More than snow: The economics of the ski industry
December 26, 2017
The heavens finally opened up this weekend, dumping several inches of beautiful, white snow over Grand County. While the weather was certainly welcomed by most, it was the ski areas, desperate for a jolt of life, that first come to mind.
Weather is a fickle thing. It can't be controlled or persuaded to act a certain way. So when one of Colorado's biggest industries is built around snow, how do they prepare for the worst?
The answer is simple enough; make your business about more than snow.
"There are some small ski areas that are very approximate to population bases that really carry most of their revenue from lift tickets and pass sales, and they don't really have any ancillary revenue streams," said Dave Belin, director of consulting services for RRC Associates, a research and consulting business for resorts based out of Boulder.
But larger ski areas, which typically attract people to spend the night, Belin said, totally change the dynamic in terms of business operations.
It presents the opportunity for a ski area to generate revenue from various different departments, and really helps to grow the business overall, he explained.
At the end of the day, snow is still king, and getting people on the mountain is still the biggest source of revenue for ski areas. According to Belin, about 45 to 48 percent of revenue for ski areas come from selling lift tickets and passes. Ski schools, dining and lodging each make up about 15 percent of the pie, while rental shops and retail stores account for about five percent each.
Season passes and pre-sold lift packages have become a major product in helping to mitigate risk for resorts worried about snowfall.
"The theory behind that is exactly what we're experiencing now," said Steve Hurlbert, director of public relations and communications for Winter Park Resort. "You try to sell as many passes early on and that helps insulate you from when you have something as variable as the weather that can really help offset, especially when it comes early in the season, some of those dry periods that you inevitably get."
Season passes help to lock up customers early in the season, or before it begins, at a considerably discounted rate compared to selling passes at the window. Ski resorts are open to making that small financial sacrifice to assure visitors to the mountain. According to Hurlbert a majority of visitors to the resort are pass holders. Once they're on the mountain, resorts can reap the benefits of patrons utilizing their rental shops, ski schools, restaurants, condos and hotels.
Winter Park Resort, for example, owns the Vintage Hotel, along with a number of condos in both the Zephyr Mountain Lodge and Fraser Crossing Founders Pointe. The resort's lodging team also works closely with homeowners to secure the best rates for units when they're not being used. In total, close to 500 individual units are located at the base of the mountain, according to Hurlbert.
By diversifying activities on the mountain resorts also diversify their customer base, welcoming in visitors less interested in skiing or snowboarding.
"A lot of skiers are more casual or intermediate, and they want to ski but they don't necessarily want to ski wire to wire," said Belin. "It's really important for ski areas to offer things for those areas to do other than skiing. Whether its having a cocktail in a bar, shopping, restaurants, spas or a ton of other activities that are going to keep people engaged, and give them new experiences to do beyond the hours that they're actually sliding on snow."
Belin noted that many ski areas, Winter Park Resort included, are also looking for ways to attract more customers during the summer season.
"It's an opportunity for not only Colorado areas, but all ski areas to really leverage the people who are already coming to the surrounding area, and figuring out what's not available to them at the resort," said Belin. "What are they doing in the summer time, and what can the ski area offer that would compliment the existing offerings at a mountain destination."
Belin said that despite the variable nature of snowfall, it's rare that droughts will move the revenue needle from year to year for resorts with ancillary revenue streams, except in extreme cases. This is primarily because of season pass holders, and the fact that ski areas, especially in Colorado, rarely suffer from a severe lack of snow.
"The range of the volatility is relatively narrow," said Belin. "It's not these super wild fluctuations. Even if the weather isn't great there's still a baseline of people who will come out."
While ski schools, lodging, dining, rental and retail shops make up a huge percentage of the revenue models for ski resorts, the most important factor in deciding success is still the ability to get skiers to the mountain, and make sure they come back.
"When you want to talk about financial sustainability you can talk about competitive prices on ski passes, discounted lift tickets or discounted lodging," said Hurlbert. "But the bottom line is whether people want to come and ski at your resort. So if you don't provide a great service for people the rest kind of becomes irrelevant."