Climate Change Forces Ski Industry out of Ice Age: Vail Resorts Leads the Way
As the ski industry feels the burn of climate change, one company finds shelter in M&A.
“For the first time in 30 years, a lack of snow has not allowed us to open the back bowls in Vail as of January 2012, and, for the first time since the late 1800s, it did not snow at all in Tahoe in December.”
Vail Resorts CEO, Rob Katz. (Colorado Independent)
Vail Resorts (MTN) has felt the burn of climate change. Unpredictable weather patterns have significantly affected the ski industry in the United States. Hotter temperatures led to shorter ski seasons while draught conditions compounded the problem. (Nature). Vail witnessed the severity of the issue during a prolonged period of poor conditions in their Tahoe resort (2012-2015) and observed historic low snowfall across all properties during 2011-2012. (10-k).
Unfavorable weather conditions have a direct impact on Vail’s ability to attract visitors who drive revenue. Vail recognized this risk, noting “unseasonably warm weather may result in inadequate natural snowfall and reduce skiable terrain,” which impacts “the level of sales of season passes.” (10-k). Further, “skier perceptions of early season snow conditions” influence “the momentum and success of the overall ski season.” (10-k).
Climate change directly affects Vail’s bottom line by reducing visitation and increasing costs, e.g., the cost of snowmaking. However, increased salience of climate change in the political arena also has indirect effects on Vail. Vail is subject to extensive federal, state, local and foreign environmental laws dictating everything from natural resource use to sustainable tourist practices. In the U.S., improvement projects must be reviewed by NEPA and CEQA after a mandatory environmental impact study is completed. (10-k). The resort relies on the National Forest Service to continue to grant permits for use of its land. Vail is subject to complex water rights laws and regulations which dictate the feasibility of turning to snowmaking in lean snowfall years. Increased Congressional focus on issues of climate change may alter this fragile ecosystem, making it more difficult or costly for Vail to operate.
Vail’s strategic response has been to diversify geographically. In 2016, Vail Resorts acquired Canadian ski resort Whistler Blackcomb for roughly $1.06 billion. Climate change similarly motivated Whistler to come to the table. David Brownlie, CEO of Whistler, discussed the motivation for the sale, “Our board of directors has also been monitoring the unique challenges facing the broader ski industry due to the unpredictability of year-to-year regional weather patterns,” concluding, “partnering with the geographically diversified Vail Resorts” would secure the long-term future of its resorts. (WSJ).
This selected transaction communicates the vast impact climate change has already had on the fabric of an entire industry. Individual ski resorts are no longer well positioned to weather the changing weather – climate change has forced the ski industry to consolidate.
Geographic diversification mitigates the effect of weather variability on Vail’s operation, but Vail recognizes this is only a near-term solution. Vail is also an industry leader in environmental stewardship. Vail’s EpicPromise program focuses on resource conservation, forest health, energy reduction, and recycling. This initiative has helped reduce energy consumption by 10% and reuse of 45% of total waste in recent years. (10-K). But is this enough?
Vail needs to double down on its diversification efforts. Already present in the United States, Canada and Australia, Vail needs to pursue strategic acquisitions in Europe and Japan. Only a global presence will temper the effect of weather variation on Vail’s bottom line.
Vail needs to develop offerings for all four seasons. Vail’s resorts are unparalleled in beauty year-round. However, Vail is currently branded as a ski resort company. If the company marketed itself, and developed more attractive off-season offerings, it would no longer be slave to winter snowfall.
Vail needs to take an active role advocating for legal and regulatory stability in Congress. Federal law and regulatory agencies have the potential to make life difficult for Vail – by passing cumbersome laws or by increasing fees Vail is required to pay for permits or environmental impact studies.
Climate change has forced a shake-up in the ski industry. The industry is hit particularly hard by climate change, however, it is also in a position to make significant change. The hospitality industry at large is responsible for heavy water and energy usage as well as significant waste production. Ski resorts like Vail occupy a rare space – they are disproportionately affected by climate change and disproportionately capable of making a difference.
References:
Colorado Independent
-http://www.coloradoindependent.com/109613/snow-drought-forces-colorado-to-face-frightening-new-climate-change-reality
Nature
-http://www.nature.com/nature/journal/v438/n7066/abs/nature04141.html
MTN 2016 10-K
-http://files.shareholder.com/downloads/MTN/3149924236x0xS812011%2D16%2D115/812011/filing.pdf
Wall Street Journal
-http://www.wsj.com/articles/vail-resorts-to-buy-whistler-blackcomb-1470656971
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Interesting post! I agree that the ski industry is facing very difficult times due to the climate change. Not only do they have less revenues because of the lower number of skiers, but also do they face significantly higher costs driven by the artificial snow. However, I feel that the ski season has just been shifted backwards. A couple of years ago we always had snow over Christmas in Switzerland, in the past four years we had almost no snow. Yet I was still skiing in late April in the past couple of years, which was never possible before. So I think the ski industry should adapt their offering according to the new ‘snowfall-timing’. Another issue is artificial snow – it is extremely unsustainable to use artificial snow, yet it is the only way to attract skiers, when there is no snow. The ski industry should think of alternatives of how to attract skiers, despite the lack of snow in the winter months. I like your idea of diversifying the offer to attract more off-season visitors. However I am not sure, if a global presence will reduce the effects of climate change, since we face the same problems around the world.
