Research Article Open Access

Volume 7 • Issue 2 • 1000180J Hotel Bus Manage, an open access journalISSN: 2169-0286

Journal of Hotel & Business ManagementJo

urna

l of H

otel & Business Managem

ent

ISSN: 2169-0286

Hong, J Hotel Bus Manage 2018, 7:2DOI: 10.4172/2169-0286.1000180

Keywords: Sharing economy; Tourism; Global international departures; GDP

IntroductionSharing economy can be defined as an economic model based

on peer-to-peer (P2P) activity for acquiring, providing or sharing access to goods and services facilitated by a community based on-line platform. And the use of big data has made it easier to bring together the asset owners and those that want to use those assets. This type of dynamic is also referred to as shareconomy, collaborative consumption, collaborative economy, or peer economy. Sharing economies creates value by utilizing underused assets [1]. Physical assets are shared as services. Car sharing services like Lyft and Uber are a good example. Private vehicles go unused for 95% of their lifetime according to Brookings Institute [2]. Airbnb would be another good example. Airbnb clearly has cost advantage over the hotels, which makes it reportedly about 30-60% cheaper than hotel rates around the world. And it now has become a very popular alternative form of lodging. The sharing economy is growing rapidly as platforms permit users to gain access to various assets. An estimated $23 billion in venture capital funding has poured into the market since 2010. The total size of the sharing economy, however, is hard to estimate as most of the platforms are privately provided. Airbnb, for example, was valued at about $31 billion in its March 2017 funding round [3]. On the other hand, the Uber fleet is nearly three times larger than the number of yellow taxis in New York City, but it still hasn’t gone public, and therefore, there are few reliable sources for estimates of its market value. The sharing economy has created new potential sources of revenue and profit in at least last two ways [4].

Global travel industry is unmistakably the sector that naturally lends itself to the sharing economy with gross revenue that reached $1.6 trillion in 2017 based on bookings, making it one of the largest and fastest growing sectors in the world [5]. Factoring in both direct and indirect economic contributions, travel and tourism now accounts for 10.2% of global GDP (Figure 1) [6].

The global tourism industry is further expected to grow 3.9% annually and reach $11,382 billion (10.6% of GDP) by 2025. The revenue from visitor exports is also projected to grow from $1,384 billion in 2014 to $2,141 billion in 2025 with a compounded annual

*Corresponding author: Hong J, Associate Professor, Department of Business Management, Borough of Manhattan Community College, City University of New York, USA, Tel: 212 220-8388; E-mail: shong@bmcc.cuny.edu

Received August 20, 2018; Accepted September 10, 2018; Published September 18, 2018

Citation: Hong J (2018) Rise of the Sharing Economy and the Future of Travel and Tourism Industry. J Hotel Bus Manage 7: 180. doi: 10.4172/2169-0286.1000180

Copyright: © 2018 Hong J. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

AbstractThe sharing economy is growing rapidly as platforms permit users to gain access to various assets. An estimated

$23 billion in venture capital funding has poured into the sector since 2010. The total size of the sharing economy, however, is hard to estimate as most of the platforms are privately provided. Global travel industry is unmistakably the sector that naturally lends itself to the sharing economy with gross revenue that reached $1.6 trillion in 2017, placing it among the largest and fastest growing sectors in the world. With both direct and indirect economic contributions factored in, travel and tourism industry accounts for 10.2% of global GDP.

Along with the rise of the sharing economy, the role of the OTA’s and booking platforms has also seen growth in usage, and is now poised to become indispensable tools in travel planning and booking. As the industry is poised to become a new norm in the global economy, we review the recent trends, and make a projection on the future of the industry and the increasing weight of these online travel assistance platforms and their business models in the sharing economy. As they represent the important future trend of the sharing economy, preliminary assessment is also made about the market potentials for Airbnb and Uber.

Further research ideas are also presented after the final thoughts, which involve the testing of the correlation between the sharing economy and the travel and tourism industry, especially in terms of the causality between the revenues in the two industries.

Rise of the Sharing Economy and the Future of Travel and Tourism IndustryJeff Hong*Department of Business Management, Borough of Manhattan Community College, City University of New York, USA

Figure 1: Direct and Total Contribution of T&T to the Global Economy (Source: WTTC).

Citation: Hong J (2018) Rise of the Sharing Economy and the Future of Travel and Tourism Industry. J Hotel Bus Manage 7: 180. doi: 10.4172/2169-0286.1000180

Page 2 of 11

Volume 7 • Issue 2 • 1000180J Hotel Bus Manage, an open access journalISSN: 2169-0286

growth (CAGR) of 4.0%. Total investment on global travel and tourism sector is anticipated to grow as well from $814 Billion in 2014 at an annual growth rate of 4.7% to $1,336 billion in 2025 [7].

