US: Airbnb is laying off 1,900 team members – or 25 per cent of its global workforce – and slashing its investment in hotels and its luxury business ventures in a move to help the travel behemoth survive the coronavirus crisis.
In addition, it will put a “pause” for the time being at least on broadening its travel portfolio into transportation, aviation and the in-house content hub Airbnb Studios, as well as integrating those services on its app.
In an email to employees that Airbnb released on Tuesday, CEO Brian Chesky wrote: “This crisis has sharpened our focus to get back back to our roots, back to the basics, back to what is truly special about Airbnb — everyday people who host their homes and offer experiences.”
“Travel in this new world will look different, and we need to evolve Airbnb accordingly. People will want options that are closer to home, safer, and more affordable, but people will also yearn for something that feels like it’s been taken away from them — human connection,” he added.
The level of the scale back of Airbnb’s 7,500-strong team will come as something of a surprise to some people, however the signs in recent weeks have become increasingly ominous.
Last month, the ailing company received $1 billion [£816 million] in investment [made up of debt and equity securities] from private equity firms, Silver Lake and Sixth Street Partners, to help fend off the most devastating effects of Covid-19 to its business.
Just a week later, it secured a further $1 billion loan in senior debt from the same firms, as well as Apollo Global Management, Oaktree Capital Management and Owl Rock, which will last for five years and be paid back as a priority should Airbnb go out of business.
The company had already been forced to put its plans to go public with an initial public offering on hold as Covid-19 began to spread around the world. It was faced with a major backlash from its host and guest community over its perceived abruptness in cancelling bookings in March and performing a U-turn on its extenuating cancellation booking policy.
In response, Chesky promised to “fix” the situation by paying out $250 million in cancellations back to hosts, laying on a $10 million Super Host relief fund, allowing previous guests to help out hosts with a personal note or financial contribution, and lobbying the U.S. government to provide short-term rental hosts with small business loans and grants.
The fund, though, has failed to cut much of the slack on Airbnb, as a number of hosts have reported that they have not been able to access any of the relief they felt they were promised.
Since then, Airbnb lowered its internal valuation by 16 per cent to $26 billion as a result of the global lockdowns and restrictions on mobility, ceased all marketing to save up to $800 million a year and scrapped plans to operate “high-end apartment-style suites” at New York’s Rockefeller Plaza with landlords RXR Realty.
Reducing its focus on the hotel or aviation market will inevitably have an impact on how investors view Airbnb as an attractive investment proposition and it remains to be seen whether this will cause its internal valuation to drop further as a result.
The move to scale back its investments into hotels and Airbnb Luxe, its rebranded top accommodation tier aimed at affluent travellers at the luxury end of the market, is particularly notable as it will not be able to provide as broad an offering as market rivals Booking.com and Expedia for the foreseeable future. It will, however, continue to operate HotelTonight, which it acquired in 2019, albeit in a reduced capacity to what was previously envisaged.
No announcement was made specifically about Airbnb’s Experiences platform, which is rumoured to be operating at a loss, although the fact that it launched its virtual ‘Online Experiences’ platform in the last few weeks suggests the company sees it is a viable option to maintain and generate additional revenue.
According to a letter obtained by The Financial Times, Airbnb forecasts that its revenue in 2020 will be be less than half of what it took in last year. The firm posted net losses of $322 million in the nine-month period leading up to September 2019, having made a $200 million profit a year earlier, as doubts over its process towards an IPO leaked in February.
Should Airbnb emerge from this crisis intact, it will likely be a very different version to the one that entered it back in March, as the consequences of the coronavirus were starting to manifest themselves for the global travel industry.
The latest news indicates Airbnb will be more specifically focused on developing its core rental business, which includes verging towards providing mid-term rental options in line with the increased numbers of bookings in the segment. Furthermore, it will be more wary of upsetting its host and guest community, among whom many have been left disillusioned, as Chesky promises to enhance relations by facilitating “human connections”.
For now, its plans to forge its reputation as an all-in-one, holistic travel portal will have to be put on the back burner for the sake of the company’s survival.