Chapter 3 Mountain-Based Resorts: Managing the Operation

Chapter 3Chapter 3

Mountain-Based Resorts:Mountain-Based Resorts:Managing the OperationManaging the Operation

Identify the changing trends in and Identify the changing trends in and demographic profiles of the demographic profiles of the

snowsports market.snowsports market.Changing Trends:Changing Trends:

Skis first became used for recreational Skis first became used for recreational purposes in the mid-1800’s.purposes in the mid-1800’s.

First demand stimulating innovation was First demand stimulating innovation was the stiff toe-and-heel bindingthe stiff toe-and-heel binding– allowed for long, gliding turnsallowed for long, gliding turns– developed by a Norwegiandeveloped by a Norwegian

Changing Trends (cont.)Changing Trends (cont.)

Austrian’s developed the basic technique for Austrian’s developed the basic technique for alpine/downhill skiingalpine/downhill skiing

The first ski lift consisted of a rope and Model T The first ski lift consisted of a rope and Model T that dragged people up the slope for a dollar a that dragged people up the slope for a dollar a dayday

In the 1930’s and 40’s modern bindings with In the 1930’s and 40’s modern bindings with steel edges gave the skiers more control and led steel edges gave the skiers more control and led to easier turns.to easier turns.


Development of ski resorts halted during WWIIDevelopment of ski resorts halted during WWII– During this time the Tenth Mountain Division During this time the Tenth Mountain Division

developed a significant reputation for its skiing developed a significant reputation for its skiing activitiesactivities

– Many of Europe’s best skiers and instructors migrated Many of Europe’s best skiers and instructors migrated to the U.S.to the U.S.

Many innovations in the 1950’s helped Many innovations in the 1950’s helped popularize the sport, such as:popularize the sport, such as:– Easier-turning metal skis, buckled ski boots, step-in Easier-turning metal skis, buckled ski boots, step-in

bindings, slope-grooming machines, stretch pants, bindings, slope-grooming machines, stretch pants, and the inauguration of the interstate highway systemand the inauguration of the interstate highway system


Condominiums helped cement the relationship Condominiums helped cement the relationship between skiing and real estate development. between skiing and real estate development.

In 1962 Vail, Colorado became the first planned In 1962 Vail, Colorado became the first planned destination ski resort.destination ski resort.

Great growth occurred in the next decades and Great growth occurred in the next decades and by 1960 there were over 600 ski resortsby 1960 there were over 600 ski resorts


In the 1970’s development was slowed by In the 1970’s development was slowed by high land prices, significant interest rates, high land prices, significant interest rates, and the time and money required to obtain and the time and money required to obtain development approval due to an increased development approval due to an increased concern for the environmental impact of concern for the environmental impact of large-scale developments.large-scale developments.

Changing DemographicsChanging Demographics

The rate of skiing participation is a function The rate of skiing participation is a function of ageof age

The number of teenagers declined in the The number of teenagers declined in the 1980’s causing concern throughout the 1980’s causing concern throughout the industry.industry.

Children of the baby boomers, however, Children of the baby boomers, however, returned to the slopes as downhill skiers returned to the slopes as downhill skiers and snowboardersand snowboarders

Changing Demographics (cont.)Changing Demographics (cont.)

Due to the increase in snowboarding, a growing Due to the increase in snowboarding, a growing number of resorts are developing runs number of resorts are developing runs specifically for snowboardersspecifically for snowboarders

The male/female ratio of skiers has stayed The male/female ratio of skiers has stayed relatively stable throughout the yearsrelatively stable throughout the years– During the 2004-2005 ski season, 59% of the ski During the 2004-2005 ski season, 59% of the ski

participants were male and 41% were female.participants were male and 41% were female.


Males make up the majority of participants who Males make up the majority of participants who possess the following characteristics:possess the following characteristics:– People who first began skiing or riding on their own People who first began skiing or riding on their own

(77 percent male)(77 percent male)– Advanced/expert ability level (72 percent)Advanced/expert ability level (72 percent)– Aged 65 and over (71 percent)Aged 65 and over (71 percent)– Snowboarders (67 percent)Snowboarders (67 percent)– Ski or ride 30 or more times per season (67 percent)Ski or ride 30 or more times per season (67 percent)– Wear helmets (63 percent)Wear helmets (63 percent)– Singles with no children (62 percent)Singles with no children (62 percent)– Season pass holders (62 percent)Season pass holders (62 percent)


