A Slippery Slope: How Can Ski Resorts Adapt to Global Warming?
As temperatures rise, Vail Resorts is starting to feel the heat. What should Vail do to ensure success in the face of global warming?
On August 8, 2016, Vail Resorts announced that it was acquiring Whistler Blackcomb, a major ski resort in the Canadian province of British Columbia. In its official release, Whistler Blackcomb called the deal “the most exciting and transformative investment in [our] history.” [1] The news was well received, with Vail Resorts’ stock price increasing by 6.3% the morning of the announcement. [2]
Strategically, Vail Resorts had a lot to gain from the acquisition. Whistler Blackcomb, located in Canada, is one of the world’s largest and most popular ski resorts. With a portfolio of resorts around the United States and in Australia, Vail Resorts saw tremendous operational and financial upside in entering the Canadian market.
Feeling the heat
But behind the deal was a more subtle — but no less serious — consideration: the effect of global warming on the ski industry. In its joint press release on the partnership, Whistler Blackcomb’s CEO, Dave Brownlie, stated that the company’s “board of directors has also been monitoring … the unpredictability of year-to-year regional weather patterns” and that “partnering with the geographically diversified Vail Resorts … [secures] the long-term future of our resort, our industry, and our community.” [3]
Ski resorts are used to grappling with occasional weather variability. Big snowstorms attract crowds and bring in massive amounts of revenue; dry spells can devastate short-term profitability. Long-term weather forecasts can make or break a season, especially for remote resorts, as skiers often have to book travel far in advance. Low snow levels often require resorts to open late and close early, resulting in the depletion of cash reserves and the postponement of structural and strategic investments. To remain operational during seasons with little snow, resorts turn to snowmaking machines. According to a study conducted in 2012 by Protect Our Winters (POW) and the Natural Resources Defense Council (NRDC), over 88% of resorts utilize these snowmaking machines, which cost over $500,000 a year to operate and represent more than 50% of a resort’s average energy costs. [4]
Image credit: Fox, Porter. “The End of Snow?” The New York Times. Feb. 7, 2014. http://www.nytimes.com/2014/02/08/opinion/sunday/the-end-of-snow.html?_r=0.
Further down the slope
There are clear signs that weather variability — and rising temperatures — are having an increasingly adverse effect on ski conditions and resorts’ profitability. According to the NRDC’s study, the ski industry lost an estimated $1.07 billion in revenue over the first decade of the 21st century due to decreases in snowfall. [5] It appears that things are only going to get worse: global temperatures could rise by 4 to 10 degrees Fahrenheit by the end of the century, which would decrease snow depths by 25-50% and halve the length of an average ski season. [6] By 2045, more than half of the ski resorts in the Northeastern region of the United States may no longer be operational. [7]
Vail Resorts finds itself in a difficult predicament. In the short term, it must contend with the immediate implications of increased weather variability: unreliable demand and supply forecasts, spikes and dips in labor and machine utilization, and increases in snowmaking costs. In the long term, it must prepare for the possibility of a world without natural snow.
Buckling down
What should Vail — and the industry as a whole — do to mitigate these concerns? For one, it will have to invest in developing new snowmaking technology that is more energy-efficient and cost effective. It should also increase its commitment to adopting more energy-efficient practices within its own operations. In 2011, the National Ski Areas Association (NSAA), of which Vail is a part, launched the “Climate Challenge” — a voluntary program in which resorts commit to conducting a “climate inventory” and reducing greenhouse gas emissions. [8] As of 2016, not all of Vail’s resorts have volunteered for the challenge.
Long term, Vail should also amplify its lobbying efforts and push lawmakers to begin acting against global warming. There’s already been some movement on this front; the NSAA has been an active force on Capitol Hill. Vail, along with its peers, should continue to broadcast its support for cap and trade and for more stringent emission standards.
With its acquisition of Whistler Blackcomb, Vail has also shown that it aims to mitigate climate risk by building a portfolio of global resorts. It should double down on this approach and continue to pursue an aggressive acquisition strategy. The more diversified it becomes, the more resilient it will be to the pressures of global warming.
Climate change also raises some interesting philosophical dilemmas for the industry. As temperatures continue to rise and man-made snow becomes the norm, resorts may have to re-brand the experience they provide. Will consumers care about the provenance of the snow itself? Will skiing become an exercise in nostalgia?
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Footnotes:
[1] “Vail Resorts and Whistler Blackcomb Agree To Strategic Combination.” Vail Resorts, Inc. August 8, 2016. http://www.prnewswire.com/news-releases/vail-resorts-and-whistler-blackcomb-agree-to-strategic-combination-300310250.html. Accessed November 2016.
