“Christmas in July”? Think Again… Climate Changes’ Impact on the Ski Industry

With temperatures rising globally, this image could prove to be all too common soon. Vail Resorts has been a leader in environmental initiatives among the travel industry.

With temperatures rising globally, this image could prove to be all too common soon. Scientists believe that the emission of greenhouse gases, such as from the burning of fossil fuels, is leading to global warming. According to the EPA, average global temperatures could increase up to +8.6°F by 2100, with a likely increase of at least +2.7°F [1]. In addition to rising temperatures, climate change has also had a negative effect on precipitation and storm events. Overtime throughout most of the United States, a higher proportion of precipitation is predicted to fall as rain rather than snow, with cold-season storms projected to continue moving further northward [1]. Since 1972, the length of time that snow covers the ground has shortened by two weeks, while the depth of snow on the ground (snowpack) has reduced an average of 23% since 1952 [2].

For Vail Resorts, a $1.6Bn revenue-generating public company that owns and operates a portfolio of premier mountain resorts, including Vail, Beaver Creek, Breckenridge, Park City, and Whistler Blackcomb, climate change could represent a major threat to its business. The rising temperatures and diminished snowfall patterns can create significant challenges for the operation of winter activities by potentially shortening the number of available ski days as well as the quality of the experience each season. With less visitors to the ski mountain, not only would on-mountain lift ticket and equipment revenue decrease, but the ancillary lodging and retail businesses associated with the mountain would also suffer.

In an effort to combat climate change, Vail Resorts has been a leader in environmental initiatives among the travel industry. In 2006, it became the second largest U.S. corporate purchaser of wind power, offsetting 100% of its energy use [3]. Additionally, Vail Resorts created EpicPromise, a sustainability program aimed at reducing impact through resource conservation, protecting forest health and watersheds, and developing local communities through nonprofits [4].

The Company has focused a large part of its sustainability efforts to date on reducing energy consumption. In 2008, Vail Resorts pledged to reduce its consumption by 10% in 2012, referred to as the “Target 10” goal. Vail Resorts achieved this in 2011 and further committed to reducing energy consumption by another 10% before 2020 through “The Next Ten” campaign [5]. Consumption reduction has been targeted in five main areas, including snowmaking, facilities, grooming and lifts, and food and beverage, and the Company announced that its efforts have saved enough energy to power 2,600+ households for one year [5].

Through the implementation of new technologies, Vail Resorts has coupled its goal to reduce energy consumption with its need to create better snow more quickly given the anticipated reduction of snowfall/snowpack resulting from climate change. The Company invested in GPS tracking technology (Exhibit 1) for its snowcat grooming fleet thereby reducing idle time, improving efficiency, and grooming more acres for every gallon of diesel used [6]. These improvements help align incentives by allowing Vail Resorts to open more runs and to keep them in better condition for the guests while also reducing energy consumption. Additionally, the Company has replaced series of smaller, less efficient compressors with one high-powered compressor on a few of their mountains, creating more snow with less energy, while also creating a more positive experience for guests since better snow can be made more quickly in periods of low snowfall [5].

Exhibit 1

vail

Screen Capture of the ISAAC System Tracking Vail’s Grooming Fleet

In addition to continuing to invest in its own sustainability initiative, Vail Resorts can continue to respond to the threat of climate change by diversifying its risk both geographically and by seasonal offerings. The Company recently announced its acquisition of Whistler Blackcomb [7], which will allow it to expand into Canada and potentially diversify weather/snowfall risk during the winter season. With the implementation of the EpicPass program, the Company’s ski resorts are linked under one pricing mechanism so that guests can visit any of the participating resorts, which also aids in reducing risk at any one particular location. Vail Resorts has also focused a significant amount of resources in building out offerings to attract business during the non-winter months to better distribute revenue earnings throughout the year, such as mountain biking, hiking and family-oriented adventure centers.

