Colorado is shaping up as the great testing ground for future turf wars between the “consolidates”—American Skiing Company (ASC), Vail Resorts Inc. (VRI), Intrawest, Booth Creek, Boyne—and the “indies.” You can bet that the marketing strategies evolving in Colorado this year will eventually be implemented in New England, California, the Northwest and Utah—wherever sizable marketing budgets compete for local metro skiers.
Here’s what’s happening along the I-70 corridor. The counties around Denver are growing in population at between two and five percent per year. This means that Colorado ski areas are selling to a growing pool of local skiers. And to local skiers, it looks as if the ski areas are engaged in a feeding frenzy. In a state famous for the $59 lift ticket, Coloradans are getting used to buying tickets for $22 to $28 while the big areas spend roughly $125 million for capital improvements on about 47 million skiable acres. Colorado locals never had it so good.
Dozens of cut-rate programs are in place to lure Front Range skiers to the state’s 26 ski areas. The opening shot was fired late last spring when Vail offered two days of skiing for $10. That scares the hell out of smaller operators like Loveland and Eldora, who can’t possibly compete at that price. Loveland lost about 70,000 skier days last year, most of which apparently went to Vail Resorts.
Copper Mountain, the Intrawest holding in Summit County, is on record: they’ll match any Vail Resorts’ price cut, right down to a $10 ticket. But Copper’s David Barry expects the low-price leader in Colorado to be Winter Park. Owned by the City of Denver, Winter Park has a negligible tax load and no fiduciary responsibility to show significant return on investment. Traditionally, that has given them the ability to determine the basement.
Chris Jarnot, marketing director of Vail, claims that smaller operators have nothing to worry about—there will be no price war. “We’re a public corporation, and stockholders want to see a profit every quarter,” he says. “We’d never be allowed to sell our product below cost.”
But Bill Killebrew, who owns 80 percent of Eldora, sees things differently. He points out that Intrawest and VRI are real estate companies. (The two companies are intertwined at Keystone’s River Run Development.) Given a profitable real estate market, he says, lift tickets might very well be treated as a loss leader. When the Department of Justice chose to permit the merger of Ralcorp and Vail Associates, Killebrew says, they neglected to consider the impact on real estate.
“Assume that a fictional company controls 80 percent of the ski resort real estate along a fictional highway, and you get a situation where residential lots sell for $1 million and where you pay $250,000 for the right to build a condo unit,” he says. “Then ask yourself what happens a few years from now when all the real estate is sold and the big operators have to cover their costs out of operating revenues.” That, he says, is when ticket prices will soar. And he implies that the big players would just as soon not have small fry undercutting them.
Ed Pitoniak of Intrawest disagrees that this is in the plan. The lift ticket, he points out, contributes half of the gross, even for the big real-estate companies, so no one can afford to give up that margin short term. And the pressure for short-term returns, he thinks, means that no one is planning for a reduced-competition market three to five years out.
A nice round figure for Front Range skiers is 350,000—about 17 percent of the Denver metro area population. Most of the discount programs in the state are frequent-skier programs aimed at getting those folks to announce loyalty. Vail’s program, the most sophisticated, works just like a frequent-flier plan: for every visit, the skier earns points worth money that can be spent at the resort.
The good deals don’t mean that a price war is in progress. In fact, the big resorts expect to see a net increase in the profit realized from every local ticket sale. One goal of the discount programs is to drive more low-season traffic, in which sense they are are exact replicas of airline yield-management programs: they maximize profitability during high season and build traffic in low season. Almost all ski areas operate at capacity on Saturdays. More to the point, no more traffic can be squeezed through the Eisenhower Tunnel on weekends. So Copper, for instance, sells a “hooky” season pass good only on weekdays—one version for college students, another for adults—aimed at self-employed professionals and other folks who get some weekdays off.
The other major goal of the Vail program is to maximize profitability on ticket sales by eliminating commissions. Colorado resorts have traditionally sold discount tickets in supermarkets and gas stations. No more. To get the locals’ discount, you take your discount card to a Vail Resorts ticket window. King Sooper and Safeway no longer get their cut.
In this environment, the logical way for small ski areas to compete is to team up and offer their own affinity programs, hence the nascent marketing alliance between Eldora and Loveland. But Killebrew had bigger plans—he wanted to buy A-Basin for $14 million in cash, then link it to Loveland to create a major complex saddling the Continental Divide.
Vail’s “captive” sale of A-Basin to its real estate partner, Dundee, for about $4 million, is more than a way to keep A-Basin in the family. To Vail’s competition, it looks like a way to cut Killebrew off at the knees and prevent development of a serious niche competitor not restricted by the flow of traffic through the tunnel. (Though, truth be told, Loveland and A-Basin suffer from tunnel traffic backup just as badly as Summit County areas.)
Smaller resorts in New England and California will soon have to deal with similar issues. Intrawest and ASC are going to square off in both markets, and smaller operators had better prepare to compete with whatever yield-management plans they can invent.
Seth Masia travels Colorado with a pocketful of discount cards. He covers the local ski scene at http://denver.sidewalk.com/sports and answers e-mail at [email protected].