The role of the OTA’s and booking platforms such as Hotels.com, Airbnb, Travelocity and Tripadvisor has also seen growth in usage, and is now poised to become indispensable tools in travel planning and booking. Being an avid traveler our self, we have traveled extensively around the world, and used the whole gamut of flight booking services and accommodations extensively as well over the years. And as the industry is on the verge of becoming a new norm in the global economy, we would like to add our two cents to the projection of the future of the industry and the increasing weight of these online travel assistance platforms and their business models in the sharing economy. This paper is intended mainly as a review purely from an actual travel industry consumer’s perspective, not from an industry-insider’s.

Overview of the Travel and Tourism IndustryThe travel and tourism industry is generally viewed as consisting of

largely six segments including airlines, lodging, car rental, cruise, rail, and travel packaging. This gives rise to a sizeable industry sector that would potentially account for a huge proportion of the global GDP. As a matter of fact, the number of international travel departures cross the globe has more than doubled to 1.3 billion from roughly 600 million over the past two decades (Figure 2) [8], stimulating new growth of the travel economy to outpace global GDP growth [9]. In 2016, 76.8% of all travel spending resulted from leisure travel, while 23.2% from business travel. Domestic travel contributed 72% to GDP, a significantly larger contribution than international travel with foreign visitor spending at 28% [10].

Travel and tourism is an export sector, as international visitors entail foreign spending. In 2016 alone, global visitor spending as exports accounted for 6.6% of the total world exports (a total of U$1.4 trillion) and almost 30% of total global services exports (Figure 3).

The direct contribution of travel and tourism industry to GDP grew 3.1% in 2016, which was higher than the 2.5% growth rate of the global economy as a whole. For six consecutive years the travel and tourism sector has outperformed the growth of the global economy. The direct contribution of travel and tourism to employment showed 1.8% growth in 2016, directly generating almost 2 million net additional jobs in the sector, and creating a total of around 6 million new jobs through total direct, indirect and induced activities. Overall, it can be concluded that almost 1 in 5 of all new jobs created in 2016 was either directly or indirectly related to travel and tourism.

The Travel and Tourism sector also outperformed several other major global economic sectors in 2016. Specifically, direct Travel and Tourism GDP growth was stronger than the growth in the financial and business services, manufacturing, public services, retail and distribution, and transport sectors, with the exception of marginally slower growth than in the communications sector (Figure 4).

Continued growth at global level is anticipated through GDP contribution, job creation, investment and visitor exports, while visitor exports are especially making a strong contribution although a general slowdown in consumer spending is a major concern. Higher inflation from rising oil prices, rising interest rates, and a slowdown in job growth across the world all curbed global spending in 2017.

Yet, direct contribution to GDP by travel and tourism industry is projected to grow at 3.9% average per year over the next decade. The

industry will also support globally more than 380 million jobs, while the sector contributing approximately 23% of total global net job gains by 2027 according to WTTC. Simultaneously, total travel and tourism revenue is projected to account for 11.4% of global GDP with global visitor exports accounting for 7.1% of total global exports.

The travel and tourism industry is projected to even outpace the global economy through the next decade, while at the same time increase its share in the global economic output. In addition, the industry is also projected to outperform other major sectors such as communications, financial and business services, manufacturing and retail and distribution over the forecast period [11].

Figure 2: Global International Departures (Source: World Bank).

Figure 3: Annual growth rates of Global GDP vs. Direct T&T GDP (Source: WTTC).

Figure 4: World Industry GDP growth (Source: WTTC).

Citation: Hong J (2018) Rise of the Sharing Economy and the Future of Travel and Tourism Industry. J Hotel Bus Manage 7: 180. doi: 10.4172/2169-0286.1000180

Page 3 of 11

Volume 7 • Issue 2 • 1000180J Hotel Bus Manage, an open access journalISSN: 2169-0286

Global Growth Factors and ThreatsIncreasing income in most of the emerging world is believed to be a

prime mover in global tourism industry, together with the promotional efforts by supranational bodies such as UNWTO (United Nations World Tourism Organization). However, the influence of Brexit and recent terrorist acts in Western Europe are stark reminders of the downside of this interdependence. Natural calamities, terrorism, political unrest, outbreaks of some fatal diseases, epidemics and pandemics such as the Zika virus… etc. can possibly dampen the growth of tourism industry in some regions of the world (Figure 5).

Healthy growth in this industry is driven by rising number of trips, a big chunk of which can be attributed to the online market sales. In 2015, online revenue accounted for 21.6% of global sales, and that number is expected to grow to 27.7% in 2017 [12].

The customer base in the Travel and Tourism industry that is very demanding in terms of brand experience, but it can also be brand-loyal as well if the experience is positive. Moreover, the industry also faces a constant threat from the intermediaries with bargaining powers by providing cost effective solutions to its customers.

All of the above elements in connection with shifts in the global economy, innovation, rising consumer demands, geo-political turmoil, natural disasters, and pandemics reshaped the travel industry landscape in 2016. A similar climate is also expected in 2018 and beyond. Additional changes in the industry such as evolving consumer mindsets, technologies, new platforms may all transform travel in the future (Figure 6).

