To know where you are going, it helps to understand where you have been. For this, winter resorts have two key resources: The Economic Analysis of U.S. Ski Areas and the Kottke National End of Season Survey. Both track the economic performance of the winter resort industry, and both are necessary for any high-level analysis of seasonal performance.

The Economic Analysis is a multi-dimensional, financial, and operationally-focused study. Kottke is a broader report, but a lesser aggregation of data overall. The data sets are overlapping and, for the most part, complementary, and the long history of each—the Economic Analysis dates to 1968, for example—provides a wealth of comparative information.

Ordinarily, the preliminary Kottke survey findings are released at NSAA’s national convention, with a finalized report posted in mid-summer. Data gathering for the Economic Analysis takes much of the summer, with report production and availability in early-mid winter.

This schedule produces some limitations. Generally, participation in the Economic Analysis ranges from 105 to 120. Assuming 480 ski areas and resorts, this represents about 23 percent of the industry. That contrasts to participation in the Kottke survey of around 225 ski areas and resorts (47 percent). Is there any way to improve Economic Analysis participation? After all, statistical accuracy and integrity improves with data volume. The NSAA Economic Analysis Committee, which I chair, is always looking at ways to improve participation.

2016-17 In a Nutshell

Considering the industry’s inherent volatility, drawing conclusions from year-over-year comparison can be tricky, at best. For this reason, NSAA’s Economic Analysis Committee has included five-year averages for certain analyses in recent years, as a means of smoothing out year-to-year variations.

As reported in the Kottke survey, visitation in the 2016-17 season increased nominally from 2015-16 by 3.8 percent, from 52.8 million to 54.8 million visits. This was ahead of the five-year prior average of 54.1 million visits by 1.3 percent, but behind the recent 10-year average of 58.6 million visits by -6.5 percent.

Revenue/skier visit is another key top-line metric. For 2016-17, revenue/skier visit increased notably, 3.4 percent, to $110.22 from $106.61. This represents an 8.6 percent increase over the prior five-year period, unadjusted for inflation.

There’s a lot of detail in the two reports to provide a more complete picture:

• Gross revenue: Increases were greatest at mid-size and larger resorts. (EA)
• Ticket revenue/visit: The Rocky Mountain region led the nation in gross ticket revenue/visit ($61.24), followed closely by the Pacific South ($59.24). (EA)
• Average adult weekend ticket prices correlate to resort size, and secondarily, to fly-to destination vs regional drive-to resorts. The highest pricing is found in the Rocky Mountain region ($108.27). There’s then a drop-off to the Pacific South ($94.40) and Northeast ($86.28) regions—with their drive-to attributes—and a further drop to the Pacific North ($75.00), Southeast ($72.31) regions and Midwest region ($59.84). (EA)
• Season pass pricing essentially follows the regional pattern for adult weekend ticket pricing. (EA).
• Number of resorts: The number of open areas in the U.S. jumped from 463 in 2015-16 to 481 in 2016-17. According to the Kottke report, this represents the single largest year-over-year increase in 35 years of record keeping.
• Average days open increased from 120 days in 2015-16 to 127 days in 2016-17. (EA)
• Summer operations: Approximately 85 percent of Economic Analysis respondents have some level of summer operations. Compared to the 2015-16 season, average summer/fall revenue for 2016-17 dropped 4.9 percent, a likely indication of natural weather susceptibility in the warmer mountain months.
• Snowboarding: Participation in snowboarding for 2016-17 was 26.8 percent of total visitation, which continues the very slow downward pattern from 27.3 percent and 27.9 percent in 2015-16 and 2014-15, respectively. (K)
• Kids, internationals: International visitation at 5.7 percent and participation attributable to children at 29.4 percent (K) held steady, and were both nearly equal to the prior season.
• Capex: According to the Kottke survey, capital expenditure across the industry tends to vary considerably from year to year. While the report does not distinguish between “expansionary” and “maintenance (sustaining) capital,” NSAA assumes that all capex numbers reported flow to the balance sheet.
• Infrastructure spending: Spending on ski lift infrastructure increased from $46 million to $54.7 million in 2016-17, and if estimates become realty, spending will continue to accelerate in 2017-18 to a projected $71 million. This, of course, is very good news, given the well documented aging of the industry’s lift inventory. Spending on “on-mountain” facilities declined from $157 million in 2015-16 to $130 million in 2016-17. Responding resorts project facilities spending of $174 million in 2017-18. (K)

Margin Notes

As a whole, operating profit margin for respondents in the Economic Analysis was an exceptional 32 percent, up from 28.5 percent in 2015-16. This reflects the near-record season in the regions west of the Mississippi, especially in Pacific North (41.8 percent) and Rocky Mountain regions (37.6 percent). As a general rule, Eastern and Midwestern resorts run at lower margins, the result of higher operating expenses—snowmaking and energy costs chief among the differences.

