Thanks to a longer season and more visits, the 2012-13 ski season was far better than the dismal, snow-starved 2011-12 season, according to the NSAA’s “Economic Analysis of United States Ski Areas.” But it was much better for some resorts than others. Although resorts of all sizes enjoyed improved financial results in 2012-13 compared to 2011-12, those the report calls the “larger mid-sized” areas struggled relative to other size categories—as has been the case for years.

Before we look closely at how different-sized resorts fared, let’s look at the national numbers. The improved results in 2012-13 flowed from a season that was a little more than a week longer, at 127 days, than its predecessor, at 119 days. It also included the largest year-over-year percentage gain in visits in 30 years—11.7 percent. Although the base for these growth numbers, the 2011-12 season, was the worst in 20 years for visits, the percentage increase in visitors did outpace the percentage increase in season length, which was 6.7 percent.

Nationally, average operating profit margin rose from 23 percent to 27.4 percent, and pre-tax profit margin jumped from 3.1 percent to 9.3 percent. While total gross revenue grew 13.1 percent, operating expenses grew only 6.6 percent, and depreciation, amortization, operating leases and interest all remained relatively stable. That translated into profits before tax increasing 244 percent.

Overall, it was a good year, but considering what the previous year was like, it didn’t have to be that good to look good.

Also bear in mind that the largest resorts and those in the Rocky Mountain region tend to dominate the results. Consider the average visitor number: the resorts in this analysis had an average of ­298,966 visits, an increase of 9.9 percent from the year before, when the number was 272,044. The per-resort average for all resorts in the country, not just those that responded to the survey, is about 190,000 visits, according to the Economic Analysis. The median for all resorts is about 115,000 visits.

The real insight this report provides into the state of the industry lies outside the national numbers. For that reason, we are going to focus on just two groups: the smallest resorts, which have between 0 and 7,500,000 vertical transport feet per hour (VTF/hour) and the larger mid-sized resorts, which have between 10,000,001 and 20,000,000 VTF/hour. (By comparison, the smaller mid-size resorts have between 7,500,001 and 10,000,000 VTF/hour, and the largest resorts have more than 20,000,001 VTF/hour.) We chose those two groups because the smallest group includes the greatest number of areas, and the larger mid-sized group has long been the most financially challenged.

Forty-seven of the 112 resorts that responded to both the 2011-12 and the 2012-13 surveys upon which the report is based are in the smallest category, and 27 are in the larger mid-sized category. To make year-over-year comparisons as useful as possible, the report focuses almost entirely on responses from resorts that provided complete financial data for both years.

LESS CAN BE MORE
What those year-over-year comparisons show is that the smallest areas do a good job of making the most of their resources. Pre-tax profit margin was 11.3 percent at the smallest resorts, the second-highest among the four size categories. In fact, the smallest resorts nearly matched the pre-tax profit margin of the largest resorts, which was 11.5 percent.

The revenue side of that profit measurement indicates several things about the smallest resorts. Ticket revenue is a smaller share of the smallest areas’ revenues, at least in part because tickets generally cost less at these resorts: average ticket revenue per visit was $28.85, the lowest of any size category. However, average total revenue per visit was $77.45, the second highest of any size category. The smallest resorts reaped more average revenue per visit than all but the largest resorts, despite the lower ticket revenue. The smallest resorts also had the highest average ticket yield ratio (ticket revenue per visit divided by the reported adult weekend lift ticket price): 51 percent compared to 50.2 percent for both the largest resorts and the smaller mid-sized resorts and 46.5 percent for the larger mid-sized resorts.

Smaller resorts also managed the largest increase in average visits: 16 percent, which was nearly double the increase, in percentage terms, at all the other size categories.

So, what were all those additional visitors spending money on if not on tickets? The smallest resorts made the most, in terms of percentage of revenue, from rental shops of any of the size categories, in part because they are likely to attract skiers without their own equipment. But the smallest areas’ revenues don’t just reflect their customer base. The smallest areas also made the most, in terms of percentage of revenue, from retail stores, food and beverage and from other operations, which includes some summer ops. Total revenues grew for the smallest resorts across all these categories, too.

That might not seem too impressive at first, considering the increased visitor numbers. But compare those increases to what transpired at the larger mid-sized resorts. These areas, which are most dependent on lift tickets as a share of revenue, and therefore most dependent on their ability to attract visitors, saw actual revenues—not as a share of total revenues—from retail stores fall, and from other operations remain flat. So more people were on the hill, but they collectively spent less at these resorts’ retail stores.

Still, the larger mid-sized resorts managed to increase average total revenue per visit between 2011-12 and 2012-13 by 4.6 percent, from $66.96 to $70.07, the largest percentage increase of all the size groupings. They deserve credit for that achievement. The larger mid-sized areas also did a good job of increasing total gross revenues, by 13.5 percent, second only to the smallest resorts, at 19.1 percent.

