February 25, 2024

Today's Topics

Subscription Skiing

Last week, we charted the rise of pickleball. Today, we’re taking the risk level up, and the temperature down. We're exploring America’s love of all things snow sports… including why, thanks primarily to Vail Resorts, skiing and snowboarding are, like so much of modern life, increasingly a subscription business.

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Strapping yourself to two planks of wood, or the modern equivalent — usually a mix of carbon fiber, wood, plastic, and steel — and hurling yourself down the side of a mountain may not sound like everyone’s idea of a good time, but America’s enjoyment of alpine sport seems to be snowballing into a love affair.

Indeed, in the 2021/22 season, the National Ski Areas Association reported a new high of 60.7 million visits to ski areas in America — a record that only lasted one year, as the subsequent season recorded an astonishing 65.4 million visits.

Behind the Vail

When choosing where to go skiing, the après-ski and chocolat-chaud-on-the-slopes culture of resorts in Europe is a popular pull for visitors from all over the world, with the continent attracting nearly 200 million visitors every year. But, for those opting to ski stateside, chances are that you might consider one of North America’s larger destinations such as Park City resort in Utah, Whistler Blackcomb, or Breckenridge in Colorado — all of which are owned by one company: Vail Resorts.

Vail is America’s largest ski resort owner and operator. Now a nearly $9 billion company, Vail can trace its roots back to 1962, when Earl Eaton and WW2 veteran Pete Seibert opened the company’s eponymous resort in Colorado. Operating for more than two decades as an independent business, Vail — which had expanded by building the neighboring resort Beaver Creek — was eventually acquired by George Gillett, a local businessman who oversaw a massive renovation of the Vail properties.

It wasn’t until Gillett Holdings filed for bankruptcy in 1991, which led to Vail Resorts being scooped up by private equity giant Apollo the year after, that the foundation was set for the company to become the largest resort owner in the world. Two jewels of the portfolio, Breckenridge and Keystone, were acquired in 1997, and in the following decades, more were added at an increasing pace. Today, Vail boasts ownership of 34 ski resorts in the US and a global total of 41, playing host to nearly 20 million skiers last year.

As you might imagine, running a ski resort is not a capital-light endeavor. Before you make a single dollar, you need to plow millions of dollars into acquiring or leasing suitable acreage, build miles of lifts, groom pistes and ski runs, construct accommodation, and build amenities… all of which needs to be done halfway, or sometimes the entire way, up a mountain.

Once you’ve done all of that, with enough visitors the economics become profitable. Labor costs — think lift operators and engineers, retail staff, ski instructors, snow groomers, etc. — account for more than 40% of the mountain segment costs, but the company also faces serious costs in snowmaking operations, an expense lumped under other, as ski resorts look to artificial snow to make up the snow shortfall.

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Subscription skiing

The main moneymaker is selling lift passes, giving access to the mountain slopes, chairlifts and cable cars. The issue for resort owners is that sales of such passes are traditionally volatile, with demand changing on the whims of the weather. If lift pass sales dry up, so do Vail Resort's profits.

That’s why — from a financial perspective — Vail's masterstroke was the introduction of the Epic ski pass in 2008, offering access to an extensive portion of its ever-growing resort network.

That strategy locked in revenue by encouraging skiers to commit to a non-refundable pass before the season commenced. Originally costing $579, the Epic pass quickly became a game-changer for the company, with the more predictable revenue leading to more rapid expansion… and more competition. A similar offering — known as the IKON pass — was also launched by Vail’s competitor Alterra Mountain Company in 2018.

Last year the Epic pass cost $909, and was used by 72% of the resorts' skiers, generating ~$850 million in revenue. That's good for Vail Resorts, and for people who plan their skiing trips well in advance, but not great for anyone booking a last minute trip: on their website, a 2 day lift pass for 2 people next weekend (March 2nd and 3rd) is listed at $1,136.

An added benefit of the subscription model is that the predictable revenues are also helpful in securing financing from lenders, who don’t love the idea of lending to a business that can suffer if the weather is bad.

Snow shortfalls

Of course, short-term spouts of bad weather are one thing, but the industry is also grappling with more permanent challenges from climate change, as ski seasons get shorter. One study covering the 1982 to 2016 ski season revealed that it had been reduced by an average of 34 days across numerous resorts in the US. In the immediate term, snow cannons offer a temporary fix, promising to produce artificial snow that is 50 times harder than its natural counterpart and capable of lasting up to 5 weeks longer. Longer term, one strategy for resorts is to launch their summer activities, such as rafting and mountain biking, earlier in the year. A business for all seasons... and climates.

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