Cybersecurity concerns

In 2018 and beyond, travel and hospitality industry is more likely to become more vulnerable to cyber-attacks and food safety than ever.

Preventing and mitigating cyber-risks including data breaches will only be increasingly challenging as travel and tourism industry continues to incorporate and adapt to new hi-tech applications and third-party service vendors. Also, restaurants and hotels will become more prone to food safety incidents as they strive to satisfy the demand for locally-sourced, organic food options. Travel and hospitality industry is in urgent need to beef up investing in Enterprise Risk Management (ERM).

Market size and revenue forecast

Europe accounted for 51% of tourism industry in 2015. Tourism industry in Europe was boosted by increase in international tourists in France, Germany, Italy, Spain and the U.K. The tourism industry revenue from the U.K. alone accounted for $142.0 billion in 2015.

North America accounted for $ 1,412 billion in 2015. The U.S. was the largest market in North America with $ 1,218 billion of revenues in 2015, followed by Canada with $ 98.2 billion. The U.S. tourism market is projected to grow at compounded annual growth rate of 4.5% and reach $ 1,515 billion in 2020 (Figure 7).

Asia-Pacific accounts for roughly 9.4% of GDP of the region and is expected to growth at the highest rate over the 2015-2021 period. The Asia-Pacific market is likely to get a boost from strengthening economy, rise in income and increasing infrastructural developments in countries such as India, China, Japan and Singapore with over 502 million visitors projected in 2020.

According to the research, the industry was both directly and indirectly responsible for creating 7 million new jobs around the world. The global travel and tourism sector as a whole grew 4.6% in 2017, or 50% faster than the overall global economy, which saw a growth rate of 3% in 2017 [13].

Travel and tourism sector was the fastest growing broad economic sector worldwide in 2017, with stronger growth than all other sectors across manufacturing (4.2%), retail and wholesale (3.4%), agriculture, forestry and fisheries (2.6%) as well as financial services (2.5%). Among other sectors, the airlines industry was the only sector that grew significantly. European airlines registered passenger growth of 8.1% with more than 1 billion passengers in 2017. With an average annual growth of 3.8% over the next decade the long-term outlook through 2028 remains solid. It is forecast that the travel and tourism industry will be responsible globally for more than 400 million jobs directly and indirectly by 2028 [14].

Key industry players

Although some of the conventional top players are still TCS World Travel, DuVine, Gray and Co, Air BnB, Aban Offshore Ltd, Crown Ltd., Accor Group, Balkan Holidays Ltd, G Adventures, Fred Harvey Company, Adris Group [15], the travel and tourism industry has undergone a significant change since the advent of the internet. Travelocity.com probably was the first flagship that introduced and initiated the first move back in the 90’s (Figure 8).

OTA’s and internet booking platforms such as Hotels.com offer mileage bonus. Online lodging and accommodation intermediaries such as Airbnb use extensive two-way reviews to vet the mutual satisfaction between hosts and guests. Similarly, User uses two-way rating system, so the driver and the passenger can vet each other out even before using the service. However, the downside is that reviews can be subjective, biased or inflated, inaccurate, and not reliable at times. Although number of reviews cannot always do justice, at least

Figure 5: T&T Global Growth 2017 (Source: WTTC).

Figure 6: Global T&T Revenue (Source: Deloitte PWC, EUI)..

Citation: Hong J (2018) Rise of the Sharing Economy and the Future of Travel and Tourism Industry. J Hotel Bus Manage 7: 180. doi: 10.4172/2169-0286.1000180

Page 4 of 11

Volume 7 • Issue 2 • 1000180J Hotel Bus Manage, an open access journalISSN: 2169-0286

half of which, generate annually less than $250,000 in revenue [17] running on outdated low-tech business infrastructure with more than 80% of bookings made offline. The sector faces urgent need for digital transformation to centralize inventory and make online distribution on a global scale.

Lately, digital tours and activity aggregators have started to take on the problem. A select few are making some progress. Airbnb is a pioneer in this front. It collaborates with third-party service vendors for culinary, cultural, historical, or artistic experience tours all arranged through Airbnb, which adds to the competitive advantage and strengths of the company.

Online or offline booking?

Online travel agencies (OTAs) revenue grew at almost five times as fast as the rate of the US hotel market revenue in 2016 [18]. According to some recent studies, hotel bookings through OTAs now exceed total hotel website bookings [19]. The OTA market has now effectively turned into a rivalry between just two brands controlling above 90% of the market after a period of intense consolidation [20,21].

OTAs have also made aggressive investment in their technology capabilities, creating unique and sophisticated digital trip-planning experiences.

1

The most popular travel apps downloaded by US consumers are those of the OTAs, while hotels hardly make it to the upper tier of the list [22].

