Vail Resorts: A Mountain Monopoly
Vail Resort's continued growth has yielded a greater value for both the company and its customers.
With its high end mountain resorts, unparalleled terrain, and unique season pass, Vail Resorts (VR) offered the full experience to the 8.5 million visitor to its 11 resorts this year. Vail Resorts has been able to thrive in an industry so dependent on Mother Nature because of the effective alignment between its business and operating models.[1]
Business Model
Vail Resort’s strategy is to focus on its continued promise to deliver a world class experience to its guests across all three of its business segments[2]:
- Mountain
- Lodging
- Real Estate
VR has built its business model in order to attract the ideal customer; well off, destination bound, leisure travelers. Visitor bring home average annual incomes of $175K across all of VR’s resorts and average incomes as high as $275K at certain mountains. Moreover, the customer based is well diversified with nearly 10% hitting the slopes for the first time and a whopping 50% under the age of 35 years of age. Vail attracts such a wide array of wealthy clientele because they offer services to make the entire trip an experience—from skiing the gnarly terrain all day to unwinding with a good meal at the ski resort.
In a business where the fixed costs are quite literally mountainous, the key to success is expanding the customer base year-over-year to minimize the fixed cost per consumer. The number of visits to VR has increased over 10% each year since 2013 and VR is this year, expected to realize over $1.4B in net revenue and a net income over $115M.[3] Such growth has sent VR’s stock prices soaring close to $125/share and has brought investors a 300% increase in their dividends since 2011.[4], [5] This is staggering considering only 45 of the 470 ski mountain in the U.S. are profitable and makeup 40% of all ski business.[6]
Operating Model
How has Vail Resorts managed to continue to provide an excellent experience to its customers and to operate so profitably in years when fresh powder is harder to come by then a snowboarder at Alta? By innovating in how they approach collecting value from their customers and expanding their offerings in a market where the supply of ski resorts has been maxed out due to restrictive environmental regulations.[7]
https://www.youtube.com/watch?v=dLHpTIqI4d4
Source: YouTube
The mountain segment of VR’s business is fundamentally a risky business model because of a large resorts reliance on ample snowfall to cover a majority of the slopes. However, VR has done an excellent job of doing two things: “owning the skiers, and owning the mountain”. In other words, Vail Resorts heavily discounts their season pass, appropriately named the Epic Pass. Skiers pay $700 up front which can lead to huge discounts for consumers as they visit again and again for a fraction of the $100/day ticket price. However, because VR owns the lodging, stores, and restaurants in the mountain village, the company is able to still realize a sizeable income from even these deal seekers in addition to receiving $200M from 400,000 customers before any services need to be provided. [7][5] Moreover, upfront payment means VR has a steady revenue stream regardless of future snow conditions. Although a majority of the business remains lift tickets, the synergies that arise from the continued development of each of VR’s three market segments is what allows the company to continue its impressive trajectory of growth and profitability.
Additionally, Vail Resorts has done phenomenally well in diversifying their portfolio. They have continued to offer superior services to skiers around the world by acquiring numerous mountains in recent years and bringing everything from the lifts to the lodging up the Vail Resort standards if need be.[5] Such acquisitions provide an even greater value for Epic Pass holders by giving these patrons a wider array of mountain choices which in turn strengthens the value proposition of the pass. Moreover, VR’s increasingly diversified location offerings has enabled the company to hedge the risk of an unprofitable portfolio due to poor weather conditions and will likely lead to continued growth in mountain visitors and acquisitions as VR continues to expand globally.[8]
Sources:
Cover Photo – http://blog.vail.com/
Denver Post
[1] http://www.denverpost.com/business/ci_28890100/vail-resorts-revenue-hits-1-4b-2015-earnings
Vail Resorts Website
[2] http://www.vailresorts.com/Corp/info/strategies.aspx
Vail Resort’s 10K
[3] http://www.sec.gov/Archives/edgar/data/812011/000081201115000051/mtn2015073110-kforq4.htm
Yahoo Finance
[4] http://finance.yahoo.com/echarts?s=MTN+Interactive#{“range”:”max”,”allowChartStacking”:true}
2015 Vail Resort’s Investment Conference Presentation
[5] http://files.shareholder.com/downloads/MTN/1122944415x0x818716/269E289E-9312-4A01-B82E-4C2F3D2AC51D/2015_Investors_Conference_Presentation_vFINAL.pdf
Curbed
[6] http://ski.curbed.com/archives/2015/01/ski-industry-expert-says-31-of-todays-ski-areas-are-dying.php
The Atlantic
[7] http://www.theatlantic.com/business/archive/2012/02/no-business-like-snow-business-the-economics-of-big-ski-resorts/252180/
[8] http://www.reuters.com/article/us-vail-resorts-m-a-australia-idUSKBN0MW0R620150407 (Reuters)
I enjoyed watching that video very much – thanks for sharing.
The idea of diversifying the resort base in this business for weather reasons makes a lot of sense – as you mentioned. It will be interesting to see if Vail looks to purchase more southern hemisphere resorts to remove some of the seasonality from its cash flows by utilizing the offsetting timing of winter.
Of course, the challenge with buying Australian resorts (as they did with Perisher) is that the seasons can be so hopeless. This was Perisher on the first day of winter in 2013: http://users.tpg.com.au/mpaine/perisher_8jun13.jpg
As a long time Vail skier (I started skiing there and Beaver Creek when I was five), I’ve been a lifelong Vail Resorts fan and definitely enjoyed your post.
Two aspects that I’d like more information on are Vail’s real estate holdings and the environmental restrictions.
I agree with you that VR “owns the mountain” by owning the land at the base of the mountains, but how much of that is VR owned vs. them leasing the land to other companies? I also remember that in the 90s (before the rise of the Epic Pass), the company was making more money selling land for ski-in ski-out homes to multi-millionaires in the Bachelor Gulch area of Beaver Creek than they were in lift tickets. Do you know if this is still the case at resorts that they are still developing?
Great analysis of the Epic Pass – prior to its arrival only Colorado residents would purchase a season pass (the Colorado pass) for the ski areas at a reduced rate. With the Epic, it locks in the large, affluent ski community that flies in to the ski areas each winter. Totally agree with you that the Epic Pass and buying multiple locations of resorts diversifies the risk to the customer – they are much more likely to choose a VR resort vs. another location regardless of the state if they already have an Epic Pass.
Environmental restrictions are another area of interest. VR owns some of the largest ski areas in the United States and most ski areas are not allowed to expand due to the EPA/Forestry Service or because the surrounding geography is unsuitable. I wonder if this will continue a “rich get richer” future as people with money to spend head to the mountains with the most options – thus driving their demand up even further. Small wonder that the price of a one day lift ticket at Vail has gone from ~$52 in 1997 to over $150 in 2015.