The Ski Industry and The Great Snow God

Snow, it’s the most essential component of a great day of skiing.   Before retiring each night, ski bums around the world perform their sacred rituals and intimately pray to the great snow god.  But regardless of their pleas, this mighty god only blankets regions of the world upon his own desire.  The accumulation of snow is reliant upon weather — an inconsistent, unpredictable, and uncontrollable variable.  How then can a business remain profitable if its most essential component is dependent upon the erratic behavior of the snow god?  In the winter of 2012, Colorado was experiencing the worst snow drought since the 1980’s.  Andy Katz, CEO of Vail (one of North America’s largest resorts) commented upon the drought, “For the first time in 30 years, a lack of snow has not allowed us to open the back bowls in Vail.” (ClimateProgress.org) Snowfall totals had fallen more than 80 percent from the 525 inches the mountain had received the year earlier.  However, even with such a dramatic lack of snow Vail’s visits were down only 15 percent and, “even more surprising, annual revenue hadn’t declined at all.” (TheAtlantic.com).  If weather can be so inconsistent, and snow, so unpredictable, how then can a business hold such consistent revenue?  That the answer lies in diversification of products and services.

NoSnow

Though skiing may be the primary motive of a visitor, getting those visitors actually skiing on the mountain is not the primary aim of many resorts.  If a resort’s business model is heavily reliant upon their costumers buying lift tickets and skiing, it becomes incredibly risky.  If such a resort experiences a winter like Colorado’s in 2012 than their total visitors would plummet alongside total revenue.   When we examine many large successful resorts in the United States and Canada they hold one glaring similarity: a village that offers a variety of products and services.  Restaurants, spas, tours, and shops of all kinds line cobblestone sidewalks. This keeps revenue constant to counter variable amounts of snow.  This decreases the elasticity of a ski resort’s demand with respect to weather. For this to occur, a resort’s business model must draw costumers for more reasons than skiing alone.

whistler-village-in-the-winter

Another way resorts hold revenue relatively inelastic with respect to weather is by “owning the skiers” (TheAtlantic.com) Vail’s season pass costs $700.  This price is the equivalent of seven day tickets.  By buying a season pass, the skier is now a reliable costumer of the resort regardless of snowfall.  But wouldn’t the resort lose money if season passes are valued at seven days on the slopes and many of their owners ski fifteen or more days a year?  It turns out that these skiers have committed to a resort regardless of weather which further detaches a resorts connection to weather. “Just under 40 percent of our lift tickets come from season passes sold before the ski season begins,” the CEO of Vail said.  Also, by investing in a loyal base of skiers, these returning costumers are now renting from that resorts equipment, buying their food, and staying in their hotels. Mountains like Vail and Whistler own all key lodging, rentals, snow school, and food locations therefore monopolizing their own base villages (Much like how sporting events, festivals, amusement parks, and casinos can charge high prices because of the lack of competition).

Screen Shot 2015-03-02 at 1.40.15 AMScreen Shot 2015-03-02 at 1.40.23 AM (TheAtlantic.com)

With services outside of ticket sales generating about 50% of both resorts revenue, even when costumers get a cheap pass to ski on the mountain, they’re still using many of Whistler and Vail’s other product and services. Many of these resorts use real estate as well to lessen their business’ dependence on weather even further.  This technique of getting people to the mountain holds many similarities as the season pass.  If people have a place to stay at a resort they will have already invested money and committed to staying at the resort.  It is investment made by the resort to “own the skier”.  If a resort gives a costumer a great deal on a condo, the resort may not make money immediately, but now that costumer has committed to spending time at the resort where they will ski, eat, and shop and ultimately do these things regardless of how much snow falls from the sky.  Kevin Smith (CEO of Whistler Blackcomb), explains how offering these season passes and real estate packages help Whistler: “If families pre-commit to a package that includes lift tickets, lodging, and ski school, we lock up that business before the snow falls.” (TheAtlantic.com) Now when a resort diversifies their products and services in these ways and make costumers commit to their resort before the snow falls than they turn their industry from an elastic one to a relatively inelastic one.  By doing so they become less susceptible to the wrath and tantrums of the almighty snow god.

Works Cited:

Thompson, Derek. “No Business Like Snow Business: The Economics of Big Ski Resorts.” The Atlantic. Atlantic Media Company, 7 Feb. 2012. Web. 2 Mar. 2015. <http://www.theatlantic.com/business/archive/2012/02/no-business-like-snow-business-the-economics-of-big-ski-resorts/252180/&gt;.

“Snow Drought Forces Colorado to Face Frightening New Climate-change Reality.” The Colorado Independent. 9 Jan. 2012. Web. 2 Mar. 2015. <http://www.coloradoindependent.com/109613/snow-drought-forces-colorado-to-face-frightening-new-climate-change-reality&gt;.

“Colorado Sees Worst Snow Drought Since Early 1980s, Foreshadowing Water Shortages And Potential Wildfires.” ThinkProgress RSS. 9 Jan. 2012. Web. 2 Mar. 2015. <http://thinkprogress.org/green/2012/01/09/401077/colorado-sees-worst-snow-drought-since-early-1980s-foreshadowing-water-shortages-and-potential-wildfires/&gt;.

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