Overall, the 2013-14 ski season represented a slight improvement over the 2012-13 season for most regions, according to NSAA’s Economic Analysis of United States Ski Areas. Still, the total number of resorts losing money increased. Fortunately, in addition to the industry overview, the report offers a few clues into how resorts struggling to turn a profit can improve their fortunes. Hint: controlling costs is key.

Nationally, the past two years were rather average. The 2013-14 season saw an estimated 56.5 million visits, a slight decline, of .7 percent, from the 56.9 million recorded in 2012-13.

Still, resorts in four of the six regions, the Northeast, the Southeast, the Midwest and the Rocky Mountains, did post gains in visits compared to 2012-13. In fact, these regions “enjoyed their third-best season in 36 years of available estimates,” according to the report.

Resorts in the Pacific South and the Pacific North did not, however. (Pacific South resorts are located in Arizona, California, and Nevada; Pacific North resorts are in Oregon, Washington, and Alaska, although no resorts from Alaska responded to the survey.) The average number of visits fell 24.5 percent for the Pacific South resorts, and 14.4 percent for the Pacific North resorts. These regions’ seasons were also shorter by 17 days (a drop of 12.6 percent) and 10 days (a drop of 7.6 percent), respectively. The drought in California impacted results in a big way.

The Rocky Mountain region in particular enjoyed a disproportionately large gain in visits as compared to season length. On average, the season lasted only two days longer in 2013/14 than it did in 2012/13, an increase of 1.4 percent, yet visits increased nearly 9 percent on average.

(See Table 1 and Table 2 for a more detailed comparison of season length and visits by region.)

Let’s zoom back out to the national level and look at financial results. Average operating profit margin fell one-half of one percentage point to 26.7 percent in 2013-14 compared to 27.2 percent in 2012-13, and pre-tax profit margin fell from 8.8 percent in 2012-13 to 8.1 percent in 2013-14, a decline of .7 percentage points. Total gross revenues increased 3.3 percent, but operating expenses were up 4 percent. Depreciation dipped 1.4 percent, but amortization climbed 38.1 percent. Operating leases fell 5 percent, but interest increased 27.3 percent. All together, that meant profits before tax dropped 4 percent.

Of course, these numbers also varied by region, as summarized in Table 3. 

The point of all these tables is to show just how much the data vary based on factors such as location (and therefore, weather). Data from the Rocky Mountain resorts strongly influence the national numbers, partly because that region is the source of the highest number of survey respondents, and partly because those resorts tend to be so large.

The report also provides breakdowns for different size resorts: The small resorts (those with between 0 and 7,500,000 vertical transport feet per hour (VTFH)), smaller mid-sized (between 7,500,001 and 10,000,000 VTFH), larger mid-sized (between 10,000,001 and 20,000,000 VTFH), and large resorts (20,000,001 VTFH and above). Tables 4 and 5 show the average total visits and season length for the different sized resorts.

One key point from these last two tables: the resorts the report calls large are really extra-large or perhaps super-sized. The 2013-14 average large resort had nearly three times as many visits as the average larger mid-sized resort, and had a season that lasted about 19 days longer.


Profitable Resorts vs. Unprofitable Resorts: What are the Differences?
Where the report gets truly interesting, I think, is in the appendix, where data breakdowns by profitability category—top half profit, bottom half profit and loss—appear. Here, it’s clear that size matters when it comes to profitability. But not in the usual way.

Of course, the super-sized resorts have more revenues and are therefore more likely to make it into the top-half profit category. However, profitability is not a linear relationship. For example, the average visit count of those resorts in the top-half profit category was 497,004. For those in the bottom-half profit category, it was 163,744, and for those operating at a loss, it was 214,951. A similar pattern held true in 2012-13: The top half profit averaged 468,367 visits, the bottom half profit averaged 180,416, and the loss group averaged 235,034 visits.

Overall, 36 resorts made it into the top-half profit category, the same as in 2012-13, 36 were in the bottom-half profit category, down from 41 in 2012-13, and 36 operated at a loss, up from 31 in 2012-13.

Making too many comparisons over time among these profit-based groups is a bit dicey, because a resort may move from one category to another in any given year without needing to add a chairlift or two, which would be necessary to move into a different size category, for example.

Still, two very different regions, the Midwest and the Rocky Mountains, with two very different business models, have similar profit margins. The Midwest resorts averaged a little more than 100,000 visits, the smallest number in the survey; Rocky Mountain resorts averaged nearly 500,000 visits, the largest number in the survey. That they’re both successful indicates that improving results is not just a matter of increasing capital expenditures or achieving high visitation levels.

