by Claire Humber, SE Group

Part 2 of a six-part series on the Future of the Industry survey conducted by SE Group. Comments welcomed and appreciated!

CHALLENGE #2: FUNDING CAPITAL EXPENDITURES WHILE PROVIDING VALUE TO THE CUSTOMER

The challenge of continually funding capital expenditures was the issue most frequently mentioned by survey respondents. As one participant so aptly noted, “the expense that it takes to operate a resort is just HUGE.”

Our respondents noted a number of common issues related to funding capital expenditures:

• A competitive marketplace fosters a need for continuous improvements.
• Investment in aging lifts, buildings and infrastructure is critical to avoid deferred maintenance issues.
• Upgrading undersized, out-of-date guest service facilities is hard to prioritize without clear demonstration of return, and difficult to afford without a real estate component.
• Funding upgrades and expansion projects must be balanced with the need to pay down debt.
• Ski areas have historically operated with long-term investment horizons. Modern investment appetites demand shorter-term returns.
• Outside investment dollars are hard to come by in the current economic climate.

Sound familiar?

The issue is further complicated by the need to provide value to the customer at the same time. “Can we continue to deliver with escalating prices? Can we still reinvest in infrastructure, provide high service levels, and STILL continue to offer good value?”

Three main opportunities were discussed that address this challenge: Focusing on the bottom line, diversifying the product, and looking beyond the industry for inspiration.

OPPORTUNITY: FOCUSING ON THE BOTTOM LINE

A reader commented, “Frankly, it's business as usual” in response to on our last installment on the economy, and we suspect many would respond the same way to the notion of focusing on the bottom line. Industry owners and operators are a savvy group, and few tactical moves are made without an understanding of the financial implications.

Respondents had a number of different perspectives on how this focus could be sharpened.

• Pay closer attention to growing revenue and yield, rather than just skier visits. Improve the quality of service and create additional revenue streams to get greater revenue per visit. One example: become the “go-to” place for hard goods—as Internet shopping helps shrink the number of specialty sports shops, ski area shops may become the last place to shop where you can actually see and feel the product prior to purchase. Think of ways to improve food service offerings with healthy choices while achieving better margins from unique products.
• Rather than thinking of expansion, make the most of what you have. Diversify your terrain by adding glading, sidecountry, and terrain parks.
• Develop innovative products in response to changing consumer behavior and specific market demands. The new Mountain Collective pass, which joins Aspen, Squaw, Jackson Hole, and Alta, is a great example of this. Programs and packages that require pre-booking provide some guarantee for future visitation.
• Utilize advances in technology to know your customers, and tailor your products accordingly. Reduce hassle through the use of online sales channels, and expedite your staff training.
• Foster future visitation and participation in the sport, through attention to the experience of the first timer, the overall quality of guest services, loyalty rewards, and a diversity of activities. “There may be very little cross-over visits between your tubing park and terrain park, your zipline and liftline…but there is additional revenue to be had with these new users!”

OPPORTUNITY: DIVERSIFICATION OF PRODUCT

Over 80% of respondents mentioned diversifying operations as a significant opportunity for growth. This often means expanding into summer operations or adding to existing summer programs.

“…low capital, faster returns, increased asset utilization and increased room nights for lodging properties. Offered to 100% of the population vs. only the 4% for ski and ride.”

“While the seasonal revenues will not fully equalize, the added revenue streams will stabilize our business, ease the “spikey” nature of our cash flows, and help defray fixed costs, to the greater profitability of our core businesses.”

Respondents from destination resorts also noted the benefit and “sustainability” to both resort accommodations and the local community brought about by increased summer business. Smaller ski area owners noted that in today's tough economic and competitive environment, you “have to be more than a ski area to survive.” It was also noted that areas that diversify with ski and non-ski winter activities will build “insurance”—this is, provide reassurance for guests considering booking winter vacations.

The diversification discussion also included the benefit of attracting more visitors to your resort outside the winter months and providing them with a mountain experience that will encourage repeat visitation, possibly leading to future participation in skiing or other winter sports. The importance of operational execution was also discussed, especially in regard to the “mountain adventure park” attractions that many areas are implementing. The industry is still relatively inexperienced in this broader world, and understanding all the implications of ongoing operations is key. One supplier noted, “all products have a life cycle, and after the third year, people want the next experience to be different than the previous one. The challenge for suppliers will be innovation and who will have the latest and greatest.”

We also received a number of cautionary notes on diversification. One respondent observed that there are still some very successful “ski areas,” and that sticking to what you know and are good at was not a bad idea: “I think our MBA taught this as ‘stick to your knitting.'” Another noted the importance of not burying the primary message of “we're a great ski area” under everything else going on, as lift tickets are still the leading revenue generator. There was also concern that four-season opportunities are limited to those well-positioned resorts that are located proximate to large populations or large numbers of transient guests.

These cautions speak to the importance of approaching the decision to expand into four-season operations with the same due diligence that one would approach other business decisions, and of understanding your marketplace and the extent of the opportunity.

OPPORTUNITY: LOOKING BEYOND THE INDUSTRY

“….stick (your) head above the crowd to see where the fun folks are headed.”

A number of comments, particularly in concert with the discussions on diversification of product and sharpening the focus on the bottom line, referred to the concept of looking beyond the industry for inspiration and best practices. The ski industry is small, and while its members have a number of venues to facilitate the exchange of ideas, the topics for discussion are focused on “what we know.” However, our industry exists within the much larger industries of leisure & entertainment and travel & tourism, with endless possibilities to find inspiration or learn something new.

We have seen a number of operators in recent years add the IAAPA tradeshow (the International Association for Amusement Parks & Attractions) to their educational “hit list.” Owners and operators benefit from conducting such research, as we all learn from viewing how others create success.

What opportunities do you see?

Where are you looking for inspiration?