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The annual Economic Analysis of United States Ski Areas (EA) for the 2009-2010 ski season tells a mostly positive story. The report shows a strong rebound in skier visits from the 2008-09 season, but with relatively flat spending per skier visit, and reduced ski area expenditures. The net result was that gross revenues, profit margins, and pre-tax profit all rose across the industry.

As always, there some notable variations in these metrics across the various regions of the country, as well as among differently sized resorts in all regions. You can see some of these in the accompanying charts. We encourage you to dive into the full report to learn more about resorts in your region.

RRC Associates collects and organizes the data. Results are compared to those of the previous year, and only areas that complete the survey for both years are counted (see Table ES-2 below for a five-year look). Thus, metric movements among the respondents can be considered "apples to apples" results. The information is broken down by geographic region and by area size, which is measured by VTFH. The various breakdowns of data and the interpretations of them provide a good framework for understanding the industry's health and for comparing areas within your peer group, however you choose to define that.

Here are some of the key points made in the study, along with some key questions to consider about our future.

SKIER VISITS
According to the EA, total skier visits reached 59.8 million for the season, the second-highest total ever. Except for the Northeast, which saw a slight 2.9 percent decline, visits rose in all regions, more proof of the "snow trumps economy" theory. Not noted in the report, but worth considering, is the fact that the mid-Atlantic region experienced significantly better snowfall and favorable snowmaking temperatures than in the previous few years. That, in light of economic pressures, may have contributed to the strength of visits in the Southeast (up 1.3 percent) against the Northeast. In short, skiers found it unnecessary to drive north to find good snow.

The strongest growth year over year was in the Pacific West, up 11.8 percent, followed by the Midwest, up 8.3 percent. The Rockies fell in the middle of the pack, growing by 1.7 percent.


GUEST SPENDING
The recession continued to cut into consumer spending, good snow notwithstanding. Lift ticket yields inched up less than one percent (to $35.71, from $35.53), as recessionary pressures no doubt limited price increases. Lead prices were up just under $.30, and the lift ticket yield ratio remained constant at 58.1 percent. Further to the point, non lift ticket revenues dropped one percent overall.

Not all resorts fared equally on guest spending. The Southeast, for example, increased lift ticket yield 8.3 percent.

The overall revenue summary is that despite a slight decrease in total guest spending per visit, the industry saw a 3 percent increase in gross revenues, thanks to the increase in skier visits.

Digging into the non-lift spending, we do find some good news, and an important shift in the composition of who our guests were. While F&B and lodging led to the downside in spending-a two-year trend-rentals and lessons were both up significantly.

The growth in these two latter categories is important for two reasons. First, resorts typically see much higher contribution margins from rentals (as much as 80 percent contribution) and lessons (as much as 60 percent contribution) than from any other non-lift operations. Secondly, increases in rentals and lessons points to an increase in new skiers and riders. After a decade of work on increasing first-time visits, this is encouraging.

The study points out several key aspects of this growth. First, it demonstrates that rental business is a much more significant factor for smaller resorts in the Midwest and Southeast than in the other regions. (See Tables 8G and 8J for small-vs.-large comparisons-under 6,249 VTFH vs. 17,000+ VTFH. Top Table 8A shows overall expenditures.)

Second, lesson revenues represent a much smaller portion of revenues among smaller resorts than larger ones. This is not necessarily because smaller areas teach a smaller percentage of lessons. More likely, this points to the entry-level skier being more inclined to try out a lower-yielding group lesson over a more expensive private lesson. It is very important for the health of the industry that smaller areas take excellent care of these first-timers (more on that shortly).

Taking this line of thought further, it's not unreasonable to conclude that a significant number of new or highly-infrequent skiers and riders took part in the sport last year.

Also of note, retail was up 4.8 percent, an impressive performance given the recession. Summer revenues were down 6.4 percent, which-given that summer operations are more prevalent in the East and Midwest, both of which had a very wet summer-is no surprise. Summer remains a growth opportunity for many resorts.

EXPENSES
Further driving profitability for the industry, total expenses decreased by three tenths of a percent against last year. Resorts spent less in 2009-10 on labor, interest expenses, operating leases, insurance, and land use fees, and spent more on general & administrative costs and depreciation.

Direct labor costs are the largest expense category across the industry, and often the most flexible expense lever available to resorts. Resorts spent 24.5 percent of revenues on labor this year, down from 25.6 percent in 2008-09. Interestingly, resorts grew year-round rosters to an average of 107, up from 99 last year. Still, labor expense fell because seasonal rosters dropped, to an average of 663 from 694. Total employment actually grew in the Northeast, remained flat in the Southeast, and fell in other regions.

Resorts in 2009-10 experienced a significant reduction in interest expenses, which dropped by a whopping 23.8 percent. Why such a decline? In part, because resort management did a good job of retiring long-term debt and reducing interest expenses on existing debt. Further driving this reduction was the simple fact that new financing was difficult to attain (See "Lend Me the Money," SAM July 2010). This will be an interesting area to watch this coming year. Last year's profits and opportunities for low interest financing facilitate the opportunity for expansion and capital investment.

General and administrative expenses, which consumed 10.1 percent of revenues in 2009-10, were among the leading expense categories to rise from 2008-09, up 4.9 percent. It's surprising to see a category that adds so little direct value to the guest experience increase at a time when economic troubles prevailed across the country.

Electric power and fuel increased nationwide only slightly, except in the Midwest where the increase was a whopping 45 percent.

THE FINAL ANALYSIS
When all is said and done, with visits up and expenses down, it was a profitable year for the industry. Even better, the signs for the future, i.e. large lesson and equipment rental numbers, demonstrate at least a one-year surge in interest among those who were previously non-skiers and -riders.

These results pose some interesting questions, opportunities, and challenges for us all moving forward. The report notes that this one-year surge does not necessarily mean that our fear of losing skiers and riders as the Boomers age out is beyond us. One year does not a trend make. In fact, overall, many of the most successful resorts saw peak crowds that as much as doubled their comfortable capacity, and such an experience may well have deterred these new inductees into the sport from future visits. What can we do to make sure we convert these newcomers into regular participants?

Smaller resorts will continue to be challenged. Can they focus their relatively limited financial resources on creating positive experiences even on peak days? Some resorts may benefit by refocusing their entire operating model around that very beginner experience, finding a niche and owning that category within their markets. While many resorts claim to have accomplished this, the industry as a whole hasn't even cracked the door on turning these first-time snow encounters into loyalty-building experiences, in my view.

On another note, with lower debt loads and greater cash flow, a question remains as to how resorts will react and reinvest their capital. Coming out of the depths of recession, will we take the cautious and disciplined approach and invest in operating efficiencies, such as automation in snowmaking and ticket sales? Or will we take a business-building approach, investing in projects such as non-sliding attractions or wow-inducing beginner experiences? Both can be winning strategies.

A final thought. With snow falling as far south as Houston this year, it's hard to imagine that business will be down this season. If we have a momentum-building second year of growth, the menu of opportunities seems almost too great. March is the time for reflection and for forming the strategy for the future. Do you know how you stack up among your peers? And, most important, do you have a clear picture of who you want to be, and how you're going to get there?