OTAs are expanding their ecosystem as well such as private accommodations, tours and activities, restaurant reservations, and more. OTAs are leveraging on this width of diverse product-mix including shopping and booking data, along with massive investment in new technology to open new doors for around personalization in travel (Figure 9).

Overall, OTAs and hotels still have room for harmonious coexistence. The deal-hunters who are brand agnostic will continue to shop on OTAs representing a large portion of the travel pool, while OTAs play a critical role in marketing to these customers and delivering them to band name hotels. Also, the commission these hotels for searches through OTA’s would be less expensive than what the search engines now cost them for advertisement. Brand hotels can focus on digital and experiential enhancements to more loyal, higher-spending target segments like business travelers and frequent leisure guests while OTAs focus on delivering volumes of price-sensitive travelers to these hotels.

Ground transportation: Implications far beyond travel

The ground transportation is a sector that involves not just actual transportation, but also customer acquisition, demand creation, price and promotion management, fleet operations management, customer service, vehicle purchasing, and vehicle remarketing and recycling. The players also include ride-hailing, car-sharing companies, pure technology players, rental car companies, fleet management providers, OEMs, and dealers specialized at different points in the value chain.

The human element of the travel experience

It goes without saying that technology plays a crucial role in Travel and Tourism, but one shouldn’t lose sight of the human connection. For brand hotels, experiences from interaction with the people in the travel ecosystem can certainly be a competitive advantage. Travel and tourism 1

it is a fair measure of one thing – that the object of the review is clearly a popular thing. One should always use caution, and some extreme reviews can be brushed off as statistical outliers.

Bigger Ecosystems: Tours and ActivitiesTours and activities are another avenue for leveraging the local

resources. The travel industry is often focused mainly on the big sectors such as hotel and air), and the local in-destination activities are often overlooked. The aggregate of in-destination spending, activities, attractions, and events, is the third-largest segment in travel industry, which accounts for 10% of global travel revenue [16]. This sector is forecast to reach $183 billion by 2020. Clearly, there exists a decent opportunity to integrate tours and activities into the digital ecosystems.

So far, this sector has been largely neglected and dismissed due to severe fragmentation, lack of standardization, and digital ineptitude. The market is comprised of a long chain of small suppliers, more than

Figure 7: Global T&T Contributions (Source: WTTC).

Figure 8: Global Direct Employment by Industry 2014 (Source: WTTC).

Citation: Hong J (2018) Rise of the Sharing Economy and the Future of Travel and Tourism Industry. J Hotel Bus Manage 7: 180. doi: 10.4172/2169-0286.1000180

Page 5 of 11

Volume 7 • Issue 2 • 1000180J Hotel Bus Manage, an open access journalISSN: 2169-0286

industry employs around 300 million people globally— or about 1 in 10 jobs in the global economy (Figure 10) [23].

Despite technological changes, human interaction will remain

the core of the travel experience, and the future of the travel need to produce a seamlessly smooth blend of talent and technology, with technology doing more of the technical work—freeing up humans to focus on better service experiences and meaningful connections.

Corporate hotel dollars should be directed more towards investing in HR development for better employee experience, which typically ends up in underinvestment in favor of customer experience and digital investments. It is critical that investments in employee engagement be viewed from a new light. The commitment to employee experience can have strategic value as a driver of workplace satisfaction as well as a profit-enhancing initiative (Figures 11 and 12).

Rise of the Sharing Economy - Airbnb and UberAirBnB was founded in Silicon Valley in 2008 as airbedandbreakfast.

com. A business model based on other peoples’ assets and service has an advantage of a sort of multiplier network effect. The more people stay at Airbnb or use the service to rent out their excess property, the more valuable the service platform becomes. Besides, there’s an inherent added advantage that the company’s fixed costs are bound

Figure 9: Who Did Hotel and Air Booking for Business Trip? (Source: WTTC).

Figure 10: Direct Contribution of T&T to Global Employment (Source: WTTC).

Figure 11: Total Contribution of T&T to Global Employment (Source: WTTC).

Citation: Hong J (2018) Rise of the Sharing Economy and the Future of Travel and Tourism Industry. J Hotel Bus Manage 7: 180. doi: 10.4172/2169-0286.1000180

Page 6 of 11

Volume 7 • Issue 2 • 1000180J Hotel Bus Manage, an open access journalISSN: 2169-0286

to be very low. It also lends itself to cheap and easy cross-pollination, since the use of its product involves travel. It’s not just that Airbnb doesn’t have to build the rooms itself, it doesn’t require a physical presence such as offices, employees, etc… to launch its business in new markets (Figure 13) [24].

The net effect is that Airbnb has spent just $300 million of the roughly $3 billion in capital it has raised since its inception. Profit was above $100 million on $1.7 billion in revenues in 2016. Airbnb’s projected EBITDA was $450 million on $2.8 billion in revenue for 2017. Airbnb is forecasting its revenue to be as much as $8.5 billion by 2020 [25].

