As we predicted last week, Airbnb will make prices more transparent to its users starting in December. Why is this news creating a lot of noise in the press, from the Wall Street Journal to Skift? First, let’s start by saying that displaying a total price (night rate + fees) earlier in the booking process is something that is not new: In Europe, Airbnb’s biggest market by host count, the company has been doing so since 2019, due to E.U. consumer laws.
Screenshot: How the Airbnb price breakdown looks like in the European Union (The U.S. version will not include taxes)
In the US, it is the pressure of social media that is pushing Airbnb to act, not the law. Travelers have taken to Twitter and TikTok to share screenshots of final stay prices which were quite different from the initial price displayed on Airbnb, due to the addition of various fees (e.g., service fee, cleaning fee) during the booking process.
Why did Airbnb need to act on it now? What is it happening now, barely a week before the carefully planned 2022 Winter Release? One of the reasons is that Winter Release should be more focused on adding new hosts rather than on solving guest issues. Airbnb does not want to enter a recession period with the image of an expensive travel option.
Here’s how Airbnb states the problem it’s trying to solve, at least for its U.S. users:
Currently, when guests search Airbnb for a place to stay, the final price at checkout can be higher than they expected because the nightly price they see doesn’t include fees. This can lead to frustration and a loss of trust.
So, what will Airbnb do?
Starting December 2022, Airbnb users will see the total price in search results, as well as on the map, price filter, and listing page. Before confirming their booking, guests can view a full price breakdown that shows Airbnb’s service fee, discounts, and taxes.
Beware of the fine letters: It will be an option that users will have to activate (in the US)
It is not been widely reported but Airbnb says that the “total price display is turned off by default (in the US). Guests who don’t enable the total price display option will continue to have the current pricing experience. “
Users will have to use a toggle button to “Display total price – Includes all fees, before taxes.”:
How are Airbnb hosts affected by the Total Price display change
No more playing with cleaning fees to lower night rates
The final price of a stay will be shown earlier in the booking process. The most affected will be hosts whose pricing tactic is to show a low nightly rate and make up for it with a high cleaning fee once they have attracted travelers to their listing page.
Total price impacts search ranking
Airbnb says that its “ranking algorithm prioritizes total price rather than nightly price and the quality of a listing in comparison to similar listings in the same area. Homes that offer the best value in any given region tend to rank higher in search results.“
New pricing and discount tools by early 2023
During the Q3 2022 earnings call, Brian Chesky said that the company was working on tools to help hosts understand how much they charge and how it impacts their listing’s attractiveness. Airbnb will give hosts new tools to set up discounts to remain “competitive”.
At a time when consumers’ purchasing power is threatened, Airbnb cannot be seen as an expensive platform made for better days.
Brian Chesky on Airbnb fees & price transparency
On November 7, Brian Chesky took to Twitter to explain his plan:
I’ve heard you loud and clear—you feel like prices aren’t transparent and checkout tasks are a pain. That’s why we’re making 4 changes:
1. Starting next month, you’ll be able to see the total price you’re paying up front.
When you turn this on, you’ll see the total price (before taxes) in search results, as well as on the map, price filter, and listing page. You can also view a full price breakdown with Airbnb’s service fee, discounts, and taxes.
2. We are prioritizing total price (instead of nightly price) in our search ranking algorithm.
The highest quality homes with the best total prices will rank higher in search results.
We started as an affordable alternative to hotels, and affordability is especially important today. During this difficult economic time, we need to help our Hosts provide great value to you.
3. To enable Hosts to set more competitive prices, we’ll be launching new pricing and discount tools.
Hosts told us they’d like our help to better understand the final price guests pay and what price to charge to stay competitive.
1/ Social media is full of complaints about high cleaning fees and other hidden fees, driving sentiment that Airbnb has become unaffordable. As a recession is looming, the company needs to restore its image as an affordable alternative to hotels.
Social media, not the law, is pushing Airbnb to take action
On social media, there’s been a lot of noise around Airbnb’s “ridiculous cleaning fees”. In June 2021, the topic was already trending on Twitter, so much so that Airbnb’s CEO said that the company would be taking action.
To be fair to Airbnb, many of the complaints had to do with travelers not understanding how things work on the platform (e.g., hosts decide on cleaning fee amounts, not Airbnb). The company disclosed a few months later that cleaning fees had increased by 33% during the pandemic.
It shows that, for a US booking, the average cleaning fee had gone from $75 in the first half of 2019 to $100 in the first half of 2021. These additional $25 represent a +33% increase in 2 years.