Females, on the other hand, represent the Females, on the other hand, represent the majority who possess the following majority who possess the following characteristics:characteristics:– Beginners, excluding first-time participants (58 Beginners, excluding first-time participants (58

percent female)percent female)– Participants who first tried skiing/snowboarding with a Participants who first tried skiing/snowboarding with a

school group, a ski/snowboard club, or another school group, a ski/snowboard club, or another organized group (48 percent combined)organized group (48 percent combined)

– First-time participants (54 percent)First-time participants (54 percent)– Lesson takers (57 percent)Lesson takers (57 percent)– People who plan to ski or ride just once in the 2005-People who plan to ski or ride just once in the 2005-

2006 season (52 percent) or two to three times (47 2006 season (52 percent) or two to three times (47 percent)percent)


Females, on the other hand, represent the Females, on the other hand, represent the majority who possess the following majority who possess the following characteristics:characteristics:– Renters of equipment (49 percent)Renters of equipment (49 percent)– Participants who have dropped out of Participants who have dropped out of

snowboarding/skiing at least one year out of the five snowboarding/skiing at least one year out of the five seasons prior to the 2004-2005 season (48 percent)seasons prior to the 2004-2005 season (48 percent)

– Participants who visit as a part of an organized group Participants who visit as a part of an organized group (48 percent)(48 percent)

– Couples with no children (46 percent)Couples with no children (46 percent)– Participants who are aged between 35 and 44 (45 Participants who are aged between 35 and 44 (45

percent)percent)


The median age of snowsports The median age of snowsports participants is 36.participants is 36.48% of skiers and snowboarders are part 48% of skiers and snowboarders are part of a family that has children at homeof a family that has children at home88% of skiers and snowboarders in 2004-88% of skiers and snowboarders in 2004-2005 were white2005 were whiteThe majority of snowsports participants The majority of snowsports participants have an intermediate skill levelhave an intermediate skill level

Identify the critical variables in Identify the critical variables in determining a mountain-based determining a mountain-based

resort’s profit potential.resort’s profit potential.

Four critical variables determine whether Four critical variables determine whether or not a resort will make a profit: capacity, or not a resort will make a profit: capacity, the length of the season, the amount of the length of the season, the amount of capital investment, and the amount of capital investment, and the amount of revenue per visit. revenue per visit.

Variables of Profit PotentialVariables of Profit Potential

Ski Area CapacitySki Area CapacityPhysical and ecological capacity takes into Physical and ecological capacity takes into account the physical and ecological limitations of account the physical and ecological limitations of the sitethe site

Social or normal capacity is where the majority Social or normal capacity is where the majority of skiers do not consider the area overcrowdedof skiers do not consider the area overcrowded

Maximum capacity is when no more visitors can Maximum capacity is when no more visitors can be served.be served.

Ski Area Capacity (cont.)Ski Area Capacity (cont.)

The upper limit for safety can occur when The upper limit for safety can occur when a single element is at maximum usea single element is at maximum use

Ski area capacity is a measure of three Ski area capacity is a measure of three factors: factors: – The capacity of the terrain, the uphill capacity, The capacity of the terrain, the uphill capacity,

and the capacity of the supporting facilitiesand the capacity of the supporting facilities

Variables of Profit Potential (cont.)Variables of Profit Potential (cont.)

Length of the SeasonLength of the Season

Main determinants are weather and Main determinants are weather and climateclimate

Season length is measured in terms of Season length is measured in terms of skiing periods (one period = 7hours)skiing periods (one period = 7hours)

Capital InvestmentCapital InvestmentMajor cost elements that go into a ski resort Major cost elements that go into a ski resort

include:include:– ski liftsski lifts– ski slope and trail ski slope and trail

constructionconstruction– snow maintenance snow maintenance

equipmentequipment– snowmaking snowmaking

equipmentequipment– day use lodge buildingday use lodge building– maintenance centermaintenance center– furniture and fixturesfurniture and fixtures

– base area equipmentbase area equipment– parkingparking– power and slope power and slope

lightinglighting– water and sewerwater and sewer– site developmentsite development– planningplanning– financingfinancing– landland– access roadsaccess roads

Variables of Profit Potential (cont.)Variables of Profit Potential (cont.)

Revenue Per Skier VisitRevenue Per Skier Visit

This figure is determined by totaling all This figure is determined by totaling all revenue and dividing it by the number of revenue and dividing it by the number of skier visitsskier visits

Revenue is generated by ski lift tickets and Revenue is generated by ski lift tickets and supporting servicessupporting services

Identify potential solutions to Identify potential solutions to financial problems faced by financial problems faced by

mountain-based resorts.mountain-based resorts.Problem: Low Solvency and/or LiquidityProblem: Low Solvency and/or Liquidity– Occurs when current liabilities are too high and/or when short-Occurs when current liabilities are too high and/or when short-

term funds are used to fund long-term assets.term funds are used to fund long-term assets.

