Inflation And Ski Areas

Inflation has become an economic fact of life, and recent studies indicate that living costs have increased by about 50 percent over the past five years. The U.S. Consumer Price Index in April was 242.5. This means that goods and services that cost consumers $100 in 1967 (the base year) cost $242.50 in April. This index showed a 14.7 percent increase from April 1979.

The consumer price index provides a general indication of how rising prices affect an individual or family. The index doesn’t reflect shifts in spending patterns or substitutions of less expensive goods. A University of Michigan study conducted last summer indicates that consumers have substantially changed their shopping habits in an effort to cope with inflation. Nearly half of the 2,131 families surveyed said they tended to shop more for lower prices then they had in the past. Sixty-nine percent reported they reduced purchases of items which had shown large price increases. Seventy-one percent said inflation had changed their shopping habits.

Sixty percent of the families said they felt they were staying even with inflation. Two-thirds of the upper income families said they were not affected by inflation. These results would not be as optimistic were the survey conducted today. Since last summer disposable income gains have lagged behind inflation gains.

Today to try to maintain living standards the consumer must change spending habits and reallocate priorities because the cost of some goods and services are rising a lot faster than others.

• The cost of shelter is up 60 percent since 1975.
• A market basket of food is up 40 percent; cereal and baking products 28 percent, and meat is up 50 percent.
• The cost of owning and operating a car has increased 50 percent in five years.

Some consumer items have not increased as rapidly or dramatically. These include:

• The cost of home furnishing up 25 percent.
• The cost of wearing apparel up 17 percent.
• Recreational services and equipment up 35 percent.

The Recreational Industry

Expenditures on leisure activities, especially outdoor recreation, represent a major and growing segment of the American economy, having reached $81.2 billion in 1977. This is an increase of 33 percent or $20 billion more than was spent in 1974. This spending represents 7 percent of the total personal expenditures for the U.S. population. The $81.2 billion does not include such expenditures as transportation, lodging, vacation homes and public recreation. When these and other recreation related activities are added the estimated grand total of U.S. leisure spending in 1977 is $160 billion. This amount is almost three times greater than the estimated 1965 total and represents over 8 percent of the gross national product, exceeding the U.S. annual outlays for either defense or home construction. A rough breakdown of the $160 billion into major recreation components includes:

• 17 percent ($27 billion) sporting goods purchase.
• 36 percent ($58 billion) passive recreation.
• 44 percent ($71 billion) vacation travel.
• 3 percent ($4 billion) vacation housing.

Increases in leisure time have contributed considerably to the impressive growth of the recreation industry.

The average worker now get longer vacations and more holidays. The average U.S. “leisure year” is 122 days, which allows for significant opportunities for outdoor recreation participation.

Until recently personal income has been increasing steadily, providing additional discretionary income to be allocated to areas such as outdoor recreation. The long-term trend in recreation spending as a percentage of personal consumption expenditures grew from 5.5 percent in 1960 to 6.8 percent in 1975. In recent years this upward trend has leveled off slightly mainly because of inflation which is requiring larger shares of personal income to cover higher costs in housing, food, utilities, transportation, and medical care.

Increases in leisure time coupled with prolonged publicity of the health benefits of an “active life” have converted the sedentary North American population of the 1960’s to a more athletically active population in the 1970’s and 80’s. Today leisure time recreational pursuits have become just as important to many people as their work lives. And, significantly, more people are taking vacations for an athletic purpose.

The Ski Industry

Although recreational services and equipment have increased less than other segments of the economy (35% vs. 50%), the consumer is having to make spending changes and reallocations which may have a direct and detrimental affect on outdoor recreation. Transportation costs are the single most important factor influencing outdoor recreation in general and skiing in particular. In the past five years fuel costs have increased 93 percent, and continue to climb. The income of the average American family has been increasing at a rate that is below that of general inflation as well as fuel price increases. This is resulting in travel adjustments on the part of the consumer. These adjustments may include:

1. Changes in place of pursuing recreational activity.
2. Changes in means of travel to place of activity.
3. Changes in frequency of activity participation.
4. Changes in type of activity.
5. No change.

In 1977 the automobile was used for 90 percent of U.S. outdoor recreation trips. This represented a 3 percent decline of the automobile as the preferred transportation mode in 1972. Trucks with camping equipment accounted for all of this decline. Increasing fuel costs was the primary reason.

In the period from 1972 to 1977 there was a decline in the distance people were willing to travel for purposes of outdoor recreation. The U.S. Census Bureau figures showed that recreational trips of 200-400 miles increased, while everything longer than 400 miles decreased.