Airbnb gave some compelling reasons behind this increase. One of the reasons for this was due to COVID-19 booking trends that led users towards larger and more expensive accommodations (whole houses) as opposed to smaller spaces like apartments or shared homes. Airbnb hosts also outsourced cleaning to professional vacation rental cleaners which drove up costs even further.
Over the years, Airbnb let hosts add fees of all kinds
To attract professional vacation rental managers, serviced apartment providers, and hotels, Airbnb has been forced to reflect the various fees that these operators are used to charge. For instance, hotels offering villa rentals often charge a resort fee.
Why did Airbnb choose to surface these fees? Because these hosts were charging these fees anyway, away from the platform. To increase transparency, Airbnb wanted these fees to be mentioned during the booking process. From a guest viewpoint, it resulted in more fees being “by Airbnb”.
Screenshot: List of fees that can be added to an Airbnb listing by a professional host
Are Airbnb Categories contributing to Airbnb looking like an expensive trip option?
I would add that Airbnb’s homepage redesign, which showcases beautiful properties, may also contribute to the impression that the site has become expensive. When Airbnb Categories launched, the default category was Design, which surfaced sublime properties that cost an arm and a leg.
Note that the “Total Price” will not be displayed on Airbnb Categories pages. For the moment, the price remains the same, i.e., on a per-night basis.
2/ People blame cleaning fees, yet Airbnb’s very own “Service Fee” has become unpredictable for guests: Sometimes guests pay a 14.2% service fee, and sometimes they pay 0%. Why? Because of reasons that are opaque to guests (Hint: It depends on the fee model that Airbnb is charging the host)
In some cases, guests see a Service Fee that averages 14.2% of the stay price
Une Airbnb’s original split-fee model, a guest pays an average 14.2% service fee to Airbnb. This money goes into Airbnb’s pocket. As for hosts, Airbnb is taking 3% from the host (the host fee).
Most individual hosts are still under this split model, where a guest sees a service fee at check-out time. Until the recent change to display the full price, travelers in the US did not get to see the amount of this fee before landing on a listing page and entering some dates.
Screenshot: Airbnb Service Fee taken from Guests
In other cases, guests pay a $0 Service Fee.
A few years ago, Airbnb introduced its Simplified Pricing model: Guests pay a $0 service fee, while Airbnb takes 15% from the host (the host fee). Basically, hosts mark up their initial price to absorb the 15% host fee.
Screenshot: Airbnb Service Fee is $0 as the host pays a 15% fee
Airbnb says that research shows that consumers favor properties with no service fee. This is a discovery that Booking.com made a long time ago when it eliminated guest fees while Expedia still had its own (Expedia was then forced to align itself on the no-guest-fee industry standard for hotels).
3/ Airbnb introduced a short-stay cleaning fee tool for hosts, but it did not catch people’s attention.
When looking at the screenshots shared on social media, a lot of the grievance was due to high cleaning fees for super short stays, say a $100 cleaning fee for a 2-night stay.
At the time, hosts could only set up one cleaning fee amount, regardless of the stay
To appease guests, Airbnb has modified its previous one-size-fits-all approach to cleaning fees. Hosts can now add a few settings to their cleaning fees:
- Add one flat-rate cleaning fee for all guests, regardless of their length of stay
- Add a lower cleaning fee for short stays of only 1 or 2 nights, and keep your flat-rate fee for all other stays
- Add a pet fee to cover the additional costs of cleaning when you host guests with 4-legged friends
Note that by encouraging hosts to add a pet fee, Airbnb was solving an issue for hosts (cleaning after pets), while again creating a bad surprise in the booking process when the pet fee was revealed to guests.
4/ Welcome to the future, U.S. travelers: Since 2019, Airbnb has displayed the full final price in its search results in the European Union. European Union consumer laws forced all online travel sites to do so. Yet, Airbnb will not be including taxes in the US.
In Europe, Airbnb’s app already displays the total price. Even better, it also includes taxes, unlike what will happen starting in December in the US. Note that the situation is about the same in Australia and New Zealand.
Since 2019, online travel sites in the European Union must display the final total price in search results (and even in meta-search) has been mandatory for online travel. For example, here’s Booking.com’s announcement at the time.
To conclude, Airbnb’s moves on total price display are one part of the equation: Guests will now have fewer bad surprises regarding extra fees. The second part of the equation will play out in early 2023 when the new tools for Airbnb hosts are available: By making hosts aware of their total final price, will Airbnb manage to nudge them into lowering their rates? Which other pricing information and market data will Airbnb share with hosts to get them to lower their prices so that the platform remains competitive in recessionary times?