Impact of Climate Change on Vail Ski Resort
This post analyzes the measures that Vail Ski Resort took as remedy to climate change.
While some people at Harvard Business School in Boston still experience extremely cold weather and wish for global warming on some days in the winter, people on the West Coast are suffering from an opposing problem. At first, when you think of climate change you think of rising temperature and sunburns in the costal and urban areas. But climate change is also impacting winter tourism in the mountains – in particular, the skiing industry.
Vail Ski Resort (Vail) is the largest ski resort in the US with operations in 9 states, the largest being in Colorado. Recent climate change debatably resulted in less snowfall over a shorter duration of the year. As a result, some ski resorts went almost out of operations due to a rise in snowline, and some have shorter seasons every year. Due to its high altitude in Colorado, Vail suffers mostly from the latter1). As a result, Vail reported a 28% decline in ski visits during the 2014-2015 season2). However, the typical ski resort needs 100-105 days of skiing to secure the average industry profit margin of 6.5-7 percent2). Fewer visits therefore put pressure on Vail’s profitability and, to illustrate the impact, Vail recorded a $2 million loss in the second quarter of 2008 compared to 20071).
To remedy for shorter seasons, the major initiative that Vail is undertaking is investing in improvements in snowmaking technologies. In fact, 88 percent of resorts belonging to the National Ski Areas Association were doing so3). Vail can currently cover 450 acres with fake snow2) and this enables them to open only a subset of their slopes. Snowmaking can therefore deteriorate the experience of customers expecting to ski freely on all slopes. For this reason, Vail shifted part of its business towards R&D aiming to increase efficiency of snowmaking. Snowmaking also provoked a rise in another operation: adjusting snow uniformly on the slopes using snow-trucks. This operation is not new to the skiing industry but was just amplified with the surge of snowmaking to make sure that slopes have enough snow for safe operations.
On another front, Vail realized that its business in one season is not sustainable, especially if that season is getting shorter with time. Vail decided to venture in other activities that do not depend on whether to ensure consistent operations all year long: concerts / conferences, yoga, water parks, spas, zip-lines, golf, etc.3) In February 2016, Vail announced a new summer program called “Epic Discovery” claiming to be the “first-of-its-kind comprehensive on-mountain summer adventure featuring components such as zip lines, canopy tours, alpine coasters, wildlife trail exploration, and interactive learn-through-play activities”2). Summer activities introduced a new business to Vail along with all its operations complexity.
Climate change also impacted other operations at Vail. First, foreign and native pests and diseases, as well as forest fires, will all thrive under a warmer climate. Warmer temperatures and longer seasons have encouraged population growth and range expansion from species such as the mountain pine beetle. Ski resorts have to manage the cleaning up of infested trees on ski resorts and neighboring areas. As an illustration, Vail had to cut down 2,000 tees at a cost of $200,000 in 20081). Another change inside the Vail corporation hits Marketing and Sales departments. Due to shorter seasons, Marketing and Sales teams have to shift focus towards season pass tickets. As a matter of fact, season pass revenues increased by 22% in the 2015 fiscal year4).
To sum up, Vail Ski Resort handled climate change effects by trying to preserve the winter experience through snowmaking and innovating new ways to drive revenue in the off-season. However, snowmaking will impact the bottom line of Vail and is by itself a carbon-intensive activity – making it a non-sustainable practice. In my opinion, although climate change is not yet proven to be caused by humans, Vail and other ski resorts are all directly incentivized to help reduce greenhouse gas (GHG) emission in the world, by supporting organizations addressing this topic. Mountain Pack, for instance, is a NGO focused on reducing the detrimental effects of climate change on American West mountains5). Moreover, on the long-run, Vail should shift its mindset from being a ski resort to being a recreational center that also offers skiing activities in the winter. By considering outdoor activities to be their core business, Vail can build a community around the resort where families and friends can go spend weekends irrespective of the time in the year. The two big challenges are: 1) to attract a similar number of customers all year long and 2) to maintain margins similar to those of skiing. (767 words)
References:
1) Center for Integrative Environmental Research (CIER) – Economic Impacts of Climate Change on Colorado. Retrieved on November 3, 2016, from http://cier.umd.edu/climateadaptation/Colorado%20Economic%20Impacts%20of%20Climate%20Change.pdf
2) University of Colorado – Examining the Economic Impacts of Climate Change on Colorado Ski Communities through 2050. Retrieved on November 3, 2016, from http://scholar.colorado.edu/cgi/viewcontent.cgi?article=2351&context=honr_theses
3) The New York Times – Rising Temperatures Threaten Fundamental Change for Ski Slopes. Retrieved on November 3, 2016, from http://www.nytimes.com/2012/12/13/us/climate-change-threatens-ski-industrys-livelihood.html
4) The Denver Post – Stanford looks at impact of warming weather on Vail Resorts valuation. Retrieved on November 3, 2016, from http://blogs.denverpost.com/thebalancesheet/2015/10/14/stanford-looks-at-impact-of-warming-weather-on-vail-resorts-valuation/13830/
5) Mountain Pack website: http://www.themountainpact.org/about/
Thanks for the interesting post, Wissam. I wonder if these ski resorts have invested R&D into finding different variations or chemical compositions of snow that would be able to withstand higher temperatures. If so, they wouldn’t have to worry about producing as much snow (they could actually produce less). On the contrary, it’s important to consider snow quality, since Vail attracts high level skiers who might tend to be pickier about their snow.
