⛷️ Ski Resorts Economics

Vail Resorts shows the business beyond the powder

Sep 27, 2024

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1. Vail Resorts Ecosystem

Vail Resorts operates 42 mountain resorts spanning North America, Australia, and Switzerland, including iconic flagships like Vail, Breckenridge, Whistler Blackcomb, and Park City Mountain. The list contains 5 of the top 10 most visited resorts in the US.

Key milestones:

1962: Vail Mountain opens its doors.
1985: Vail Associates is acquired by George Gillett, paving the way for expansion and transformation.
1997: Vail Resorts goes public, fueling further growth and acquisitions.
2008: Epic Pass launches, granting season access to multiple resorts at a discounted price.
2017: Vail Resorts acquires Whistler Blackcomb, expanding its reach into Canada and adding a world-renowned destination to its portfolio.

Key metrics:

💵 Effective Ticket Price (ETP): Lift revenue divided by skier visits. Vail Resorts has demonstrated pricing power with a steadily rising ETP despite the impact of the global pandemic. It grew 12% in FY24 to $82 per visit (yes, skiing is expensive!).
⛷️ Skier visits: In the past decade, growth in visits came primarily from acquiring new resorts. The recent trend shows a more nuanced story. Skier visits declined 10% year-over-year in FY24 to 17.6 million, primarily thanks to the lack of snow across North America and some post-COVID normalization. It was mostly in line with the rest of the industry.

There have been virtually no new destination ski resorts of scale in North America in the past 45 years, which makes new entrants unlikely. However, it also illustrates that Vail Resorts will face a shrinking list of acquisition targets.

Key acquisitions:

Vail Resorts grew from 10 to 42 mountain resorts in the past decade.

2014: Park City Mountain Resort (Utah) – $183 million.
2015: Perisher Ski Resort (Australia) – $136 million.
2016: Whistler Blackcomb (Canada) – $1.1 billion.
2017: Stowe Mountain Resort (Vermont) – $50 million.
2018:
- Triple Peaks, LLC (Crested Butte, Okemo, Mount Sunapee) – $237 million.
- Stevens Pass (Washington) – $67 million.
2019:
- Falls Creek and Hotham (Australia) – AUD 174 million (~$124 million).
- Peak Resorts (17 ski areas across the Midwest, Northeast, Mid-Atlantic, and Ohio Valley) – $264 million.
2022: Andermatt-Sedrun-Disentis (Switzerland) – $160 million.
2023: Crans-Montana (Switzerland) – $139 million.

Vail Resorts is looking for more European expansion, which could diversify the elevated geographic exposure to North America.

The Epic Pass Effect

🏂 Epic Pass: Introduced in 2008, the Epic Pass has been a cornerstone of Vail Resorts' success. By offering access to multiple resorts at a discounted price for the entire season, it has fostered customer loyalty, driven growth, and provided a predictable revenue stream through advance sales.

The Pass strategy has been a game changer for Vail Resorts:

Pass reached 65% of Lift revenue in FY24 (+4pp Y/Y).
The Pass holder base has reached over 2.4 million in FY24.
Management noted increasing loyalty and frequency of visits.
Other revenue streams benefit from more visits (dining, rentals).
Epic Day Pass (1-7 days) has grown +54% CAGR since its 2019 launch.
Epic Pass prices have increased +5% CAGR, outpacing inflation since FY11.

Beyond the Slopes

Vail Resorts' ambition extends beyond winter sports. The company is expanding its offerings to include year-round activities like mountain biking, hiking, and scenic gondola rides. This strategic move aims for a steady flow of visitors and income even when the snow melts. But it’s still a relatively small part of the business.

Competitive Landscape

Unfortunately, other large ski resort operators in North America are not publicly traded:

Alterra Mountain Company: A major player in the North American ski industry, operating 18 premier mountain destinations across the US and Canada. Its IKON Pass, launched in 2018, competes with Vail’s Epic Pass. Alterra is privately owned by KSL Capital Partners and Henry Crown and Company (also owners of Aspen/Snowmass).
Boyne Resorts: A family-owned company with a collection of ski resorts across the US and Canada.
Powdr Corporation: A privately held company with a portfolio of mountain resorts across the US. The company lost Park City after failing to renew a lease, selling it for roughly $180 million to Vail Resorts in 2014.

Other publicly traded ski resort operators include smaller companies:

🇫🇷 Compagnie des Alpes (CDA): A European leader in ski resorts, operating premier locations in the French Alps, such as Tignes, Val d'Isère, and Méribel. It also owns theme parks across Europe.
🇸🇪 SkiStar AB (SKIS B): Scandinavia’s top ski operator with resorts in Sweden and Norway, including Åre and Trysil. SkiStar also develops property and offers equipment rentals and vacation accommodations.
🇨🇭 Jungfraubahn Holding AG (JFN): A Swiss company managing the Jungfrau Railway and ski resorts in the Jungfrau region, including Grindelwald and Wengen. It specializes in both transportation and mountain tourism.

Vail Resorts’ vast portfolio (growing through acquisitions), focus on Pass revenue, and guest satisfaction have solidified its position as a market leader.

2. Revenue Mix

Vail Resorts is a highly seasonal business, with peak operating season from mid-December to mid-April in the US. So, it only makes sense to look at the revenue annually.

🇺🇸 US-focused: The United States represented 83% of overall revenue in FY24 (vs. 82% in FY23, 88% in FY22, and 90% in FY21). But it could change over time since Vail Resorts has been acquisitive and Europe is the largest ski market globally.