In general, the large resorts tend to be most profitable, those in the small and smaller mid-sized categories tend to be somewhat profitable, and those in the larger mid-sized category tend to lose money. Strictly speaking, this observation is not true for every resort in these size categories, but it is still useful for our analysis. Also, in and of itself, this observation about size may not be particularly helpful to resort managers.

So, let’s look at what else differs about the profitable and not-so-profitable resorts.


Loss Group Characteristics
First, total revenue per visit broke down as follows: $96.60 for the top-half profit group; $73.51 for the bottom-half profit group; and $89.16 for the loss group. That’s right, the loss group had a higher average than the bottom-half profit group.

What the loss group had, however, was much higher total expenses per visit than either profitable group. For the top-half profit, expenses per visit totaled $78.18, for the bottom-half profit, they were $68.32, and for the loss group, they were $105.72. A chunk of those expenses stemmed from depreciation, leases, and interest, which likely relate to investments intended, in the long run, to improve results.

However, other direct expenses, general and administrative expenses, and marketing and advertising were also substantially higher on a per-visit basis for the loss group than either profitable group. Looking at expenses as a share of revenue provides another perspective on how the loss group could improve its results. In particular, the loss group spends 10.9 percent of revenues on what the report categorizes as “Other (operating depts.)”; the top-half profit spends just 5.6 percent of revenues on these activities, and the bottom-half profit spends 6.9 percent on them. When it comes to common expenses, the loss group spends substantially more, in terms of percent of revenues, on general and administrative and marketing. The profitable groups spend less on these categories, as shown in Table 6.

Certainly, resorts need to understand their customers and advertise to them, but finding more efficient ways to do so, and to accomplish other general and administrative tasks, could help resorts operating at a loss boost their results. Reducing costs is not the same as increasing revenues—in terms of profits, it’s better. An extra dollar in revenue goes to the top line and has costs taken out. A dollar saved in costs goes directly to the bottom line.

In addition, smaller and mid-sized resorts stand to benefit relatively more from cost cutting than do large resorts. For example, a resort with $81 million in annual revenues (about the average total gross revenue of a large resort in this survey) would need to reduce costs by $1.62 million for a 2 percent savings. A resort with annual revenues of $20 million (about the average total gross revenue of a larger mid-sized resort in this survey) would achieve an 8.1 percent savings if it somehow managed to cut $1.62 million; for a 2 percent savings, it would need to reduce costs by $400,000.


Spending More Wisely
One way to increase the efficiency of marketing and advertising is ensuring money goes to promotions with the highest potential return. To do that, resorts need to know what skiers care about when deciding to purchase a ticket. Recently, economists Mark A. Holmgren and Vicki A. McCracken, of Eastern Washington University and Washington State University, respectively, collected and analyzed data on the factors influencing demand for visits to a ski resort outside Salt Lake City, which is a highly competitive market.

Their results, which were published as an article, “What Affects Demand for ‘The Greatest Snow on Earth?’” in the peer-reviewed Journal of Hospitality Marketing & Management, looked at how skiers purchasing different types of tickets, such as half-day tickets, student-only tickets, season passes and more, responded to changes in ticket prices, the weather, gas and airfare prices, ticket prices at other nearby resorts, the day of the week, and their own incomes. It turns out that these different variables impacted the different groups in different ways.

However, transportation costs (in terms of gasoline prices and, separately, in terms of airfares) and the day of the week influenced every type of ticket buyer. In general, as transportation costs increased, visits to the hill decreased. For some groups, these costs mattered more than factors such as recent snowfall or temperature.

Ultimately, it is nearly impossible for ski resorts to make money when people stay home, so getting visitors to the hill is essential. Doing so by defraying transportation costs could be a wise move. That could come in a variety of forms, from rewarding ticket purchasers with gift cards for gas stations to encouraging carpooling to partnering with bus lines. Destination resorts could subsidize airfares or baggage fees. Offering these subsidies in the form of gift cards that can be used immediately for lift tickets, meals, or other items could also encourage customers to spend more during their visits.

For many resorts, non-ticket revenue accounts for half or more of total revenue per visit. Table 7 shows the exact numbers by size, and Table 8 shows them by region.

Note that the Midwest’s non-ticket revenues are higher than those of all other regions, in terms of both the value of average non-ticket revenue per visit and its share of total revenue. These resorts earn more, in percentage terms, than resorts in other regions from food and beverage, retail stores, and accommodations. They’re second, in percentage terms, in rental shops and other. These resorts do understand how to make the most of what they have.

That is just one of the many valuable lessons to be learned from the NSAA report, which covers far more than this article can discuss and is, as usual, a worthwhile read. It is perhaps most valuable to those managers willing to think about how their operations, and their results, compare to those of their competitors. Managers who invest the time to look beyond the national trends and move past lamenting the factors over which they have no control are likely to find their efforts rewarded with useful insights.