Airbnb’s projected EBITD is $3.5 billion a year by 2020 [26], which will set Airbnb as the model case to prove that sharing economy can turn into sustainable success. However, Airbnb’s internal numbers could still be a cause for some concerns for investors [27].

In 2016, the annual guest arrivals grew from 40 million in 2015 to almost 80 million, bringing the cumulative figure to close to 160 million since the company’s founding [28]. They’re also broadening their revenue sources by expanding into Trips platform, a new menu of experiences, and other features such as restaurant reservations, events, and meetups. More travel services are planned to be added to this menu—such as ground transportation, grocery delivery, and a service involving flights (Figure 14).

Revenue from accommodations only will eventually reduce to less than half of Airbnb’s overall revenue. However, the company also is faced with challenges, from legal battles to competition from HomeAway to safety incidents.

Business Model at a GlanceAirbnb operates an accommodation exchange that allows

prospective service providers to list their excess living spaces available to be leased or rented by prospective users searching for short-term lodging. Although the company also allows users to book for experiences and make restaurant reservations, these services are currently a negligible part of its business model [29].

Figure 12: Estimates and Forecasts (Source: WTTC).

Figure 13: Reasons for Using Airbnb (Source: WTTC).

Figure 14: Airbnb vs. Hotel Industry (Source: Statista).

Citation: Hong J (2018) Rise of the Sharing Economy and the Future of Travel and Tourism Industry. J Hotel Bus Manage 7: 180. doi: 10.4172/2169-0286.1000180

Page 7 of 11

Volume 7 • Issue 2 • 1000180J Hotel Bus Manage, an open access journalISSN: 2169-0286

Airbnb has properties listed in more than 81,000 cities over 191 countries – a scale achieved over just a few years because of its role as just an intermediary. As the business does not require investment in any real estate, its growth depends solely on the number of hosts and guests on its platform. Airbnb’s revenue comes from the fee they charge the host as well as the guest. Currently, the company charges a service fee of 3% of the booking amount to hosts and 0-20% of the booking amount to guests.

Probably the only deterrent to Airbnb’s growth is the restrictions imposed by legislative bodies, municipalities as well as communities. Over recent years, Airbnb has managed well to engage with a number of stakeholders to push regulations and rules for making short-term rental easier.

What separates Airbnb from a bulk of other multi-billion dollar startups (unicorns) is that it currently shows positive cash flow, and has also seen a positive EBITDA for the past couple of years. Positive cash flow is an added advantage to the already strong competitive advantage of the first-runner with fairly low upfront investment and low barriers to entry. This entails a long list of startups, as their business models can be easily replicated by many start-ups ending in a fierce competition with the first mover – forcing the companies to burn cash to capture a larger share of the market quickly.

Key Drivers of Airbnb’s value

Number of listings: The total number of listings on Airbnb at the end of 2016 stood at 3.5 million and 4.2 million at the end of 2017 respectively. With global expansion, attracting more hosts in existing cities, this figure will cross 5.3 million by the end of 2018.

Average guest arrivals per listing: This metric is simply the total number of guest arrivals during a given year divided by the number of listings at the year end. The company recorded 80 million guest arrivals in 2016, and the estimate for 2017 was 115 million. This is equivalent to a growth in average guest arrivals per listing to 27 in 2017 from under 23 in 2016, which is further expected to grow to 31 per listing in 2018. Taken together with a forecast for 5.3 million listings by the end of 2018, this comes to 164 million guest arrivals for this year alone.

Average rent per guest arrival: This figure grew from $157 in 2016 to roughly $174 in 2017, which is most likely explained by an increase in average duration of stay and a growing share of more expensive accommodations. This trend will continue in 2018, leading to an average rent of $185 for the year. Using the projected 164 million guest arrivals estimate from above, this will work out to gross rental income of approximately $30.4 billion.

Airbnb’s share in rental income: Airbnb’s share of the gross rental income was around 13.5% in 2016 and around 13% in 2017 according to the estimates for the Gross Rental Income above [30]. The company may eventually need to lower the service fees to expand to more host affiliation and guest patronage, which could lead to lower overall share of the rental income to 12.5% down the road. Given the projection for rental income of $30.4 billion for 2018, revenues are likely to be around $3.8 billion (Figure 15) [31].

Since established online travel agencies (OTAs) own many of Airbnb’s biggest competitors, who have the added benefit of cross-selling services to their clients, this is likely to weigh on Airbnb’s growth in the long run despite Airbnb’s considerably higher current market share. However, the company is poised to expand its offerings enabling

it to compete more effectively with the more well-funded and well-rounded OTAs.