Solution: Move some short-term liabilities to the long Solution: Move some short-term liabilities to the long term or sell and lease back some fixed assets.term or sell and lease back some fixed assets.

Problem: High Debt to EquityProblem: High Debt to Equity– Net worth being too low or liabilities being too high causes a high Net worth being too low or liabilities being too high causes a high

debt-to-equity ratio. debt-to-equity ratio.

Solution: Capital can be added by selling stock, or Solution: Capital can be added by selling stock, or company growth can be slowed and profits used to company growth can be slowed and profits used to reduce liabilities instead of buying additional assets.reduce liabilities instead of buying additional assets.

Financial Problems and SolutionsFinancial Problems and Solutions

Problem: Low Operating IncomeProblem: Low Operating Income– Results from insufficient revenue and/or costs that are too high Results from insufficient revenue and/or costs that are too high

relative to the level of revenuerelative to the level of revenue

Solution: Enhance operating income by pushing sales of Solution: Enhance operating income by pushing sales of the high-margin departmentsthe high-margin departments

Problem: Low Revenue to EmployeeProblem: Low Revenue to Employee– A measure of how efficiently employees are scheduled relative A measure of how efficiently employees are scheduled relative

to the volume of business being generatedto the volume of business being generated

Solution: When this ratio is too low, the number of Solution: When this ratio is too low, the number of employees must be reduced or revenue must be employees must be reduced or revenue must be increasedincreased


Problem: Low Pretax Profit MarginProblem: Low Pretax Profit Margin– Low profits are caused by an operating income that is too low to Low profits are caused by an operating income that is too low to

meet the level of overhead that must be paid.meet the level of overhead that must be paid.

Solution: If the overhead cannot be reduced, the only Solution: If the overhead cannot be reduced, the only other solution is to increase revenue to raise the other solution is to increase revenue to raise the operating income.operating income.

Problem: Low Revenue to AssetsProblem: Low Revenue to Assets– A low ratio means that revenues are too low or assets are too A low ratio means that revenues are too low or assets are too

highhigh

Solution: Perhaps unused property can be sold or fixed Solution: Perhaps unused property can be sold or fixed assets can be sold and leased back. If not, attention assets can be sold and leased back. If not, attention must focus on increasing sales.must focus on increasing sales.


Problem: Low Return on AssetsProblem: Low Return on Assets– A low return on assets means that net profits A low return on assets means that net profits

are too low and/or assets are too high.are too low and/or assets are too high.

Solution: Net profits can be increased by Solution: Net profits can be increased by some combination of increasing revenue some combination of increasing revenue and lowering costs.and lowering costs.


Problem: Low Return on InvestmentProblem: Low Return on Investment– Net profit is too low and/or the net worth is too highNet profit is too low and/or the net worth is too high

Solution: Expanding the business using Solution: Expanding the business using borrowed funds can reduce the relative net borrowed funds can reduce the relative net worthworth

Problem: Low Accounts Receivable TurnoverProblem: Low Accounts Receivable Turnover– If accounts receivable is too high, it may cause a If accounts receivable is too high, it may cause a

strain on cash flowstrain on cash flow

Solution: Reduce accounts receivableSolution: Reduce accounts receivable

Identify the most important financial Identify the most important financial ratios relevant to mountain-based ratios relevant to mountain-based

resorts.resorts.

The key to profits is to increase revenue The key to profits is to increase revenue while reducing expenses or keeping them while reducing expenses or keeping them steady.steady.

Financial RatiosFinancial Ratios

Net Working CapitalNet Working Capital– The largest ski areas are the ones with the The largest ski areas are the ones with the

highest working capital balanceshighest working capital balances

Current RatioCurrent Ratio– Expresses the relationship between current Expresses the relationship between current

liabilities and current assetsliabilities and current assets– By resort size, the largest and smallest By resort size, the largest and smallest

resorts had the highest ratios, while mid-sized resorts had the highest ratios, while mid-sized resorts had ratios below one.resorts had ratios below one.


Debt RatioDebt Ratio– Indicates the extent to which a company is financed Indicates the extent to which a company is financed

through debt sources like long-term loans or bonds through debt sources like long-term loans or bonds (as opposed to retained earnings or owner’s equity)(as opposed to retained earnings or owner’s equity)

– The smallest resorts have the highest average debt The smallest resorts have the highest average debt ratio, whereas larger mid-sized resorts have the ratio, whereas larger mid-sized resorts have the lowest.lowest.