[2] Jamerson, Joshua. “Vail Resorts to Buy Whistler Blackcomb,” The Wall Street Journal. August 8, 2016. http://www.wsj.com/articles/vail-resorts-to-buy-whistler-blackcomb-1470656971. Accessed November 2016.
[3] See [1].
[4] Burakowski, Elizabeth, and Magnusson, Matthew. “Climate Impacts on the Winter Tourism Economy in the United States.” Study commission by the Natural Resources Defense Council. December 2012. https://www.nrdc.org/sites/default/files/climate-impacts-winter-tourism-report.pdf. Accessed November 2016.
[5] Ibid.
[6] Ibid.
[7] Fox, Porter. “The End of Snow?” The New York Times. Feb. 7, 2014. http://www.nytimes.com/2014/02/08/opinion/sunday/the-end-of-snow.html?_r=0. Accessed November 2016.
[8] “Re: Support of the Climate Declaration.” Letter written to the Business for Innovative Climate and Energy Policy (BICEP), Ceres, on behalf of the National Ski Areas Association (NSAA). May 29, 2013. http://www.nsaa.org/media/152329/climatedeclarationsupportletter2013.pdf. Accessed November 2016.
Cover image credit: https://m.my.vailresorts.com/pages/
Interesting article, Colin! What do you think this does to the cost of skiing at resorts? I imagine that the need to invest in more energy efficient snow making machines will boost the cost of the already relatively expensive sport? I wonder how this may affect ski resort’s incentives to implement sustainable practices.
“Cool” article, Colin. When it comes to topics like skiing, it’s hard for me to get “board”. I’m sad to see that climate change has the winter sports industry going “down hill” and on “thin ice” but I’m sure once we’ve “gondola” list of solutions and implemented some, I’ll get the “lift” I need.
Since there’s “snow” way I’m going to be able to fix the problem just by pointing it out, I wanted to raise a few questions for you to consider. First, do you buy Vail’s strategy of reducing weather risk from climate change by diversifying its mountain portfolio? It would seem like a good strategy in normal circumstances, but isn’t the danger of climate change that it will make the slopes everywhere too hot to ski? Is there any data on the correlation of snow melt across resorts?
Second, it sounds like lobbying congress and developing more efficient snow-making technologies would help to address some of the challenges of climate change, but indirectly. What can Vail do by itself? Is it a passive victim of climate change or does it’s business model allow it to take action itself?
Great post. It seems clear that Vail Resorts faces some serious headwinds to its business in both the short-term and the long-term in terms of its operations. However, the company’s shares are doing very well: MTN currently trades at 30x forward EPS and the markets cheered the recent Whistler acquisition (http://www.wsj.com/articles/vail-resorts-to-buy-whistler-blackcomb-1470656971).
I would argue that the most pressing issue facing the company — the need to develop more energy-efficient and cost-effective snowmaking technology — would be best suited for a private company. As a publicly traded entity, I see Vail Resorts taking a short-term approach as it will want to meet (or beat) earnings each quarter. As a private company, Vail Resorts could invest substantially in to the technology that will be required for its long-term existence. While this substantial near-term investment could negatively impact earnings in the next few quarters (or years), it is likely necessary for Vail Resorts to exist as a going-concern. While Vail Resorts can do its part to affect climate change, I think it could do the most as a privately-held company.
Very insightful post Colin! The statistics on “88% of resorts utiliz[ing] these snowmaking machines” seems quite large to me. I am very curiously to know how that percentage changed over the past 10-20 years on the same ski resort basis. Does the 88% number mean that with the advancement of technology, more places that were traditionally not suitable places for skiing are being constructed as resorts? Another area to look into is the historical operating cost and profit margin of those resorts that were relying more on snowmaking machines – I wonder if they are able to pass through the cost inflation to the consumers?
Your point on the lobbying for efforts on global warming brings in a very new to me, as I would imagine that skiing resort industry is relatively small compared to other large industries (agriculture, manufacturing, etc.) hence they would have a relatively small voice on this topic. But I agree this is something that the skiing resort industry could do to make sure that their interests are represented.
As a frequent visitor the several Vail Resorts, I’m glad to see they are investing so heavily in the industry and considering how to mitigate the impacts of global warming for my skiing benefit.
From the investor perspective, do you think it is sustainable for them to only diversify and grow their global footprint without reducing more at-risk locations? It seems to me that the resorts that are most impacted by a few degree increase in average temperature would be prime targets for Vail to shutdown so they could redeploy the capital into colder climates or higher elevation resorts.