The Ski Industry's Big Box Consolidation
Will resorts reap the benefits of a retail model, and what about real estate?
The ski industry is changing rapidly.
Telluride, Crested Butte, Purgatory, Steamboat, Winter Park, Eldora, Copper Mountain and others have all chosen new partners. Indeed, the ski industry is not monogamous: There is so much hooking up and breaking up, making up that we should call Jerry Springer to sort it out.
Many resorts will perish and as a result, the recent marriages may come and go quickly, and surely are not equitable.
WALMART AND COSTCO RULE SKIING?
Aaron Brill, the owners of Silverton Mountain in southwest Colorado was quoted saying:
"The Ikon and Epic passes represent the Costco and Walmart of skiing."
He calls it big box consumerism creeping into the industry. The new model is consolidation and many Colorado resorts are getting on one of the two trains.
For example, Telluride and Crested Butte recently announced they are falling under the Epic Pass umbrella and Copper and Eldora got on the Ikon Pass train. But the two passes are approaching consolidation differently.
THE WALMART MODEL
Vail Resorts' Epic Pass is going for the lowest cost model to drive volume to its resorts. Think of Breckenridge: It is one of the busiest resorts in the country. Vail might be heading toward a Spirit Airlines model, where getting on the plane is inexpensive and they make their money with add-ons – assigned seats, bags, etc. For example, the cost of food at Breckenridge is almost double that in Steamboat. Same goes for parking.
THE COSTCO MODEL
Alterra's Ikon Pass is adopting a different plan of attack. It is a little more expensive than going to Walmart, but you get better service and a higher-end experience at mountains like Steamboat and Snowmass. Like Costco, the Ikon Pass isn't trying to be the low-cost leader and then nickle and dime you on everything ... at least not yet.
WHY IT MATTERS?
Skiing is following the retail model of consolidation. Vail and Alterra have led the huge consolidation and it will be difficult for anyone else to match them. For instance, Alterra recently announced $500 million in upgrades to Winter Park, Steamboat and other resorts and areas, including a new gondola, base improvements and more. A smaller, independent company would not have the ability to invest that kind of cash in a single season to upgrade resorts. The capital that Alterra and Vail Resorts possess will be nearly impossible to match.
Although resorts like Crested Butte are joining the Epic Pass, this will not fundamentally solve the capital issues the mountains are having. Joining a pass will likely create more volume for a resort but operating independently had higher margins on their pass sales. The net gain for a small resort will be negligible at best. The pass sales will not solve the fundamental capital issues. Small independent resorts will struggle to stay up to date with larger corporate resorts.
The Costco and Walmart of skiing in Colorado provide an interesting roadmap for real estate. As soon as Alterra announced the purchase of Steamboat and Winter Park, real estate in both markets appreciated considerably. The market factored in the positive news to the ski area from the purchase. If you were buying or holding real estate, follow the passes. The areas owned by Alterra and Vail will perform well as they continue to receive large capital improvements required to continue driving traffic. World-renowned destinations like Telluride will also be fine outside of these markets, and the tier 1 resorts need to be careful. For example, Purgatory and Granby Ranch have greater risk of price declines due to industry consolidation, as they will not have the funding to stay competitive in the changing industry.
WALMART OR COSTCO?
Regardless of your preference, both are leaders in their respective niches. Both passes offer a roadmap to investing: Real estate in each of the respective resorts owned by Alterra or Vail will continue to outperform other markets because of the capital each will continue to invest to attract visitors. Make sure you choose your pass when looking at resort real estate.