Debt to Cash FlowDebt to Cash Flow– Measures the years that would be needed at the Measures the years that would be needed at the

current cash flow to eliminate long-term debtcurrent cash flow to eliminate long-term debt


Operating Profit on GFA (Gross Fixed Assets)Operating Profit on GFA (Gross Fixed Assets)– Calculated by dividing the operating profit by the GFACalculated by dividing the operating profit by the GFA

Profit, Before Tax, on EquityProfit, Before Tax, on Equity– Measures stockholder’s or owners return on Measures stockholder’s or owners return on

investmentinvestment

Capital Cost CapacityCapital Cost Capacity– This ratio is a relative measure of ski area attributes; This ratio is a relative measure of ski area attributes;

calculated by dividing GFA by skier capacity.calculated by dividing GFA by skier capacity.


Total Revenue per Skier VisitTotal Revenue per Skier Visit– The actual revenue generated by the ski area for The actual revenue generated by the ski area for

each skier dayeach skier day– Ratio is determined by dividing total revenue from ski Ratio is determined by dividing total revenue from ski

lift tickets and other ancillary operations by the lift tickets and other ancillary operations by the number of skier visits.number of skier visits.

Total Expenses per Skier VisitTotal Expenses per Skier Visit– The actual expense for each skier day is calculated The actual expense for each skier day is calculated

by dividing all expenses by the number of skier visitsby dividing all expenses by the number of skier visits

Identify the challenges of a seasonal Identify the challenges of a seasonal resort, along with possible solutions resort, along with possible solutions to stabilizing year-round revenue.to stabilizing year-round revenue.

Problem: Expenses build up all year Problem: Expenses build up all year round, so most ski resorts simply can’t round, so most ski resorts simply can’t afford to close down for eight months.afford to close down for eight months.

Stabilizing Year Round RevenueStabilizing Year Round Revenue

Ski resorts may offer:Ski resorts may offer:– Hiking, mountain biking trails, scenic lift rides, Hiking, mountain biking trails, scenic lift rides,

ball courts, mountain bike lift service, fishing, ball courts, mountain bike lift service, fishing, horseback riding, climbing walls, disk golf, horseback riding, climbing walls, disk golf, and miniature golf.and miniature golf.


Other resorts incorporate summer revenue Other resorts incorporate summer revenue boosters such as:boosters such as:– Alpine slides, waterparks, summer camps, bungee Alpine slides, waterparks, summer camps, bungee

trampolines, canoeing, kayaking, mountain scooters, trampolines, canoeing, kayaking, mountain scooters, wagon/carriage rides, ropes courses, all-terrain wagon/carriage rides, ropes courses, all-terrain vehicle tours, skate parks, paintball, driving ranges, vehicle tours, skate parks, paintball, driving ranges, cable rides, mountain boards, rock climbing, rafting, cable rides, mountain boards, rock climbing, rafting, orienteering, human mazes, go-karts, riverboat orienteering, human mazes, go-karts, riverboat cruises, paddleboats, and skating schools.cruises, paddleboats, and skating schools.


Ski resorts may also be transformed into indoor Ski resorts may also be transformed into indoor or outdoor waterparksor outdoor waterparks– Camelback Ski Resort transformed into Camelbeach Camelback Ski Resort transformed into Camelbeach

Waterpark and now has a positive cash flow during Waterpark and now has a positive cash flow during the summer.the summer.

Four-Season ResortsFour-Season Resorts– These resorts must expand and create winter and These resorts must expand and create winter and

summer facilities and activitiessummer facilities and activities– They must also attract groups to fill the spring and fall They must also attract groups to fill the spring and fall

seasonsseasons


Convention CentersConvention Centers– Can provide a year round attraction to meet Can provide a year round attraction to meet

the needs of group meetings.the needs of group meetings.

Base Village ResortsBase Village Resorts– A year round village where skiing is not A year round village where skiing is not

always the main attractionalways the main attraction


Problems can arise when converting a Problems can arise when converting a winter-only ski resort into a useful summer winter-only ski resort into a useful summer time attraction.time attraction.– Housing Crunch Housing Crunch

Many resort employees must seek housing far Many resort employees must seek housing far away from the resort town because of the real away from the resort town because of the real estate boom. This can lead to traffic problems in estate boom. This can lead to traffic problems in the area.the area.

The End!The End!

Documents

Chapter 3 Mountain-Based Resorts: Managing the Operation