Compared to the other size categories, though, neither the larger mid-sized nor the smallest resorts excelled at controlling growth in operating expenses. These were up 8.2 percent at the larger mid-sized areas and up 9.3 percent at the smallest areas. Meanwhile, they grew 5.7 percent at the largest areas and just .4 percent at the smaller mid-sized areas.

Even so, the larger mid-sized resorts, as a group, raised their pre-tax profit margin. For the 2011-12 season, it was -3.4 percent, the lowest of any size category. Therefore, a movement to a pre-tax profit margin of .8 percent (still the lowest of any size category) for the 2012-13 season is welcome news.

NSAA and RRC Associates, Inc., the consulting firm that produces the Economic Analysis, don’t reveal which reporting resorts fall into each of the four size categories, for confidentiality reasons. That’s understandable. However, that does make it difficult to draw too many specific conclusions about why the larger mid-sized resorts fare the way they do, especially as compared to the largest resorts. Still, some general conclusions seem appropriate.

MAKING ALMOST-BIG BETTER
The larger mid-sized resorts in the report averaged 286,225 visitors; the largest resorts averaged 735,806. That ability to attract visitors is at least partly due to the largest resorts likely being mostly destination resorts, a characteristic that also helps drive revenues. Skiers are willing to pay a premium to ski those resorts, and expect to pay more while on vacation. And don’t forget that the larger mid-sized resorts are, on average, much closer in size to the smallest resorts than to the largest. Larger resorts looking up the size ladder for ways to improve results are relying on flawed models.

The bottom line for the larger mid-sized resorts: they could learn more from their smaller counterparts by focusing on increasing efficiency in the short term, and exploring options to increase revenues, especially summer revenues, in the long term.

For larger mid-sized areas with summer operations, those operations accounted for an average of 9.4 percent of revenue in 2012-13. That figure is almost identical to the number for the largest resorts—9.6 percent—but as the Economic Analysis shows, the larger mid-sized resorts cannot afford to behave the way their larger competitors do. The smallest resorts may hold some important lessons here.

For the smallest resorts with summer operations, those ops averaged 17.1 percent of revenue. These resorts derive a larger chunk of summer revenue from golf than the largest two size categories do. But there’s no reason the larger mid-sized resorts can’t build on their gains in mountain biking visits, which increased 300 percent from the previous season.

The larger mid-sized areas do need to figure out how to monetize those visits, though. Revenue from mountain biking operations grew just 26 percent. These resorts have had more success monetizing summer chairlift rides: these increased 54 percent, and revenue from lift rides rose 85 percent.

Spending some time examining how to improve retail store sales and other sources of revenue wouldn’t hurt, either. The larger mid-sized resorts could investigate how the smallest resorts generate non-ticket revenue, and how they maintain the ticket yield ratio.

ASK THE RIGHT QUESTIONS
Some of what drives those numbers is likely out of managers’ control, such as proximity to major population centers. However, other factors behind those numbers seem to offer potential for growth, such as food and beverage service, summer operations and retail store sales. The larger mid-sized resorts could also benefit by exploring ways to differentiate themselves, thereby improving their pricing power.

One note on the ticket yield ratio: overall, the industry has seen this number erode over many years, in part because resorts are promoting advance purchases of multi-day, season or other passes that offer discounts in return for pre-purchase. Selling these passes can improve resorts’ revenue stability, but doing so can also suppress the yield ratio. The question at hand is why the larger mid-sized resorts’ yield ratio, 46.5 percent, is so much lower than the yield ratios of the other size categories, which all hover around 50 percent.

Other conditions can affect the yield ratio, too. For example, of the six regions the report recognizes, the highest yield ratio is in the Pacific South, at 62.8 percent. Ten of the 17 Pacific South resorts are in the mountains surrounding Lake Tahoe and primarily serve the San Francisco Bay Area, the residents of which average some of the highest incomes in the U.S. Therefore, while it might be useful to learn the conditions that give rise to that yield ratio, at least some of those conditions could be far from replicable.

Ultimately, what works for one ski resort may not work for another, even if the two resorts in question are similar in many ways. So it’s important for managers to read the report in full, and think about how they can apply its insights to their operations.

It’s important to evaluate results of changes carefully, too. When I was studying statistics and econometrics in graduate school, we spent a lot of time talking about “interaction effects,” the idea that an intervention of any kind—be it a social program, a medication or a management method—may work differently in certain places, people or businesses. For instance, kindergartners in Illinois may enjoy huge increases in their reading scores after eight weeks of specialized instruction. The same instruction in Nebraska may yield less impressive results, for a host of possible reasons.

If something like that occurs, it’s not time to panic. It’s time to investigate. That’s what I love about the NSAA’s Economic Analysis: it provides information resort managers need to start asking questions. Sometimes the answers to those questions boil down to “that’s just the way it is for our resort.” But often, the answers to those questions can improve resort operations and profitability. The missed opportunity lies not in the size, structure or location of any one resort, but in management failing to ask these questions.