Airbnb’s current valuation: According to PitchBook Airbnb is currently the second most valuable venture capital-backed U.S. start-up at about $31 billion exceeded only by Uber valued at $68 billion [32]. Curiously, Airbnb has raised over $4 billion and yet to go public [33]. Meanwhile, closest competitors such as Tripping.com, founded in 2010 and have raised a total of $52 million, and HomeAway, founded in 2005, owner of vacation rental site VRBO and considered Airbnb’s biggest competitor, had raised $510.3 million only before its IPO in 2011 at which point it was valued at $2 billion. The company was acquired in 2015 for $3.9 billion by Expedia which has a current market capitalization of $19.34 billion. In 2004, Priceline Group, which today boasts a market cap of $86.27 billion, acquired Booking.com for $161 million [34].

Airbnb has solidified its position as a successful pioneer of the sharing economy over the years, along with Uber, largely owing to its leading role with efforts in technology, and currently estimated to be worth at least $38 billion, doesn’t seem to need to raise more money as a profitable business with nearly 5 million lodging options across 81,000 cities in the world [35]. However, considering the global vacation rental market size forecast to reach $193.89 billion by 202, there is still plenty of room for others in the niche [36].

Rise of Uber and its challenges

Uber Technologies Inc enables customers to book drivers using their own cars through its transportation app Uber. It is essentially as a sector disrupting company on a mission to replace taxi as a conventional public transportation [37].

Since its launch Uber has met protests in the major cities around the globe such as Paris, Berlin and London from cab drivers. Berlin has since banned it, and London has rejected the firm’s application for a new license, pending an appeal by Uber. Over the years it has been involved in intense controversies, and therefore, Uber statistics alone can’t do justice of depicting its growth trajectory, and. Yet, Uber raised

Figure 15: Airbnb Growth Potential (Source: WSJ).

Citation: Hong J (2018) Rise of the Sharing Economy and the Future of Travel and Tourism Industry. J Hotel Bus Manage 7: 180. doi: 10.4172/2169-0286.1000180

Page 8 of 11

Volume 7 • Issue 2 • 1000180J Hotel Bus Manage, an open access journalISSN: 2169-0286

about $11.5 billion in total from 14 rounds of venture capital and private equity investors throughout 2009-2016.

Uber’s growth: Uber’s customer number recorded 40 million /month in 2017, and Uber reached 77% of the United States ride hailing market share by May 2018 [38]. Unfortunately for the taxi industry, Uber’s fast rise directly correlates with the decrease in taxi usage [39]. From May 2015 to September 2016 there was a steep decline in Yellow Taxi calls in New York City from over 400k to 300k. In the meantime calls for Uber grew from then 100k to over 200k while Lyft showed a modest growth from close to zero to about 40k calls [40]. Uber’s success doesn’t come as much of a surprise considering the fast rise in smartphone adoption globally. However, there are many other reasons that contributed to Uber’s success such as pricing overview prior to booking, one-tap rides, driver follow on map, cashless convenience, fare splitting as well as feedback options (Figure 16).

Uber’s revenue: In 2014, total revenue was $2.9 billion just one and a half year after the launch of UberX. In 2015 the total revenue more than tripled to $10 billion, and Uber managed to double its annual gross revenue to $20 billion with net revenue around $6.5 billion in 2016 (Figures 17 and 18) [41].

The net revenue growth looks similar to that of the gross revenue with $500 million in 2014, which tripled to $1.5 billion in 2015, and the company managed to gross over $6.5 billion in 2016. However, Uber’s adjusted net loss was $2.8 billion at the end of 2016, which most likely passed $3 billion after factoring in the loss from selling its China subsidiary [42].

In a side by side comparison with Lyft, Uber’s closest competitor and the second runner in the US market, Uber generated $0.5 billion while Lyft did only $130 million back in 2014, and Uber managed to triple its net revenue and reached $1.5 billion mark, while Lyft generated only $300 million in 2015. Uber’s net revenue reached $6.5 billion, but Lyft finished with only $700 in 2016 (Figures 19 and 20) [43].

Uber’s key data points: The following are Uber’s key data points as well as its key growth drivers:

Service is available in 83 countries and over 674 cities worldwide (Source: Uber).

On average Uber handles 40 million rides monthly and has over 77% of US ride-hailing market (Source: Wiki).

By 2016 Uber accumulated 2 billion rides in total (Source: Forbes).

Gross revenue reached $20 billion as of 2016 (Source: Business Insider).

Net revenue reached $6.5 billion as of 2016 (Source: Business Insider).

Venture capital raised was $11.5 billion as of 2016 (Source: Crunch base).

Uber was valued at $69 billion in 2017 (Source: Bloomberg).

Compared to Uber ($6.5 billion) its largest competitor Lyft generated net revenue of $700 million as of 2106. (Source: Future Advisor) (Figure 21).

