1. Perspective—A 35-Year View
I was privileged to have been in charge of NSAA’s first Economic Analysis of Ski Areas in 1967, making this year’s study the 32nd version. For this article I have chronicled some comparable statistics by decades to illustrate the nature of the changes of the past 35 years.
The first section in Table 1 calculates utilization based on available data. For comparison, I used an average demand of 1,920 VTF/hr/skier over the entire 35-year span. For a number of reasons (among them faster lifts and grooming that allows for quicker descents), the demand figure is gradually increasing.
The average ski area has grown from 4,968 VTFH/hr in 1980 to 14,083 VTFH/hr in 2000—a 283 percent increase. Lift revenue/skier visit has more than kept pace, growing from $9.25 to $26.51, or 287 percent. Lift ticket prices were only tracked since 1980, but as can bee seen, have increased 352 percent. Obviously, discounting has grown over the years.
What I find most interesting is that the average operating margin has slowly dropped from 27.3 percent to 18.8 percent. This is the inevitable result of a 607 percent increase in gross revenue being offset by a 678 percent increase in cash operating costs. It also means that the average return on investment has been dropping from 18.5 percent in 1980 to the current 10.3 percent. This is hardly a healthy trend!
Another interesting statistic reveals that ski area revenue remains the dominant revenue source, providing 80 percent of total gross revenue. While revenues from lodging and real estate development have been growing at a much faster pace, the total picture clearly shows that ski areas are not just loss leaders for real estate development.
2. Small Changes—Big Results
We have all heard that “the whole is greater than the sum of its parts.” Likewise, small changes in each of several variables in a resort’s operation can result in major changes in the bottom line of a ski resort.
This becomes clear in an analysis of the NSAA Economic Analysis of U.S. Ski Areas, which contains a wealth of benchmark information available for the education of owners, managers, board members, bankers and public officials. By comparing the bottom lines, as well as five critical variables (shown at the top of Table 2) of the top profit ski resorts with those of the national average, it becomes apparent that the huge difference in bottom lines is a function of small differences in the critical variables. The differences in those critical variables between the most profitable resorts and the average is in the modest range of three to seven percent. The top profit ski resorts operate over a season that is only 5.8 percent longer, achieving only a 4.7 percent higher utilization rate and enjoying only a tiny 3.3 percent higher revenue/skier-visit. But these differences, plus a 7.5 percent lower operating cost ratio, translate to a 126.4 percent difference in operating cash flow (EBITDA).
In trying to design changes for my clients that will address these critical variables, and hopefully move them to top profit, there will probably be a combination of physical revisions, marketing changes, pricing decisions and moves for cost savings.
Another way of analyzing what makes the top profit resorts what they are is to see that while their actual skier visits are 69.7 percent greater than the average—and the gross revenues even bigger at 75.3 percent—they yield a gross margin that is 77.2 percent greater than average. More importantly, when these results are matched with a cash operating expense that is only 49.9 percent greater than average, the operating cash flow (EBITDA) result is a whopping 126.8 percent greater than average. Normally, I would assign this operating cost advantage to a more efficient operation due to higher utilization; however, there is very little difference between 33.7 and 35.3 percent utilization levels.
To conclude, these are but some of the insights to be gained from a careful study of the NSAA Economic Analysis.
TABLE 1: Ski Industry Economic Changes — National Average Ski Area
Source: Economic Analysis of Ski Area/NSAA Annual Studies
| Season | 1966 | 1971 | 1980 | 1990 | 2000 | 20 Yr Growth |
|---|---|---|---|---|---|---|
| Respondents | 48 | 83 | 131 | 133 | 95 | |
| Vertical Transport Feet/hour | 2,468 | 3,052 | 4,968 | 8,522 | 14,083 | 283% |
| Assumed Demand in VTF/hr | 1,920 | 1,920 | 1,920 | 1,920 | 1,920 | |
| Skier Capacity | 1,286 | 1,590 | 2,588 | 4,439 | 7,335 | |
| Days of Operation | 106 | 101 | 113 | 117 | 136 | |
| Capacity Skier-Visits | 136,268 | 160,552 | 292,388 | 519,309 | 994,172 | 340% |
| Skier-Visits | 54,167 | 124,356 | 178,000 | 229,000 | 293,404 | 165% |
| Utilization | 39.8% | 77.5% | 60.9% | 44.1% | 29.5% | |
| Gross Fixed Assets (000) | $915 | $4,176 | $15,381 | $31,358 | 751% | |
| Ski Lift Ticket Price | $12.05 | $27.20 | $42.48 | 353% | ||
| Lift Ticket Yield | 76.8% | 74.5% | 62.4% | |||
| Lift Revenue/S-V | $4.04 | $3.88 | $9.25 | $20.27 | $26.51 | 287% |
| Supporting Revenue/S-V | $1.47 | $1.71 | $4.56 | $11.19 | $20.62 | 453% |
| Total Ski Area Revenue/S-V | $5.51 | $5.60 | $13.81 | $31.46 | $47.13 | 341% |
| Total Ski Area Revenue (000) | $299 | $696 | $2,458 | $7,204 | $13,828 | 563% |
| Accommodations Gross Rev. (000) | $110 | $470 | $1,675 | 1,523% | ||
| Summer Gross Rev. (000) | $87 | $416 | $1,067 | 1,226% | ||
| Real Estate Gross Rev. (000) | $174 | $677 | $589 | 339% | ||
| Total Ski Resort Gross Rev. (000) | $299 | $696 | $2,829 | $8,767 | $17,159 | 607% |
| Cash Operating Costs (000) | $192 | $523 | $2,056 | $6,702 | $13,931 | 678% |
| Net Operating Income on EBITDA | $107 | $173 | $773 | $2,065 | $3,228 | 418% |
| Operating Margin | 35.8% | 24.9% | 27.3% | 23.6% | 18.8% | |
| Cash Operating Return on Capital | 11.7% | 18.5% | 13.4% | 10.3% |
TABLE 2: National vs Top Profit Ski Resorts
Five Year Averages — Yr. 2000 Dollars
| National | Top Profit | Difference | |
|---|---|---|---|
| 1 – Investment/Skier | $4,607 | $4,957 | 7.5% |
| Day Skier Capacity | 6,341 | 9,805 | 54.6% |
| Gross Fixed Assets | $29,209,000 | $48,601,000 | 66.4% |
| 2 – Equivalent Days of Operation | 138 | 146 | 5.8% |
| 3 – Utilization | 33.7% | 35.3% | 4.7% |
| 4 – Revenue/Skier-Visit | $55.92 | $57.79 | 3.3% |
| Lift Ticket Proportion | 46.9% | 47.7% | |
| 5 – Operating Cost/Season’s Capacity | $7.77 | $7.19 | -7.5% |
| RESULTS IN: | |||
| 6 – Actual Skier-Visits | 295,304 | 501,024 | 69.7% |
| 7 – Gross Revenue | $16,513,400 | $28,954,177 | 75.3% |
| 8 – Less: Direct Costs | $5,967,000 | $10,271,000 | 72.1% |
| 9 – Gross Margin | $10,546,400 | $18,683,177 | 77.2% |
| 10 – Cash Operating Expenses | $6,808,641 | $10,204,993 | 49.9% |
| 11 – Operating Cash Flow | $3,737,758 | $8,478,184 | 126.8% |
| Operating Margin | 35.4% | 45.4% | |
| 12 – Cash Flow/GFA | 12.8% | 17.4% | 36.3% |
| Sample Size | 98 | 33 |