Although specific data on skier preferences and substitution processes are not available, a UPA 1980 study of skiers in the northwest indicated that rising gasoline costs are affecting the frequency of skiing visitations. Skiers were asked to “indicate the point at which gasoline costs would cause a decrease in skiing visits to the area most frequently visited.” 7 percent of the 1039 skiers surveyed specified $1.00 per gallon, 29 percent indicated $1.50 per gallon, 35 percent indicated $2.00 per gallon, and 29 percent selected $2.50 per gallon. If these data are born out by actual skier behavior we may expect a 36 percent decrease in the frequency of skier visitations when gasoline prices reach $1.50 per gallon and 70 percent decline if gasoline prices rise to $2.00 per gallon. This does not mean an absolute decline of 70 percent over present skier visits but that 70 percent of the skiers will visit their preferred area less frequently than they did when fuel costs were less than $1.00 per gallon.

Skiers like other outdoor recreation enthusiasts, favor the automobile as a preferred mode of transportation to the ski area. When asked how they get to the area where they most frequently ski, 67 percent of the northwest skiers indicated their own car, 17 percent indicated they ride in the car of a friend, 14 percent ride the bus.

Another study made by Burke and Williams in 1979 showed that for recreation trips in general, the public transportation modes receive only modest increases in use as fuel prices increase. Respondents indicated they would prefer to cancel plans rather than to adopt alternative modes.

There is some hope. Skiers, more than other outdoor recreation users, share common recreation destinations. The 1980 UPA Northwest Skier Survey indicated that 31 percent of the skiing visits were made by means other than a personally owned automobile. At least in the northwest ride sharing and bus transportation are increasingly acceptable skier transportation modes, and will undoubtably receive more attention and use as fuel prices increase.

Ski equipment costs continue to rise with some items subject to larger price increases than others. The cost of boots, parkas, and to a lesser ex- 3 tent skis, have increased dramatically during the past five years. The startup costs of outfitting a beginning level skier with new equipment can range from $400 to $700. Fortunately, used ski equipment outlets are begin- ning to emerge, providing adequate equipment for the beginner and some lessening of economic stratification in the alpine sector of the skiing market.

Cost of Participation

Data from the Economic Analysis of North American Ski Areas 1977-78 season indicate that between 1974 and 1978 the average annual increase in lift ticket prices was 7 percent. This figure tends to support the impression of the majority of skiers (63%) who felt that the costs of skiing had increased as much as most other things. Looking at the revenue per skier visit it is interesting to note that the average annual increase per skier visit has remained at a relatively consistent rate of 8 percent ($9.15 per skier, 1977- 78). A more recent summary of U.S. skier participation and ski area economic trends provides further evidence that skiers and ski area operators are beginning to feel the effects of more pronounced inflationary economic trends.

The 1978-79 Economic Analysis of North American Ski Areas, show that in spite of a 1.7 percent growth in skier visits and a 12.2 percent growth in revenue over the previous year, a 16.5 percent growth in expenses resulted in a decline in ski area profits.

In general inflation has hurt the industry and will continue to have some impacts during the coming winter.

Short Run Projections

1. Present inflationary conditions will fluctuate during the coming year. In the U.S. interest rates will be down until November. A toughening of fiscal policy will follow the November election.
2. The 1980-81 season may bring new snow but probably not a bumper crop of new skiers (particulary not from the less than $15,000 categories).
3. Skiers, in general, will travel less but still attempt to get as many skiing days as last season. Look for an increase in length of stay but a decrease in the frequency of visits.
4. The quality of the skiing experience will become more important than the quantity.
5. Cross country skiing will be increasing in popularity because of lower start up costs, closer proximity of skiing to place of residents and lower participation costs.
6. The closer people live to skiing areas the more likely they will be to ski.
7. Environmental legislation will continue to slow the supply of new skiing terrain in the U.S. The demand for skiing will begin to decrease as over crowding begins to effect the quality of the skiing experience.
8. Scarce energy supplies will continue to provide new challenges to skiers and the ski industry.

In addition to encouraging bus travel and car pooling for those who may be deterred by gasoline prices, there are some marketing strategies to consider:

1. Efforts should be made to identify those segments of the skiing public which have the financial resources and interest to ski more frequently but are not now doing so. Our studies indicate that 46 percent of the Northwest skiers in the $20,000 to $35,000 income categories are skiing no more than four times per season. This would be a logical group to pursue to increase skier visitations. To quote from a Forest Service report, “Today, roughly 20% of the skiing population is responsible for nearly 50% of all skiing activity. Stated another way, nearly 80% of all skiers probably would ski more if there were incentives in the form of pricing, packaging and delivery of ski area services.”
2. Ski school activities assume an important role in attracting skiers to an area. Several Northwest ski schools have emphasized “continuing education” through the offering of ski improvement classes for all age and ability levels.
3. Studies indicate that, regardless of ability level or years of experience, participation is highest in the higher income levels, and ski area advertising and marketing programs should be directed toward these income groups.

An Optimistic Note

The ski industry is resilient. It is comprised of people who love skiing, the enjoyment it brings others, and the occasional financial profit it brings your area. Skiers are equally resilient.

The present inflationary/recessionary conditions we face are temporary. They represent a problem—perhaps our biggest problem—but we’ll find ways to overcome. If skiers are not discouraged, nor should the industry be.