Uber’s valuation: Stacking up Uber’s valuation over other Unicorn startups will help get some perspective. In 2013 Uber was valued at $3.9 billion, while Palantir Technologies, a big data analysis startup, was already valued at $9 billion and Snapchat’s valuation jumped from $2 billion to $7 billion by the end of 2013. Uber’s valuation got a huge boost from venture capital to reach $19 billion in 2014, and Uber has

Figure 16: NYC Daily Trips: Yellow Taxi, Uber and Lyft (Source: Toddwshnier.com).

Figure 17: Uber growth chart (gross revenue) 2014-2016, in billions (Source: Business Insider).

Citation: Hong J (2018) Rise of the Sharing Economy and the Future of Travel and Tourism Industry. J Hotel Bus Manage 7: 180. doi: 10.4172/2169-0286.1000180

Page 9 of 11

Volume 7 • Issue 2 • 1000180J Hotel Bus Manage, an open access journalISSN: 2169-0286

Figure 18: Uber’s Revenue Growth Rate (Source: Uber’s Revenue and Usage Statistics).

Figure 19: Uber vs. Lyft net revenue 2014-2016, in billions (Source: Future Advisor).

Figure 20: Uber’s Global Revenue Breakdown (Source: Uber’s Revenue and Usage Statistics).

Citation: Hong J (2018) Rise of the Sharing Economy and the Future of Travel and Tourism Industry. J Hotel Bus Manage 7: 180. doi: 10.4172/2169-0286.1000180

Page 10 of 11

Volume 7 • Issue 2 • 1000180J Hotel Bus Manage, an open access journalISSN: 2169-0286

never let other Unicorn startups to pass it ever since. Uber’s valuation stands at $68 billion as of 2017 [44].

Another analysis reports a more conservative version of the company’s valuation at $48 billion using various revenue metrics including monthly active riders, the number of rides per year, revenue per ride, net revenues and revenue multiple as well as basing it on its most recent fundraising in December 2017 [45,46].

Growth with expansion into new markets: With the number of rides per rider trending higher Uber’s monthly active riders grew from 50 million in 2016 to 75 million in 2017. As Uber doubles down its marketing efforts on emerging markets, monthly active rider growth is forecast to remain strong in 2018, taking total rides delivered to around 5.5 billion.

Growth in total rides, revenue per ride to remain stable: As the number of rides delivered soars, gross revenues expected to cross $50 billion in 2018, although revenue per ride (ARPU) may stagnate, where gross revenues are typically calculated as the total dollar value of the rides billed to customers before Uber takes its fee. Although Uber’s share of gross revenues has declined lately due to its aggressive promotions and incentive payouts to partners, it is possible that its share of revenues could stabilize in 2018 as the company has taken steps to reduce incentive payouts (Figure 21).

Discussion and ConclusionAs we have set forth in the overview, the estimate for the global

travel and tourism market measured by its revenue stands at $1.6 trillion 2017 and is forecast to grow by about 3-4% per year on average. Therefore, it is crucial to assess the market potentials for Airbnb and Uber as they represent the important future trend in the industry – the sharing economy.

Airbnb reported profit just over $100 million on $1.7 billion in revenue in 2016. The company is forecasting EBITDA of $450 million on $2.8 billion in revenue for 2017. Airbnb’s revenue is further projected to grow to as much as $8.5 billion by 2020.

Over the last seven years Uber went from a small startup to one of the giant global tech pioneers. Along with Airbnb, it introduced the world to a new type of economy. Its gross revenue reached $20

billion, but it also lost $2.8 billion in 2016, which shows another facet of the company – despite its successful track record, it’s inherently very unstable. Although it grew multiple times the size its closest rival Lyft, it needs to make more efforts to boost its market share in the US. Uber’s market share shrank to 77% from 84% in 2017, and most likely that 7% went to Lyft, the second largest hail-riding company in the US market.

One most obvious advantage of the sharing economy is that it doesn’t require huge initial start-up capital or sunk cost. And since the infrastructure already exists, and can easily be replicated, not built from the scratch, it creates a whole new avenue of potential for almost unbounded growth. Although Uber has yet to show positive profit while Airbnb has shown consistent growth in revenue and profit, the sharing economy seems to have found its foster bed and niche in the travel and tourism industry for now. And it is unmistakable that the global travel industry is the sector that naturally lends itself to the sharing economy with gross revenue that reached $1.6 trillion in 2017, making it one of the largest and fastest growing sectors in the world [46].

Further ResearchThe correlation between the sharing economy represented by

Airbnb and Uber, and the travel and tourism industry, especially in terms of the causality between the revenues in the two industries, is of particular interest, which couldn’t be dealt with in this paper due to time constraint and insufficient preparation. Further research is certainly warranted with initial hypothesis being that there is a positive correlation between the revenues of these two industries, and with further causality testing about whether it, if ever, runs from the sharing economy to the travel and tourism industry or vice versa. Our research currently in pipeline will certainly look into these questions.

References

1. https://www.investopedia.com/terms/s/sharing-economy.asp.