Beyond these measures, Vail Resorts could participate in more advocacy programs, such as with the nonprofit, Protect our Winters, to help draw attention to the issue and to advocate for more state and federal climate change legislation. Additionally, as the Company continues to expand, it can work to ensure that any additional construction on lodging or retail spaces, or on the creation of additional ski runs, is carried out in an environmentally conscious way.

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Sources:

[1] EPA: The Future of Climate Change: https://www.epa.gov/climate-change-science/future-climate-change

[2] EPA: Climate Change Indicators: Snow and Ice: https://www.epa.gov/climate-indicators/snow-ice

[3] Vail Resorts News Release: http://investors.vailresorts.com/releasedetail.cfm?ReleaseID=955085

[4] Vail Resorts 2016 10-K filing: http://investors.vailresorts.com/secfiling.cfm?filingID=812011-16-115

[5] EpicPromise: Energy: http://www.epicpromise.com/environment/energy/

[6] Vail: Sustainability: http://www.vail.com/mountain/environment.aspx#/EnergySavingsTab

[7] Vail Resorts News Release: http://news.vailresorts.com/corporate/vail-resorts-whistler-blackcomb-closing.htm

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Student comments on “Christmas in July”? Think Again… Climate Changes’ Impact on the Ski Industry

  1. I appreciate your analysis of Vail resorts and its efforts to reduce the impact that it has on global warming, a direct threat to its traditional revenue stream. An interesting article about snow making that also would support the case of the ski resorts lessening the environmental impact they have is from the National Ski Areas Association can be found via the URL below.

    It says that ” Most of the water diverted from streams return to the watershed. Although it varies from region to region, a number of state studies show that approximately 80 percent of the water used for snowmaking returns to the watershed” in essence showing the limited impact the process has on local water supplies. (“Facts on Snowmaking – NSAA.” N.p., n.d. Web. 5 Nov. 2016.) It is believed that as climate change continues to change the environment water conservation will be critical to preserving the environment.

    “Facts on Snowmaking – NSAA.” N.p., n.d. Web. 5 Nov. 2016. http://www.nsaa.org/media/248986/snowmaking.pdf

  2. Thanks for this post, I had never really thought about the impacts of climate change on the recreational/ski industry, since the effects are more gradual and long-term. I agree with you that in order to stay ahead of the curve, Vail will need continue being proactive at diversifying its risks with cross-seasonal offerings. I found it interesting that the company decided to acquire Whistler Blackcomb, focusing further on improving its attractions in the winter months. Although Vail is still primarily focused on improving its competitive advantage of winter recreation (skiing), I wonder if the company should begin thinking about serious partnerships/acquisitions in recreational activities in the other three seasons. You mentioned that Vail has begun diversifying its offerings beyond the winter months (hiking, adventure centers) – I wonder if it would be stronger for them to look into partnering with a key player in these segments, such as Six Flags, rather than competing with them, in order to ensure sustainable future revenue streams.

  3. Caroline – Thanks for the article. Vail Resorts is a great example of a company that has led the ski resort industry in terms of sustainability investments. The primary criticism of Vail, however, has been that, unlike Aspen, Vail has not been a vocal advocate for broader policy solutions. Rather, Vail has focused its efforts on reducing its own environmental impact via practical, on-the-ground initiatives to reduced resource consumption. Some argue that this ‘soft-spoken approach’ to climate change and the company’s role in fighting it means Vail isn’t doing enough, especially given Vail’s scale and heft within the industry. [1]

    Aspen, on the other hand, has actively sought to align its brand with environmental activism, consciousness, and education. Whether via its avid support for the Protect Our Winters campaign (Aspen’s VP of Sustainability is the Board Chairman), partnership with Business for Innovative Climate & Energy Policy, or lobbying efforts in Washing D.C., Aspen has been at the forefront of the public discussion on sustainability and climate change. [2]

    In fact, these differing approaches to addressing public awareness for climate change have created tension between Aspen and Vail. In particular, during the 2012 ski season, Vail ran an advertisement in the New York Times with the headline “The climate has changed,” featuring shots of skiers and snowboarders enjoying deep powder at Vail’s various resorts. Aspen, reacting to the advertisement, noted that “I’m not sure why they’d do that. I think it’s mocking the conversation [on climate change].” [3] It’s clear that for that advertisement, Vail’s sustainability mission was superseded by a profit motivation decision and desire to drive skiers to the resort (by using a parody of the public’s climate change concerns).

