A record 127 ski areas participated in the ninth annual Economic Analysis of North American Ski Areas representing ski areas with 50.8 per cent of the skier capacity in the nation. This annual survey of the economic performance of the ski area industry is fast becoming a valuable management tool, as each season more ski areas participate.
The 1976-77 study highlights the impact of the disastrous western weather, and the effect of the cold, snowy eastern season. Neither was as bad, or as good, as subjective reports would have us believe. Average profitability was down substantially to an “operating profit on Gross Fixed Assets” of but 1.6 percent. However, the national average is rather meaningless when regional weather patterns provided such contrasts. Western ski areas registered average losses of $154,000, while Eastern areas showed average operating profits of $262,000, an 11.6 percent return on GFA. Some western ski areas had near-record seasons, notably those in New Mexico, while some 16 percent of the ski areas with losses were east of the Rockies.
Despite the poor winter, the figures indicate that demand continues strong. If the balance of the ski areas had similar experiences the ski industry recorded 28 million skier-visits, processed gross revenues of $349 million, and provided payrolls of $97 million. Skier-visits were down 20.7 percent, and revenue off by 15.5 percent. However, the 1976-77 season illustrates dramatically the geometric impact of the weather as cash costs were up a 4.7 percent, and profits off 141.1 percent!
Again, ski industry profitability is related to published leisure-time indices as reported in Forbe’s, 29th Annual Report on American Industry (January 1977), Table 1 illustrates the effect of weather.
| Five Year Return on: Total Capital | Five Year Return on: Equity | 12 Month Return on: Total Capital | 12 Month Return on: Equity | |
|---|---|---|---|---|
| Leisure Industry | 10.2% | 13.4% | 10.7% | 12.8% |
| Recreation Sub-group | 10.0% | 13.4% | 9.6% | 11.5% |
| Ski Area Industry | 5.8% | 6.1% | 2.6% | Loss |
| Ski Industry (1975-76) | 6.4% | 8.7% | 7.7% | 10.5% |
| Percent Change | –9.4% | –29.9% | –66.2% | ∞ |
This one season dropped the five-year averages substantially, vividly illustrating that ski industry economic policies must anticipate periodic setbacks due to weather if average profitability is to reach levels where the return is adequate to compensate for the risks, and thus to attract new investment. Table II summarizes the change in ski area profitability over the past five seasons.
| 1976-77 | 1975-76 | 1974-75 | 1973-74 | 1972-73 | |
|---|---|---|---|---|---|
| Operating profit on GFA | 1.6 % | 10.5 % | 11.3 % | 7.5 % | 5.6 % |
| After Tax Profit on Equity | Loss | 10.5 % | 11.4 % | 6.1 % | 3.4 % |
| Percent of Ski Areas reporting porfits | 52 % | 84 % | 73 % | 46 % | 52 % |
This is the fourth report to be produced by the Universitu of Colorado, Business Research Division in cooperation with the NSAA Economic Study Committee. The survey format is identical to that at previous years to increase comparability and standardize measurements. The Report contains ten chapters, in 127 pages, with 70 tables of inforamtion.
Table II summarizes the eight critical variables by geographic region to illustrate the large differences.
| All North America (127) | New England (23) | East (16) | Midwest (21) | Rockies (35) | West (32) | |
|---|---|---|---|---|---|---|
| HEALTH | ||||||
| 1) Debt to Cash Flow | 12.8x | 2.2x | 1.7x | 1.9x | ∞ | ∞ |
| PROFITABILITY | ||||||
| 2) Operating Profit/GFA | 1.6 % | 11.2 % | 14.0 % | 10.2 % | Loss | Loss |
| 3) Profit (BT)/Equity | Loss | 24.4 % | 33.3 % | 17.8 % | Loss | Loss |
| PERFORMANCE | ||||||
| 4) Average Utilization | 36.6 % | 44.3 % | 47.7 % | 27.2 % | 40.9 % | 28.4 % |
| 5) Days/nights operation | 114 | 107 | 145 | 156 | 105 | 87 |
| 6) Revenue/Skier-visit | $ 8.30 | $ 8.23 | $ 7.93 | $ 8.95 | $ 8.13 | $ 8.34 |
| POLICY & PLANNING | ||||||
| 7) Capital Cost/Capacity | $1026 | $ 917 | $1196 | $ 778 | $1389 | $ 826 |
| 8) Oper.Cost/Capacity | $ 2.51 | $ 2.43 | $ 2.46 | $ 1.79 | $ 3.32 | $ 2.29 |
| FOUR SEASONS AVE: | ||||||
| Operating Profit/GFA | 7.6 % | 7.0 % | 8.0 % | 7.3 % | 8.2 % |
The bottom line is a four-season average, representing data from the past four studies where comparable figures exist. Each geographic region has experienced one average loss season, and one or more seasons where the average operating profit on GFA exceeded 10 percent. A 7.6 percent average return is some 50 percent of the level required to attract investment capital to our industry.
The 1976-77 study has again been upgraded with the includion of night skiing operations. Night skiing is offered by 35 percent of the ski areas responding, and increases average capacity 30 percent. Ski areas with night operations reported operating profits on GFA of 5.6 percent with average utilization at only 33.8 percent. Where the skier market may be enticed to participate at night, such operations hold the promise of substantially increasing profitability for a small additional cost.
Since much has been said about snowmaking as a result of the 1976-77 winter, the study also includes a separate new section analyzing those ski areas with snowmaking operations. In general, snowmaking has a major positive effect on profitability. In all instances ski areas with snowmaking out performed the averages. New England ski areas with snowmaking reported average operating profit on GFA of 14.8 percent, substantially over the 11.2 percent overall New England average. Since only five ski areas in the east and midwest did not have snowmaking, the average performance was similar. In the Rockies and west the seven ski areas with major snowmaking operations reported average operating profits on GFA of 5.2 percent, illustrating mainly an ability to eliminate weather losses. Twelve ski areas, or 21 percent of those with snowmaking, reported losses; thus 79 percent were profitable, where as only 36 percent of ski areas without snowmaking were profitable.
As I write this summary, (Thanksgiving, 1977) the ski season is starting, with early snows all across the nation. Perhaps the 1977-78 season will be up for all regions, and the ski industry can file the 1976-77 report as a reminder that the bad years occur periodically, and only by earning above average returns during the good seasons can the ski industry survive and grow to meet the inevitable demands of the 1980’s. Our goal must be to slowly increase the five-year average return to levels expected by leisure-industry investors. Ski area operators thus should neither panic during drought, nor revel when winters are long and cold.
Copies of the 1976-77 Economic Analysis of North American Ski Areas may be obtained from the Business Research Division, University of Colorado, Boulder, Colorado, 80309. The cost is $30.00.