The case could be made that operating leases (vs. capital leases) are an operating expense, thereby inserted above the Operating Profit (EBITDA) line. The 2016-17 margins of the Northeast and Pacific North regions indicate about a 5 percent hit to both, dropping the Northeast from a margin of 24.4 percent to 19.1 percent, and Pacific North from 41.8 percent to 36.1 percent. The lesson here is to be consistent in your treatment of operating leases if you are benchmarking your performance against the Economic Analysis.

And under the assumption that capital leases (typically rolling stock) are funded from a capital maintenance budget, a good rule of thumb is to not allow that specific line item to exceed 20-25 percent of the total budget.

Holding Yield?

According to the Kottke survey, lift ticket yield continues its very gradual long-term decline. The infusion of creative season pass programs is likely the primary, but not only, cause of this trend. The Economic Analysis attributes the decline to “discounted lift ticket products, such as night session tickets, half-day tickets, children’s tickets, lift and lodging packages, early season lift tickets, season passes, four-packs, frequent skier cards and programs, among others.” The table below shows the recent six-year annual trend, along with the most recent three-year and prior three-year decade-ago period averages.

Overall, there’s a 14-point drop over the 12-year period. So, two possible viewpoints—cause for concern, or, indication of an evolved business model? Many senior execs hold the latter view, that the season pass wars have led to a new norm, as resorts battle for market share.

The windfall benefit of shrinking ticket yield has been a sharper scrutiny on the performance of other resort profit centers, to build “replacement margin.” Over the past decade, resorts have eliminated concessionaries and leased operations—F&B and retail in particular—and brought those operations in-house. Most of these profit centers have good departmental margin, and their recapture clearly works to offset what may be lost specifically on ticket yield.

Critical Ratio Snapshot

A few other metrics worth comparing to those of your regional/size peers:

Revenue per Employee. This benchmark is a simple ratio of gross revenue divided by the employee base. It is a measure of workforce effectiveness, and is useful when viewing year-over-year, same-resort results, as well for comparison between a single resort and a comp set, based on size or region. Despite greatly improved gross revenue and a minimal increase in employee base in 2016-17, this ratio increased only 1.5 percent, yielding a metric of $37,851 gross revenue per employee for responding areas.

Pre-Tax Profit on Equity. This ratio essentially reveals how much profit a company earned, in comparison to the total amount of shareholder equity invested. This is often referred to as return-on-equity (ROE). In the 2016-17 season, the reporting resorts averaged an ROE of 16.7 percent, an increase from 11.6 percent in the prior season. This 44 percent uptick was largely driven by a 35.9 percent increase in pre-tax profits, while net worth/equity was down by 5.3 percent. Such dramatic swings in prior-year comparisons are to be expected in the Economic Analysis, as weather-related changes to some key respondents can lead to very different year-to-year results. If we compare a given year to longer-term averages, these numbers show less volatility.

Health. According to the Economic Analysis, responding resorts are “healthy,” as measured by debt-to-cash-flow ratio, or “debt coverage ratio.” This metric theorizes the number of years that would be needed, at current levels of cash flow, to retire the resorts’ debt. The ratio for 2016-17 was essentially equal to 2015-16 at a calculation of ~1.0. That is, the industry would require about one year to retire the current level of debt at current cash flow levels. And that is an indication of exemplary credit worthiness.

Challenges/Opportunities

Lastly, the Kottke report assembles responses to “Challenges and Opportunities Going Forward.” This five-year look forward highlights the biggest perceived business impacts. Over recent years, the identified challenges have been fairly consistent: weather, industry consolidation, wage legislation, access to capital, insurance and energy costs, capital investment cost, availability and quality of workforce, destination access (air), demographic changes, competition, and USFS permitting decisions.

Opportunities are equally plentiful: proximity to growing local populations, uncovering new markets, investments to enhance operations, increased amenities (summer and year-round), pass programs, and partnerships and efforts to differentiate the experience from the competitive set.

It is always encouraging to see and understand the focus brought by challenges, along with the enthusiasm and optimism found in opportunity. These comments prove once again that we are an optimistic, resilient, strong industry of risk takers, collaborators, and survivors. We wouldn’t have it any other way.