2. h t t p s : / / w w w . b r o o k i n g s . e d u / w p c o n t e n t / u p l o a d s / 2 0 1 6 / 1 2 /sharingeconomy_032017final.pdf

3. This is roughly the same as Marriott International after its acquisition of Starwood Hotels and Resorts Worldwide.

4. Judith Wallenstein and Urvesh Shelat, Hopping Aboard the Sharing Economy, BCG

5. Quinby D, Phocuswright Conference, Florida, November 9, 2017; Gross

Figure 21: Uber’s Average revenue per user (Source: Uber’s Revenue and Usage Statistics).

Citation: Hong J (2018) Rise of the Sharing Economy and the Future of Travel and Tourism Industry. J Hotel Bus Manage 7: 180. doi: 10.4172/2169-0286.1000180

Page 11 of 11

Volume 7 • Issue 2 • 1000180J Hotel Bus Manage, an open access journalISSN: 2169-0286

bookings are inclusive of airline, hotel, car rental, rail, travel package, and cruise.

6. Turner R, Freiermuth E, World Travel & Tourism Council: Global Economic Impact & Issues 2017; Indirect economic contributions refer to investment spending on travel & tourism, government collective spending on travel & tourism, and impact of purchases from travel suppliers. Induced contributions are inclusive of spending on food and beverage, recreation, clothing, housing, and household goods from direct and indirect travel & tourism employees.

7. Global Tourism Industry demand, Size and Forecast, 2015 to 2025,

8. The World Bank, International tourism, number of departures

9. Freiermuth T, World Travel & Tourism Council: Travel and Tourism Global Economic Impact & Issues 2018.

10. Turner R, Freiermuth E, World Travel & Tourism Council: Global Economic Impact & Issues 2017.

11. Rauch SQ, Phocuswright’s Online Travel Overview: 16th Edition.

12. Travel and Tourism Industry – SUEVIO.

13. WTTC Travel & Tourism, Economic Impact 2017 World Annual Economic Impact Research

14. International Air Transport Association

15. Global Tourism Industry demand, Size and Forecast, 2015 to 2025.

16. Alice Jong, Travel’s Tours & Activities Market to Reach $183 Billion by 2020, Phocuswright,

17. Oliver Garret, 10 Million Self-Driving Cars Will Hit The Road By 2020—Here’s How To Profit, Forbes.

18. Quinby D (2017) Hotels vs. the (OTA) World, What’s Really at Stake as Hotels Take on Distributors, Phocuswright.

19. Deanna Ting, Hotel Direct-Booking Pushes Really Worked and Owners Were Big Winners, Skift,

20. Quinby D (2017). Hotels vs the (OTA) World.

21. Some OTAs are reportedly spending more than $1 billion on technology annually.

22. Rauch M (2017). In the World of Travel Apps Suppliers are Nowhere to be Seen, Phocuswright.

23. Turner R, Freiermuth E (2017) World Travel and Tourism Council: Economic Impact.

24. Airbnb certainly opens offices, and it now has dozens overseas offices and hires thousands of employees globally.

25. This would rank Airbnb at No. 325 on the Fortune 500 right below Avis.

26. Airbnb Profits to Top $3 Billion by 2020

27. The Airbnb Story: How Three Ordinary Guys Disrupted an Industry, Made Billions…and Created Plenty of Controversy.

28. Guest arrival is defined as the number of times a traveler checks into an Airbnb listing. For example, one person who takes three trips a year will be counted as three arrivals, while four travelers in a group on the same trip in the same listed lodging would count as four arrivals.

29. As A Rare Profitable Unicorn, Airbnb Appears To Be Worth At Least $38 Billion.

30. Currently, the company charges hosts a service fee of 3% of the booking amount and 0-20% of the booking amount to guests.

31. Airbnb projects to generate revenues of $3.8 billion in 2018.

32. As of its last round of funding in March 2017

33. In 2007 Airbnb rejected an investment offer by SoftBank, which has been buying up massive stakes in unicorn startups like Uber, WeWork, and the dog-walking app Wag with its billion dollar investment fund.

34. What Is Airbnb’s Valuation Right Now?

35. Airbnb made $93 million in profit on $2.6 billion in revenue, but an internal showdown with the CFO has put an IPO on pause.

36. https://www.infinitiresearch.com/service/technavio

37. Uber Revenue and Usage Statistics (2017).

38. In August of 2015 Uber internal documents were leaked, which gave general public a rare opportunity to take a look at Uber growth rate and other insider information.

39. https://www.bizjournals.com/jobs/

40. Toddwshnier.com

41. https://www.businessinsider.in/?r=US&IR=T

42. Uber Revenue and Usage Statistics 2017.

43. Future Advisor

44. Breaking Down Uber’s Valuation: An Interactive Analysis

45. The revenue multiple of about 4.6x was used for Uber for 2018, which is appropriate given the company’s operating losses.

46. Softbank made an investment in Uber reportedly at a valuation of about $48 billion in late 2017.