It was interesting to hear about how Vail is transforming its resorts into a recreation mecca, not just a ski mountain.
It is important to remember that climate change will not simply reduce snowfall during any given season, but rather that is will contribute to more extreme weather events. This could include warmer winters with less snow, but it could also include significant winter blizzards (remember snowmagedon!) or awesome levels of snow fall. So Vail cannot simply plan for reduced snowfall and shorter seasons. Instead there will be a large degree of uncertainty for Vail. This uncertainty is also affect lift ticket sales because customers may be less willing to plan expensive ski vacations in advance if the conditions will be completely unpredictable.
I find it interesting that despite all of the climate change related challenges that Vail faces they have been on a “shopping spree” recently, purchasing Whistler for $1 billion in 2015, mountains in Tahoe CA, as well as others. This is a risky investment in the face of climate change. Perhaps Vail is trying to diversity its investments so that at least a portion of its resorts will have a good snow year.
Thanks Wissam. Interesting to hear traditional ski resorts are now facing this problem. In Beijing, a relatively arid region, it snows quite rarely in winter, but there have been several “ski resorts” nearby that rely exclusively on artificial snow. It’s quite a sight in winter, you’ll drive through a mountainous region entirely dry, and then turn a corner to see one hill covered fully in snow. I think this process becomes quite expensive though, and wouldn’t work for really large ski resorts covering a larger area.
It is interesting to examine the initiatives that Vail has taken to ensure its sustainability, particularly the attempts to lure customers to their summer activities. In the European Alps, the difficulty to attract customers is described in this article: http://alpsknowhow.cipra.org/background_topics/alps_and_tourism/alps_and_tourism_chapter_2.html.
The main issue that the Ski resorts are having in trying to attract customers in the off-season, is that it is difficult for them to compete with the lower cost and perhaps more attractive (to many) summer holiday destinations in the mediterranean. My question is therefore, what can the resorts do in terms of pricing and value proposition to even out the winter revenues with those of the summer? Or get as close to this as possible? One idea I had was to offer cheaper summer deals to those that use their facilities in the winter, perhaps this would sell well as a bundle? The obvious thing is that activity is what is lacking, so the focus needs to be on finding ways to provide an offering with lower variable costs than revenue.
Interesting post, Wissam! I agree with you that most people are only thinking about the impact of climate change on warm weather businesses/climates and are neglecting to think about the impact on cold weather industries. I wonder if Vail has looked into setting up a system to keep the ground colder, similar to how some driveways have systems to melt snow/ice with warmers under the concrete. This could help them retain the snow they receive longer (as well as their artificial snow).
I’m also curious about how climate change, which involves extreme weather changes, will impact Vail in the summer. Will it ever become too warm on the mountain for their outdoor activities? If so, do they also need to have indoor activities, such as water parks or indoor rock climbing to offer a variety of both indoor and outdoor options to combat whatever mother nature has in store.
Interesting stuff Wiss. I like that Vail is being proactive about creating attractive warm weather offerings to help guard against volatility in the ski season. I think there’s an opportunity for these resorts to shop their offerings to corporate clients. I know a lot of companies do winter and summer offsites – maybe Vail could offer a discounted ski package for any companies that also agree to choose Vail for their Summer offsite. This could be a way to increase the use of facilities during warm weather seasons while also smoothing the revenue intake for Vail over the course of the year
Thanks for the post! As a Vail lover I really hope the resort is able to figure out a solution to combat the declining levels of snow!