Wow – I had no idea the ski industry was beginning to consolidate, but it makes total sense. Diversifying geographically allows the resorts to diversify the risk of inclement weather in any one area. I think Vail will have to expand even more to limit its exposure. You mention that when snowfalls are low, resorts turn to artificial snowmaking. I wonder if Vail can work to develop more eco-friendly alternatives to snow that would require less energy to produce. It would be a competitive advantage if Vail were able to communicate to consumers that its snow production was sustainable. It could help improve their relationships with lawmakers too!
In the sea of examples that people use to tangibly represent the effects of climate change, the one regarding lack of snow in Tahoe in December really stands out to me. I agree with Catherine’s comment that consolidation is a completely non-obvious but logical occurrence.
I’m most interested in your suggestion about diversification into different seasons in Vail. This has already started, as the area has great golf courses and other non-winter activities (e.g. Fly Fishing) that will help this form of diversification. Vail is, in my mind, essentially synonymous with skiing. While this has been great for them as a winter attraction, I wonder if that will serve as a challenge for them in shifting to non-winter months. I agree that marketing is important, but I think they need to employ very creative marketing strategies to help shift dependence away from the winter? Could there be cross-season promotions, maybe linking a ski pass with discounted rates at other season’s activities?
Very interesting post! Thanks for sharing.
Interesting article – thanks for sharing. A few thoughts I have as a result. Firstly, the connection between diversification and scale. Your conclusion that Vail (and other resorts) have resultingly consolidated makes sense; however, is this really an improvement to the bottom line, rather than a smoothing of annual revenue metrics. In my mind, owning and operating a ski resort is simply a function of how many people you get through the door, and then the cost to serve each individual customer. Any individual ski resort can see huge scale, given that the majority (again, in my speculation) of the cost per customer is fixed. Yet, with an issue like weather volatility, for any given year, there are winners and losers – e.g., resorts in the far west get snow vs. NE snowfall is down. Without being a weatherman, I’m not entirely sure if this is true, but in the case that it were, owning ‘winning’ resorts and ‘losing’ resorts for any given year, wouldn’t necessarily be a great bottom line optimization play given such huge fixed costs of ownership of the mountain. Obviously there are a lot of assumptions baked into the above, but just thinking through the strategic scenarios and implications. Really neat stuff!
I really enjoyed this blog post! Having spent four years in Vermont for college, it is easy to draw parallels as warmer winters have affected ski resorts in the northeast as well. The scale of Vail Resorts gives it a true competitive advantage, especially with respect to its ability to diversify its “portfolio” of ski destinations. The Whistler Blackcomb acquisition is a perfect example of this. Unfortunately, local ski resorts (like those I visited in college) do not have the balance sheet to diversify in the same way. It will be interesting to track the conditions of ski resorts across the country. Perhaps certain destinations will gain in popularity as others wane.
Thanks for the interesting blog post! I totally agree with your suggestion that ski resorts begin to market year-round tourist activity. For example, Whistler is beautiful in the summer and has many great attractions even when there isn’t snow on the mountain. To me this is a better alternative than continuing to diversify, as overall climate change appears to be moving in the same direction. Perhaps I’m not enough aware, but it would seem that climate change would affect Japan as much as it does Colorado at some point, even if the point is not today. Perhaps a focus on long term solutions, such as marketing summer tourism, would be a better alternative than diversification that appears to be more short term focused.
As an avid skier myself, I have been amazed at the variation in snow fall. While I find Vail’s efforts to diversify geographically and increase the area’s all-season product offerings, I also am curious how the sport of skiing itself might change in response to the increasingly variable length of the ski season, and what role ski companies like Vail might play at driving these changes. First, are there innovations in snow creation that might drive down costs? For instance, might there be material with the same consistency and feel as snow but with different melting/freezing temperatures that can replace some artificial snow to decrease the need to recreate snow. Alternatively, are there additives to artificial and real snow that might achieve similar effects. While approaches like these require huge investments in material science and physics research, and certainly a careful eye on environmental consequences, I am curious how adventure/ski companies might try to decouple skiing and coldness going forward…
Thanks for the post. I wonder if pursuing more global M&A is the most cost effective / high ROI strategy for addressing climate change. Large acquisitions of other resort areas certainly help from a geographic diversification perspective but are expensive. Additionally, climate change is somewhat unpredictable in terms of how it will impact each area over time. In the long run I think investing in off-season programming and technology efficiencies with snowmaking could offer a better ROIC
Another avenue that Vail has pursued, along with other ski operators, has been to try to smooth revenues out over the entire year–rather than just the ski season. As Rachel pointed out above, these resorts are quite beautiful during the summer. I used to ski at Jackson Hole growing up and all of the locals would say that the resort was actually more crowded during the summer than it was during the winter. The challenge in this strategy, however, is that it increases the length in which the assets of the resort are in operation and will likely have a negative impact on their lifecycle–everything from ski lifts, to restaurants, hotels, roads, etc. Another big challenge will be in protecting the overall ecosystem from continual human activity.