. “Airbnb is operating a lodging industry, but it is not playing by the same rules,” Troy Flanagan, the American Hotel and Lodging Association’s vice president for state and local government affairs, told the Times.
But if the problem is that there are too many rules unfairly burdening hotel operators, why not lobby to relax those rules rather than to impose them — and more — on Airbnb? Probably because, as with most regulations, the ones governing the hotel industry exist primarily to suppress competition. Large, existing firms can afford the cost of complying with the regulations, while smaller competitors cannot. Besides, it’s easier and cheaper to lobby government to get rid of competitors than it is to do the hard work of innovating and cutting costs to compete in the marketplace.
Government Regulation and the United Airlines Fiasco
April 17, 2017 by Steve Byas
It is not new for government action to cause a problem, then offer more government regulation to solve the problem. We see this with government price controls, which invariably result in shortages, with government-imposed rationing then offered as the solution to shortages. Government price controls on wages during World War II led to businesses offering employer-provided health insurance, which predictably drove up the price of healthcare in the United States. Today, more government involvement in healthcare is suggested as the solution to the problem mostly caused by government action.
What does this have to do with the public relations fiasco suffered by United Airlines? Most of us have seen the videos and heard the jokes resulting from the incident in which government officials, acting on behalf of the airline, violently removed a paying customer from a flight bound for Louisville, Kentucky.
When four United employees needed to get to Kentucky to work another flight, United asked four passengers to voluntarily take a later flight, attempting to entice them with an $800 travel voucher. It is not unusual to get passengers to give up their seats — it usually is resolved without such infamous incidents as what happened at the Chicago airport. In this case, of course, the passengers were already seated.
One paid customer, a medical doctor, was finally ordered off the flight, and when he refused (he argued that he had patients he needed to see back home), officers of the Chicago Department of Aviation physically removed the man, bloodying him in the process.
It has been a public relations nightmare for the airline. Their stock has fallen almost three percent, losing $600 million in market value.
Still, many Americans are not content to let the marketplace (and perhaps even the civil courts) mete out its own form of punishment. They want the government to do something to ensure nothing like this happens again.
The problem is the government already has done “something,” and the United Airlines episode is the logical result. It was the federal government itself that allows the notorious “over-booking” of flights. According to the law, “Airline flights may be over-booked, and there is a slight chance that a seat will not be available on a flight for which a person has a confirmed reservation.” At this point, airline personnel will ask for volunteers to surrender their seats in exchange for compensation “of the airline’s choosing.”
Under a free market situation, an airline could certainly stipulate that they can remove passengers — even those already seated — but once word got out that this was that airline’s policy, other airlines without such a policy could possibly gain more customers.
The question has been raised — why did United not just increase its offer from $800 in travel vouchers until someone stepped forward and took them up on it? Here is where the federal regulations stipulate that there is a cap on what the airline has to pay if it removes someone from the flight. In other words, take it or leave it. And if you will not move voluntarily, we will bring in legal authorities, who will remove you by force.
Certainly this seems rather unfair to the average person. After all, the passenger who does not wish to leave evidently values his seat on the flight more than he values the offered “travel voucher.” Not surprisingly, Americans who have seen the videos, or have heard about what happened, have reacted negatively toward United Airlines.
But when one thinks about it, is that not what happens with eminent domain? The government will offer what they contend is “just compensation” to get someone to leave his property, but the question of what is enough compensation will vary from person to person. This is particularly notorious when the government seizes privately owned land, not just for some “public use,” as is required by the Fifth Amendment of the U.S. Constitution, but to then turn it over to a private developer at a price below what the property owner was willing to sell. Forcing someone to sell their property below a price they are willing to accept might even be termed theft. After all, if someone offered a person $5,000 for a brand-new Lincoln Town Car, and somehow forced them to turn it over at that price, we would say a theft has occurred.
With United Airlines, one can at least choose to not fly with them. But in the case of the government, one has no choice. As poorly handled as the United incident was, it is not a monopoly situation, as one faces in dealing with government agencies.
Even with a private airline, government regulations can distort the free market. Had United not been able to rely on the government price control, they would have no doubt increased their financial inducements to the point that someone would have left the plane without being dragged off the plane. As it was, however, the government price control created a shortage of available volunteers. Apparently, the $800 travel voucher offered was somewhat below the true market price to bring forth some volunteers.
Some have rightly argued that United was well within its legal contractual rights to deny a seat to some of its passengers, so as to get its employees onto the plane. The free market, however, will cause them to pay dearly for exercising that legal right. In the future, passengers who hear about such an incident might very well skip over a United flight and select another airline. Of course, United could then entice the flying public back onto their planes by offering lower fares than their competitors. Who knows how it will how shake out in the end?
But when it comes to dealing with a government agency, what can a person do? The old saying, “You can’t fight city hall” is clearly understandable to most of those who hear it. Most of the time, one has no alternative to the “service” provided by the city — a “consumer” cannot just take his “business” elsewhere.
At least, if one has a problem with a city government, it is possible to move to another municipality. As the government becomes larger, however, with states, and then countries, this is not as simple. Finally, if you don’t like the business practice of United Airlines, you can choose another airline. But if we had a one-world government, such as the United Nations, it is rather problematical to buy a ticket to another planet — on any airline.
More competition — whether it be governments or airlines — appears to be the best answer.