Vail offers numerous terrain types and various levels of difficulty, but generally I think it’s known as a resort that serves more advanced than beginner skiers. I think that these more advanced skiers prefer ungroomed runs and challenging runs that are located farther away from the lodge. Given that so much of Vail’s business is advanced, ungroomed runs, I wonder whether investing in snow machines will be able to save the ski business in the long run. Even if Vail could afford to buy and operate enough machines to cover the resort, man-made snow needs to be spread out using machines and therefore skiers won’t have the ungroomed experience some of them look for.
Great post amigo. As an avid snowboarder myself it’s saddening to see the impacts of climate change ripple all the way to one of my favorite mountains. While I agree there are several ways to help the business model, I wonder if investing in non-snow related activities a realistic plan for Vail and for ski resorts in general. Ski resorts are usually located in far, distant mountains which does not seem like an obvious place to invest in fixed assets that aims to attract foot traffic. Many of the summer attractions can be better placed strategically in places that are closer to cities where it is easier to attract people to come by which may be critical to be able to compete against other summer destinations such as beaches, parks, theme parks, etc. I suppose you would need to run the numbers but my guess is that many of the resorts including Vail may be better off just passively managing the business off-season, and prioritize finding a way to better utilize the winter seasons.
Hi Wiss, I really enjoyed your blog because it was able to clearly show the effect of the climate change which can shut several businesses down. Maybe ski resort businesses can be seriously hurt by the climate change and it is not a thing that they can address solely without a big collaboration with each other. It was an easy example but very clear! Thank you.
Hi Wis, Thanks for the post. Having skied Vail growing up it is both interesting and heart breaking to hear the effect climate change is having on their business. I think the most interesting piece is the ethical dilemma they face: Snowmaking may be the only way for them (in the short term at least) to cope with the reduced snowfall, however, their snowmaking is a carbon intensive activity that will exacerbate the very climate change that is killing them!
I was impressed to find that they are taking this seriously and are doing a number of things to offset and improve operations [1]…
– They have invested in trying to make operations more efficient (i.e. sending food up via gondola rather than snowcat)
– Purchase renewable energy credits to offset their footprint
– Have over 20 managers directly responsible for conservation across the organization
[1] Aspen Journal: Growing Vail Resorts Works to Reduce Carbon Footprint – http://aspenjournalism.org/2013/12/17/growing-vail-resorts-works-to-reduce-carbon-footprint/
Dear Wiss,
Thanks for your blog post. It was an insightful article showcasing the challenges being faced by the US Ski industry.
Although, these additional summer activities being conducted by Vail would help plug the gap in its top line and bottom line and maybe even enhance its profitability, but the total carbon emission (just from winter activities) would rather increase even when the utilization of the resort during that time of the year goes down — reason being attributable to the snow-making machines, as mentioned by you. My question was, how can we make this process carbon efficient — do these machines run on fossil fuels or on electricity? Investing in machines that use natural gas or electricity would definitely help improve the carbon footprint. Additionally, technologies that could enhance the life of natural and artificial snow could help reduce the consumption of energy of these snow-making machines.
Regards,
EK.
Wiss, thanks for orienting us about the specific impacts climate change has had on Vail Ski Resort’s operations. I particularly appreciated your analysis in the last paragraph – both about the irony in the non-sustainable nature of snowmaking and about where Vail can go from here. I understood your reasoning that Vail should be incentivized to support NGOs that reduce GHG given that GHG contribute to snow melting, but I was unclear about whether Vail currently supports Mountain Pack and other similar NGOs. I do agree that by re-branding itself as a year-round activities resort, Vail could make up for revenue losses secondary to a shortened snow season. Great work!
I had no idea that 88% of resorts now employ artificial snow making. This unfortunately is moving the industry in the wrong direction in order to preserve winter activities unnaturally. I think the summer activities is a better means of sustaining their business. However, they don’t offer the same competitive advantages for their summer activities; you don’t need to be at a mountain to ziplines, golf, etc. I love skiing, but I think the industry actually needs to realize its terrible impact on the environment and start investing in credits to offset the impact. For example, traveling to a ski resort has a massive footprint in addition to the snowmaking and other challenges.