In the shadow of Vail Resorts' success, Granby Ranch folds

Analyzing the results of Vail’s recent financial update and its impact on the ski industry

Vail recently announced that skier visits through Jan. 5 are down 7.8% across all its resort properties while lift ticket revenue remained flat.  With prices not increasing, how are visits down while its revenue stays flat?  What does this have to do with one ski resort in Colorado that just went into foreclosure?  And what about ski real estate?

What was in the Vail financial update?

  • Visitation across all Vail properties dropped 7.8% compared to last year due to weaker snow conditions at some of the Vail properties;
  • Lift ticket revenue was up .4% (basically flat compared to last year);
  • Season-to-date ski school revenue was up 2% compared to the same period last season;
  • Season-to-date dining revenue was down 3.6% compared to the same period last season; and
  • Retail and rental revenue was down 1.8% compared to the same period last season.

How was revenue flat while visitation declines 7.8%?

Basic economics says that as less people visit (demand) you will make less revenue.  This did not occur with Vail resorts as they invented the ultimate “hedge” against weather.  They sell annual ski passes with large discounts in the summer in order to ensure consistent seasonal revenue regardless of the snow conditions. 

This “hedge” worked perfectly this year with revenue staying flat even as the number of visitors have declined.  Vail, along with Alterra, are unique in their ability to pre-sell passes in order to ensure revenue stability.  The only reason they can pull off this feat is due to their large size in the marketplace. Vail and Alterra’s large networks of resorts gives consumers the confidence to buy a pass 6 to 8 months in advance. It is highly unlikely that there will be poor snow conditions across all their properties worldwide. 

For example, if snow conditions are not optimal in Colorado, passholders could take a trip to Utah, Washington, Vermont, Japan, Canada, etc. to find the optimal conditions.  Pre-selling season passes was a game changer in the ski industry and allowed Vail to keep revenue up even with challenging early season conditions.

What ski resort entered foreclosure and why is this different than Vail?

While Vail resorts continues to show consistent revenue, Granby Ranch, a small resort north of Winter Park, recently entered foreclosure as revenue languished and costs increased.  The Vail results highlight why it will be nearly impossible for smaller players in the ski industry to survive as resorts like Granby Ranch have no ability to “hedge” for weather or other events that could disrupt revenue. 

 Furthermore, as resorts become more capital intensive with snowmaking, new lifts and other amenities (roller coasters, climbing walls, etc…) it will become increasingly difficult for smaller players to survive without consistent revenue.  Granby Ranch is just the most recent casualty of the changing resort landscape with other smaller players sure to follow.

What about ski real estate?

Ski real estate will follow the fortunes of the ski industry.  Vail and Alterra are the leaders in the ski industry and will also be the leaders in ski real estate.  Smaller, less healthy resorts like Granby Ranch will struggle not only in the ski industry but also in real estate.  Who wants to buy a ski property next to a resort that isn’t operating or operating substantially below industry standards?

Summary

Vail Resorts’ recent earnings update further solidifies the rapidly changing ski industry.  The biggest players have figured out how to hedge their revenue with early pass sales regardless of weather conditions.  Smaller resorts, like Granby Ranch, are unable to use a similar tool to weather the revenue ups and downs, and, unfortunately, many will not make it financially. 

When investing in real estate, it is imperative to focus on a long-term horizon and select properties in solid markets (like Vail, Breckenridge, Steamboat, Aspen and more) that are supported by one of the two major resort companies (Alterra and Vail) to maximize your returns.

Categories: Real Estate