The 1977-78 Economic Analysis of North American Ski Areas completes a decade of such annual studies. It is therefore perhaps fitting that it measures the finest season ever for the young ski area industry. Profitability represented a record. Operating profits as a percent of gross fixed assets were 16.2%, up geometrically from the miserable 1.6% of last season. This record profitability was accomplished at an average utilization of 40.2%, illustrating the current, basic, sound economic structure of the industry.
The 1977-78 season contrasts vividly with the 1976-77 season, and again highlights the volatile nature of this sport-business that is so dependent upon the weather. Some measure of stability is possible by calculating an average five-year profitability. Operating profits as a percent of gross fixed assets average 9.6% over the past five seasons. While the 1977-78 level of profitability illustrates returns adequate to compensate for the risks, the 9.6% five-year average is still only 80% of the estimated 12% return required.
Skier demand continues strong. Skier visits were up 58%, and illustrate a five-year average growth of 5.8% annually. The probable five-year growth is nearer to a 9.9% rate obtained by factoring out the 1976-77 season where the participation rate drop was due to forces other than market requirements. The 1977-78 study includes 114 ski areas with an estimated 46.8% of the skier capacity in the nation. If the balance of the ski areas enjoyed a similar season, the ski industry recorded 43 million skier visits, processed gross revenues of $558 million, and provided payrolls of $120 million.
TABLE I
Basic Measures of Profitability
| 1977-78 | 1976-77 | 1975-76 | 1974-75 | 1973-74 | |
|---|---|---|---|---|---|
| Operating Profit on GFA | 16.2% | 1.6% | 10.5% | 11.3% | 7.5% |
| After Tax Profit | 16.0% | Loss | 10.5% | 11.4% | 6.1% |
| Percent of Ski Areas Reporting Profit | 93.0% | 52.0% | 84.0% | 73.0% | 46.0% |
Table I illustrates the changes in profitability. Table II contains a five-year average profitability measure. Each region has experienced one average loss season and two or more seasons where the average profit exceeded ten percent of G.F.A.
This is the fifth report to be produced by the University of Colorado, Business Research Division in cooperation with the NSAA Economic Study Committee. Again, the report format is identical to that of previous years to increase comparability and standardize measurements. The report contains ten chapters with over 85 tables of data.
TABLE II
ECONOMIC RATIOS BY GEOGRAPHIC REGION
| All North America | New England | East | Mid-West | Central Rockies | Northern Rockies | Calif. & Nevada | Pacific Northwest | |
|---|---|---|---|---|---|---|---|---|
| HEALTH | ||||||||
| 1) Debt to Cash Flow | 2.2 x | 4.3 x | 1.1 x | 1.4 x | 2.6 x | 2.3 x | 1.0 x | 1.6 x |
| PROFITABILITY | ||||||||
| 2) Operating Profit/GFA | 16.2% | 9.5% | 24.7% | 11.8% | 15.9% | 16.9% | 27.4% | 15.3% |
| 3) Profit (BT)/Equity | 32.0% | 19.7% | 44.9% | 25.4% | 28.2% | 38.9% | 39.0% | 46.5% |
| PERFORMANCE | ||||||||
| 4) Average Utilization | 40.2% | 39.2% | 50.0% | 23.8% | 57.6% | 41.3% | 37.4% | 28.0% |
| 5) Days/Nights Operation | 150 | 129 | 161 | 174 | 126 | 144 | 161 | 179 |
| 6) Revenue/Skier/Visit | $9.15 | $9.60 | 9.07 | $8.34 | $9.85 | $7.37 | 10.57 | $7.40 |
| POLICY & PLANNING | ||||||||
| 7) Capital Cost/Capacity | $1,069.00 | $1,178.00 | $1,148.00 | $561.00 | $1,425.0 | $965.00 | $1,038.00 | $766.00 |
| 8) Oper. Cost/Capacity | $2.37 | $2.80 | $1.58 | $1.48 | $3.62 | $1.99 | $2.17 | $1.28 |
| FIVE-SEASON AVERAGE: OPERATING PROFIT/GFA | 9.6% | 8.7% | 8.7% | 9.0% | 13.2% | |||
| BASE (Sample Areas) | (114) | (24) | (12) | (17) | (21) | (16) | (11) | (13) |
Table II summarizes the eight critical variables by geographic region and includes some significant regional variations. The northwest region (Pacific Northwest & Northern Rockies) achieved excellent profitability with significantly lower revenue per skier visit. Part of the explanation is due to a longer average season, including many night operations, and a lower operating cost/seasons capacity ratio, due partly to the luxury of operating almost entirely on natural snow.
The 1977-78 report is based on a more detailed questionnaire. The chapter on supporting departmental operations has been expanded to include much more data on the makeup of the supporting departmental margins. There are numerous tables illustrating various gross margin percentages, and tables summarizing gross sales per skier visit by department.
The 1977-78 report also contains a new table vividly illustrating the makeup of the ski area dollar. Table III summarizes the sources and uses of the ski area dollar over the past three seasons.
TABLE III
THE SKI AREA DOLLAR –
WHAT IT BUYS
| 1975-76 | 1976-77 | 1977-78 | |
|---|---|---|---|
| Ski Lift Tickets | $ .60 | $ .54 | $ .58 |
| Ski Lessons | .07 | .06 | .07 |
| Food & Beverage | .10 | .12 | .11 |
| Ski Equipment & Clothing | .04 | .06 | .05 |
| Rental of Equipment | .05 | .05 | .05 |
| Miscellaneous (Winter) | .04 | .05 | .04 |
| Summer Services | .05 | .07 | .06 |
| Real Estate | .05 | .05 | .04 |
| $1.00 | $1.00 | $1.00 |
WHAT IT PAYS FOR
| 1975-76 | 1976-77 | 1977-78 | |
|---|---|---|---|
| Labor (Payrolls) | $ .25 | $ .28 | $ .23 |
| Utilities, Supplies, Maint., etc. | .13 | .17 | .16 |
| Cost of Goods Sold | .11 | .11 | .11 |
| General & Administrative | .13 | .16 | .11 |
| Depreciation | .10 | .12 | .08 |
| Interest | .07 | .08 | .05 |
| Insurance | .03 | .05 | .03 |
| Advertising & Marketing | .04 | .05 | .03 |
| Land Use Fees | .02 | .01 | .02 |
| Property & Other Taxes | .02 | .02 | .02 |
| Income Taxes (50%) | .05 | — | .08 |
| Profit (50%) | .05 | (.05) | .08 |
| $1.00 | $1.00 | $1.00 |
The ski lift ticket is by far the most important source of revenue, accounting for 58¢ of every dollar spent. (This table is based on gross sales revenue.) A ten percent error in pricing can cut profits by 36%!
The 1977-78 results should encourage new investment. Average profitability is climbing, and the industry has shown an ability to rebound from adversity. Utilization levels creep up every season as demand growth continues to outpace supply. The statistics continue to support the observation made in 1975 that the potential exists for those ski areas that are properly conceived and well managed to produce profits commensurate with the risks involved.
The 1977-78 season proved most helpful in moving toward the goal of slowly increasing the average returns.
Copies of the 1977-78 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 per copy.
