Nick joined Platinum in 2017 as an investment analyst in the consumer sector team. Nick previously worked for Morgan Stanley and Credit Suisse in analyst positions. More
Skiing is an ancient activity, thought to have originated in Russia and China around 8,000 years ago, when humans began using shaped pieces of wood to move over frozen wetlands. The modern leisure ski industry, however, only emerged after WWII, spurred by improvements in technology (boots, chairlifts, snow making) and the opening of new terrain. The famed US Rocky Mountains owe much of their development to entrepreneurial troops from the 10th Mountain Division, who after returning from war, went on to establish the bones of many of the major ski resorts we know today.
As technology and resorts steadily improved, skiing became more accessible and evolved to become a popular pastime for upper middle-class families. The industry, however, had a problem. Despite the wealthy clientele, profits were scarce, owing to the high fixed operating costs, seasonal demand, and unpredictable snowfall. To combat this, most operators raised lift ticket prices, which progressively made the sport less accessible and relied on condo developments for the bulk of their earnings, exposing them to the booms and busts of the property cycle.
Around 10 years ago, however, the industry’s economics were upended by Vail Resorts. Vail was the first resort group to shift from milking a small number of resorts for cash, to acquiring a portfolio of dozens of resorts, and then investing heavily in improvements such as more chairlifts and snowmaking capacity. Vail’s biggest innovation, however, was making these resorts all collectively accessible through a single, cut-price season pass – an industry first. In exchange for an early commitment (season passes are sold in the off-season), consumers suddenly had unparalleled choice and value, which increased through the years as Vail added more resorts, including Australia (Perisher, Hotham, Falls Creek), as well as partnerships in Japan and Europe. For ~$900 and with only mild restrictions, Australians now have practically unlimited skiing across four continents each year.
The power of the season pass product was that it concurrently benefited consumers, the company and shareholders. As the value and choice of Vail’s season pass increased, the company sold more season pass products, which helped lock in revenues ahead of the snowfall, and allowed Vail to take market share from competitors with inferior offerings. This process was accelerated by significant increases to last minute window prices for lift tickets, which then made the season pass look like better value. Vail Resorts has now grown to become the largest and most profitable ski resort group in the world, accounting for 25% of the North American market alone and generating comparable margins and returns to European luxury goods companies.
There are, however, still some ‘moguls’ ahead. A rival group (IKON) has copied Vail’s multi-mountain season pass strategy, albeit via a looser affiliation of owned/independent mountains, which has several disadvantages relative to Vail’s model (i.e. lower ticket pricing flexibility, less control over guest experience). The North American ski market has thus become a duopoly, which has somewhat increased competition for Vail’s skiers and reduced the number of mountains left for Vail to acquire. In addition, Vail also has to contend with other slow burn issues such as an ageing skier base, as well as climate change.
Despite these issues, the outlook for skiing (post the pandemic) remains the brightest it has been in years. Better value season pass products and accommodation (e.g. Airbnb) continue to lower the cost of skiing, making the sport more accessible to the young families needed to replace aging boomers. Having spent years in the doldrums, skiing could be on the cusp of another golden era.
 Source: FactSet Research Systems.
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