    Why do you think Vail has deliberately chosen this ‘soft-spoken approach’ and hasn’t done more public advocacy? Is Aspen only able to take a stand on environmental activism, consciousness, and education given that it’s a family-owned business?

    [1] http://aspenjournalism.org/2013/12/17/growing-vail-resorts-works-to-reduce-carbon-footprint/
    [2] https://www.aspensnowmass.com/we-are-different/take-action
    [3] http://www.vaildaily.com/news/vail-aspen-sound-off-on-perils-of-climate-change/

  4. An insightful post on the challenges Vail is facing as a company heavily and directly dependent on weather! Thank you for sharing your thoughts.

    I absolutely agree that they’re making the right moves in terms of diversifying their geographies and types of activities (to include more that is not as reliant on sufficient snow). Interestingly enough, given the extent to which Vail’s business model is likely to rely on legislation tackling climate change at the state and federal government levels, I was surprised by an article in Powder Magazine [1] a few days ago that discussed how ski resorts and industry leaders are donating via PACs to the election campaigns of politicians who are routine deniers of climate change. It may very well be here that correlation is not necessarily an indicator of causation (that is, ski resorts may not necessarily be donating to these candidates because they are not in support of proactive climate change legislation). But, on the surface-level, there seems to be some sort of cognitive dissonance between their operational tactics to handle the impact of climate change on their business and their lobbying efforts (which is arguably a material portion of any company’s overall strategy). I’d be curious as to what their ultimate goal is, because as your post makes very clear, they are very aware of the impacts of climate change on their bottom line and are proactively taking actions within their business to hedge against these.

    [1] http://www.powder.com/stories/news/campaign-donations-link-ski-industry-leaders-climate-change-deniers/#IBft7qrAy2Qs8KKO.97

  5. Caroline, thank you for your post. Wb2016 raises an interesting point about how different players in the ski industry have responded to climate change. Vail has responded by diversifying geographically, into Canada and Australia, as well as seasonally, by investing in summer offerings. Vail has also invested in industry-leading environmental stewardship programs. However, Vail has been less present in policy discussions and deployed less capital in direct advocacy efforts. As a publicly-traded company, Vail must ultimately base its decisions on whether or not they create value for the shareholders. Therefore, Vail must critically assess how it deploys its capital. Using company resources to invest heavily in advocacy efforts creates minimal return for Vail’s shareholders. Policy is influenced by many actors in the political arena and Vail’s potential impact is limited. However, the company can evaluate what it is doing internally to address the issue of climate change. Caroline’s article details many internal programs Vail has instituted to combat the ill-effects of climate change. Vail’s EpicPromise initiative promotes energy reduction, recycling and water use reduction and supports many environmental charities. These initiatives can actually move the needle in a cost-conscious manner that shareholders can support.

  6. This article helped me understand the challenges faced by the recreation/ski industry and how Vali Resorts is trying to address these challenges through various innovative measures. It seems that the company foresaw these obstacles ahead of the time and invested its capital in technology development and energy efficiency improvement. As the company strengthens its technical capabilities even further, it will be able to reap benefits from its capital expenditure and various environmental initiatives. I also thought some of the projects the company engages in could increase the brand image of the resorts and ultimately attract more customers.
    On the flip side, I wonder if there are other additional strategies the company can implement to maximize its revenue. For example, as ski days are shorter, during the time when skiing is not available, the resorts can turn the space into other activities, such as hiking trails or mini golf courses. I have seen other resorts carry out such tactic to maintain the high level of traffic and diversify sources of revenue for the company. Such initiatives could offset some of the revenue losses from shorter skiing days and lower number of customers during the winter.

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