The newest economic analysis of ski areas is in print and tells a mixed story. Perhaps it can be summed up by noting that there is still no real substitute for long, cold, snowy winters. Ski area profitability rests mainly upon this uncontrollable critical variable. Snow making has significantly decreased the disasterous effect of a poor snow winter, but will never replace nature as the prime determinant of ski area profits.
Largest response
This, the sixth annual report on the economics of the ski area industry, is a joint effort of the NSAA Economic Studies Committee and the University of Colorado, Bureau of Business Research.
The response of 132 ski areas, while still short of hoped for levels, represents the largest response ever. This year the study also measures response in terms of the amount of the nation’s skier capacity. The 132 ski areas contain 52 per cent of the total capacity in the U.S.A.
The 1973-74 study contains some new sections. The NSAA Economic studies Committee has revised the old format significantly and added a new section. Some of the old sections were preserved to facilitate comparisons, but much of the data has been edited to make the report more readable and SAM intends to prepare a detailed review in the spring complete with comparisons and interpretation.
Some excellent profits
The accompanying table highlights the new section of this 1973-74 report. Data here consists of 66 ski areas, representing 29.2 percent of the skier capacity of the nation.
| TOTAL | Top Half Profit | Bottom Half Profit | Loss | |
|---|---|---|---|---|
| Ski Areas in Sub-sample | 66 | 14 | 15 | 37 |
| Measures of Profitability | ||||
| 1. Return on total fixed assets | 7.5% | 20.5% | 5.7% | Loss |
| 2. Before tax return on equity | 10.4% | 30.3% | 9.4% | Loss |
| Measures of Health | ||||
| 3. Cash Flow to retire Debt | 5X | 2X | 3X | 489X |
| Measures of Performance | ||||
| 4. Average Utilization | 35% | 41% | 31% | 32% |
| 5. Average days of operation | 121 | 137 | 138 | 109 |
| Policy and Planning Ratios | ||||
| 6. Capital Cost/Capacity | $885 | $912 | $725 | $960 |
| 7. Revenue/Skier-visit | ||||
| Ski lift gross | $5.93 | $6.85 | $4.92 | $5.43 |
| Ski School Margin | .18 | .25 | .08 | .14 |
| Food Service Margin | .24 | .23 | .15 | .31 |
| Ski Shop Margin | .09 | .10 | .04 | .13 |
| Equipment Rental Margin | .27 | .29 | .15 | .34 |
| Miscellaneous | .05 | .02 | .09 | .05 |
| Total Revenue/S-V | $6.76 | $7.74 | $5.43 | $6.39 |
| 8. Operating Cost/Season Capacity | $1.65 | $1.75 | $1.16 | $1.94 |
| Geographic Distribution by percent of Capacity | ||||
| East | 20% | 4% | 21% | 32% |
| Mid-West | 9% | 0% | 6% | 17% |
| Rockies | 34% | 46% | 15% | 37% |
| West | 37% | 50% | 58% | 14% |
| TOTAL | 100% | 100% | 100% | 100% |
NORTH AMERICAN SKI AREAS
FINANCIAL SUB-SAMPLE
Profitability averaged 10.4 percent, not at all an acceptable performance for the risk involved. However, when one realizes that 56 percent of the ski areas registered losses, those that operated profitably did show some excellent returns. The top 14 ski areas earned an average of $748,000 before taxes or a 30.3 percent return on equity. It is interesting to analyze the common characteristics of these high profit areas and if possible to contrast them with the losers.
Utilization measures
This 1973-74 report includes five measures or ratios designed to summarize critical variables having an important bearing on profits. The first two are measures of utilization. Utilization as a percent of capacity paired with the average length of the season is an important influence on profits. Generally a 40 per cent utilization rate over a 130 day season will generate profits.
The third, capital cost/capacity ratio reveals the investment required per skier capacity to provide adequate recreation. Note that the less profitable areas also have less invested, while those registering losses have a higher investment and three times the interest expense.
One of the most critical variables is revenue. Our index measures revenue per skier visit. The significant drop in revenue per skier visit by the bottom half of the profitable areas, particularly as they relate to those areas showing losses, indicates a need to review pricing policies and concession agreements. An increase of $1.00 per skier visit would have boosted before tax returns on equity to 23.3 per cent-more than double the 9.4 per cent recorded.
Cash operating costs
The final variable is a measure of cash operating costs. (Interest and depreciation have been excluded.) The operating cost/season capacity ratio reduces all costs to generally comparable terms. To construct the index all cash operating costs are reduced to daily averages to adjust for various different operating seasons and then divided by the ski area’s skier capacity. The index of $1.94 for those areas showing losses helps to explain part of the problem. Costs at these areas were 18 per cent higher than the average even when utilization was 9 per cent lower.
The copies of the entire study may be obtained from the University of Colorado, Business Research Division; Boulder, Colorado 80302 for $25.00.
