NSAA Economic Study

Again the industry shows mixed results with a net gain in skier-visits, albeit a small one, and only a slight drop in profitability. Again, the weather is the major determinant of success. Obviously machine snowmaking has come of age, and not only insured against major losses, but truly helped account for record seasons at banana belt ski areas. The importance of snowmaking was aptly summed up by one New York State believer who wrote, “If this is the worst nature can throw at us then we have won!”

Table 1 summarizes the basic measures of profitability. Operating profits on Gross Fixed Assets were only 12.1%

Table 1 summarizes the basic measures of profitability. Operating profits on Gross Fixed Assets were only 12.1%, down considerably from the 16.2% recorded during the 1977-78 record season. All other indicators were also down. The only positive note is that in spite of the weather the five-year average operating profits on Gross Fixed Assets continued to creep upward. These results can be put in perspective by noting that a reasonable overall goal is to earn an 18% operating profit on Gross Fixed Assets. (See “What is an Adequate Return? How is it Reached?” SAM, May 1980.)

Table II is a summary of the eight critical variables by geographic region. There are major differences in all categories when the respondents were evaluated geographically. Here again the effect of the eastern snow drought is most obvious. The critical variable to profitability in 1979-80 was the length of the average season. New England ski areas recorded an average of only 59 equivalent days/nights of operation while West Coast areas reported 140!

The operating results posted by both Central Rockies and California/Nevada ski areas show returns that exceed the 18% goal. However, the five year averages are still considerably behind the target.

Table III is a compilation of the base data, critical ratios, and location of the 1979-80 ski area respondents by profitability levels. Again, the differences are great and highlight the basic reasons behind profitability. While the major factor is weather, it is most surprising to note that 16% of the top profit ski areas are located in the East and Ontario region, where thanks to the technological advances in snowmaking, the 1979-80 winter saw five of these ski areas set attendance records.

Again, the top profit ski areas exceeded the 18% goal due to a favorable combination of weather, plan design and operating efficiency, attractiveness and utilization, and revenue per skier-visit.

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While the most obvious and devastating factor affecting profitability is the weather, it is cyclical and can be somewhat countered by both the return of snow and the loss carry forward provisions of the income tax structure. The most alarming trend is the slowly tightening margin between costs and revenues. I have plotted below four critical indices that illustrate the current imbalance and worsening trend.

This analysis vividly illustrates that whereas prices and revenues are keeping abreast of the Consumer Price Index, ski area costs are outpacing both. The operating cost-season capacity measure attempts to factor out variations due to length of the season and size of the areas, and reports only cash operating costs for the ski area operation. As such, it represents the best measure of change in cash operating costs, and it is alarming.

It has been offset by: 1) increasing skier-visits and utilization 2) increasing summer earnings 3) real estate earnings.

The 1979-80 study is the twelfth annual study, and the seventh produced by the Business Research Division at the University of Colorado. The study is conducted for the Economic Studies Committee of the National Ski Areas Association. Again, the report format remains essentially the same to allow for comparability with the previous studies. The report contains 10 chapters and 91 tables of data. Copies of the 1979-80 Economic Analysis of North American Ski Areas may be obtained from the Business Research Division, University of Colorado, Boulder, Colorado 80309. The cost is $35.00 per copy.