Here's a breakdown of the three main segments in the past 12 months:

🏔️ Mountain (~88% of overall revenue)
- Lift (~50%): The core revenue driver, including daily lift tickets and passes. It was only 36% of revenue ten years ago and has steadily increased thanks to the game-changing Epic Pass and Epic Day Pass.
- Ski School (~11%): Catering to beginners and those needing lessons and guiding services.
- Dining (~8%): On-mountain and base village dining venues (275 spots).
- Retail & Rentals (~11%): Roughly 330 locations offering sporting goods, apparel, and souvenirs.
- Other (~9%): Summer activities like biking, horseback riding, and golf.
🛌 Lodging (~12% of overall revenue): A range of accommodation options, from slopeside hotels and condos to luxury lodges. Includes roughly 5,300 owned and managed hotel rooms and condominium units.
🏠 Real Estate (<1% of revenue): Real estate development and sales around the resorts. It includes the sale of land parcels to third-party developers and planning for future development projects.

3. How Vail Resorts Makes Money

Let's take a closer look at the financial engine powering Vail Resorts' mountain empire with the latest fiscal year that ended in July 2024.

FY24 Revenue was $2.9 billion (flat year-over-year).
Revenue Breakdown:
- 🏔️ Mountain was flat at $2.5 billion.
- 🛌 Lodging declined by 1% to $0.3 billion.
Operating expenses include:
- Mountain & Lodging (labor, cost of sales): $1.4 billion.
- General and administrative (G&A): $0.4 billion.
- Depreciation and amortization: $0.3 billion.
- Other costs (small): $0.1 billion.
Operating margin was 17% (flat Y/Y).
Pass Product sales through September for the upcoming season declined 3% in units but increased 3% in dollars thanks to a price hike. It’s the best outlook indicator.

Key Takeaways:

Climate change impact: Snowfall patterns and ski season length remain a critical concern. The company's investments in snowmaking and sustainable practices are crucial to navigating this challenge. The decline in Pass sales units shows that skiers may be delaying their decision to commit to an entire season. Renewals continued to grow, but new pass holders have declined.
Pricing power is not enough: While prices (ETP) have increased, the decline in skier visits caused Mountain revenue to stay flat. It illustrates that even with great execution, Vail Resorts is still weather-dependent.
Epic Pass power: The Epic Pass continues to be a significant revenue driver, contributing to most lift ticket sales and providing stability even with fluctuations in skier visits.
Operational efficiency: The company maintained a healthy 17% operating margin, demonstrating its ability to manage costs. However, I admit I expected a higher margin profile from a company charging an average of $82 per skier visit.
Questionable use of cash: Operating cash flow declined by 8% to $0.6 billion. Almost all of it was used for stock buybacks or dividend payments despite a large net debt position on the balance sheet.

4. What The Future Holds

A New Transformation Plan

Alongside the latest earnings release, Vail Resorts unveiled a two-year plan to transform its operations for future growth and global expansion.

The plan includes three pillars:

Scaled operations: Standardize and optimize operational processes across all 42 resorts to enhance efficiency and guest experience.
Global shared services: Consolidate and outsource business services for scalability and global expansion support.
Expanded workforce management: Leverage technology and data to improve staffing efficiency and empower frontline employees.

The company anticipates $100 million in annualized cost efficiencies by the end of FY26, enabling further growth and expansion. Position eliminations will affect less than 2% of the workforce, primarily corporate jobs. This transformation underscores the company's growth challenge after a flat year. Optimizing its operations is necessary to deliver consistent earnings growth.

Opportunities & Challenges Ahead

Vail Resorts is facing growth opportunities and emerging threats.

Strategic expansion: The company continues to pursue strategic acquisitions (particularly in Europe, and potentially Japan), expanding its portfolio of mountain resorts to reach new markets and offer diverse experiences to a broader audience. Success in this area will be critical for continued growth in skier visits.
More value capture: A new initiative called My Epic Gear is set to launch in FY25. It’s a subscription model to get the latest gear with slopeside pick-up and drop-off. It could add predictability to the rental business (like the Epic Pass did for Lift revenue). The company will limit memberships to 80,000 members in the first year as the business scales.
Vail Resorts Investor Conference
Year-round appeal: To reduce reliance on winter sports, the company is actively expanding its summer activities and offerings, attracting guests throughout the year and diversifying its revenue streams.
Secular decline: Management acknowledged the impact of climate change on the ski industry and is investing in sustainable practices and snowmaking technology to maintain consistent snow conditions and extend the ski season. Despite these efforts, shorter seasons and unpredictable snowfall remain a concern. Vail Resorts risks becoming the proverbial bag holder by acquiring more resorts and increasing its stake in a potentially shrinking industry.

Vail Resorts has built a mountain empire catering to adventure seekers and leisure travelers. Its success is rooted in a diversified business model, the success of the Epic Pass, and a relentless focus on guest satisfaction.

The company faces significant challenges, from navigating climate change and a limited number of acquisition targets to adapting to evolving consumer preferences. Yet, over the past 15 years, Vail Resorts achieved what seemed impossible—making a historically unpredictable industry remarkably predictable.

That’s it for today!

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Author's Note (Bertrand here 👋🏼): The views and opinions expressed in this newsletter are solely my own and should not be considered financial advice or any other organization's views.

Disclosure: I do not own any stock discussed in this article in App Economy Portfolio.

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