It’s February, and the ski season is well under way. The ski industry does its best to portray itself as cool and good fun, but make no mistake, this is big business. Globally, the ski market is worth more than $20 billion a year.
Where once, ski resorts were owned and operated by farmers, landowners, local municipalities and some enterprising individuals, they are now operated and in some cases owned by huge multinational conglomerates. The world’s biggest owner/ operators – Vail Resorts & Aspen Ski Company - are both based in the US. Vail Resorts operates 14 resorts in the US, Canada and Australia, including the top 5 North American resorts, with revenues exceeding $2 billion last year. With 12 million skier visits annually, this NYSE listed titan has a 15% share of the North American ski market. After a recent acquisition spree, Vail’s close neighbour and competitor, Aspen Ski Company (along with their private equity investment partners), runs 13 resorts, with revenues now exceeding $1 billion a year. Despite a trend of consolidation, the US ski resort industry is still fragmented, with a high number of smaller operators, across over 400 resorts. That being said, the large resorts - the likes of which Vail and Aspen Ski Company operate – are responsible for the majority of US ski resort earnings.
The European ski resort industry is generally less concentrated than its US counterpart, with a greater number of smaller operators. In fact, the only European operator that gets even close to the size of the Americans, is the French conglomerate, Compagnie des Alpes. Operating 13 of the largest resorts in France, including the hugely popular Val D’Isere, Les Arcs and Tignes, it is the undisputed world leader, with a combined 22 million ski visits a year. Despite operating the world’s biggest resorts, Compagnie des Alpes’ ski resort revenue is a fraction of its American rivals, at €429 million last year.
This huge gap highlights a key difference between the US and European industries. In Europe, the bulk of resort operator revenues come from selling lift passes, making up 95% of Compagnie des Alpes sales. They are responsible for equipping, maintaining and operating ski areas. The US operators on the other hand,have a much wider remit. They are also involved in the owning and management of hotels, chalets and retail outlets, and can engage in real estate development activities. Only 50% of Vail Resorts mountain revenues come from lift pass sales.
This difference occurs despite both regions having broadly similar ownership structures. In general, the resort operators do not own the land, but instead lease it off the land owners, who are usually local municipal authorities. In Colorado, it is the US Forest Service that owns the majority of the land, upon which resorts are based. In 2017, the White River National Forest Service – based in Colorado – collected fees of over $20 million from resort operators. The fees are calculated as a low percentage of lift pass sales, often between 1% and 5%. In the rest of Europe - outside of France - large multi-site operators are rare. In Austria, Switzerland and Italy, operators are often combinations of private lift companies and local municipalities.
The ski equipment market is similarly large in value, although there are significantly fewer players. The Rossignol brand sells more skis than any other company in the world, with its parent group registering winter equipment sales of over €240 million in the last year. HEAD’s winter sports revenue is close to €200 million, whilst the Amer Sports stable of brands – including Solomon and Atomic – registered combined winter equipment sales of over €400 million. The private equity company, Kohlberg & Company, recently bought a collection of equipment brands, including K2, that achieved sales of €330 million in 2016. The largest retailer of winter equipment is Intersport, the European leader in the lucrative equipment rental market. 12% of Intersport’s total revenue comes from its winter sports segment, which equates to over €1 billion per year. North Face, owned by VF Corporation, is the most valuable brand in winter sports, with revenues exceeding $2 billion per year. The most successful winter sports brands are the ones that transcend the market and appeal to a broader set of customers, who don’t necessarily engage in winter sports, but like the association with an active and affluent lifestyle. North Face seems to have taken advantage of this trend more effectively than any other brand.
At the heart of any ski resort are the lifts. They facilitate the movement of customers throughout the mountains and ensure the successful operation of a resort. The world leader in the ski lift market is undoubtedly the Austrian-Swiss company, Doppelmayr/ Garaventa Group. This highly innovative and experienced group is the vendor of choice for the world’s leading ski resorts. Delivering more than 60 ropeways for the winter tourist market last year, more than 50% of their annual revenues - of over €800 million - come from the ski market. China’s decision to award a contract for the group to build all 9 lifts, associated with the Alpine Skiing at the upcoming Beijing Winter Olympics in 2022, further cements its position as market leader.
It doesn’t stop there. Winter tourists benefit a multitude of other related industries. In 2017, French resorts spent €77 million on snowmaking. Due to their lower altitudes, the Austrian resorts spend even more. The Kitzbuhel/ Kirchberg ski area is one of the largest in the world, operating 31 snow groomers and more than 1,000 snowmakers. The High Technology Industries group own some of the largest companies in the ski industry, achieving combined sales of €873 million in 2017. Its stable includes the likes of Leitner, Poma, Prinoth and Demaclenko, who together delivered 75 ropeways, 682 snow groomers and over 2,000 snowmakers in 2017.
Throughout the world, ski resorts are bigger and more interconnected than ever before. Large multi-site operators are in a race to acquire the largest sites that remain independent. This has pushed up resort valuations to previously unseen levels. In 2016, Vail Resorts paid $1.3 billion for Whistler Blackcomb, the highest amount ever paid for a single resort. Popular upmarket resorts are in high demand. When Intrawest put its collection of US resorts up for sale in 2016, there were 170 potential bidders. Only 16 of these were resort operators, with the rest being mostly private equity and investment companies. The rationale behind such consolidation is logical. Economies of scale can create synergies and there is the potential for cost cutting. Multi-site operators can market the different resorts under one stronger brand and their bigger size gives them more power in procurement negotiations. But crucially, it improves the customer proposition, by providing them with more resorts to ski in. Resorts are increasingly offering a mega lift pass, entitling customers to ski in a greater number of areas, using just the one pass. Vail’s Epic Pass, gives skiers access to 65 resorts, across 3 continents, with unlimited access to the 15 US resorts included. The Epic Pass costs $899 for the season and is only available to purchase before the start of the season. Lift pass sales are naturally usually very seasonal, but this practice allows Vail to bring sales forward and smooth them out over the traditionally quieter periods, whilst making sales less weather dependent. It gives Vail the opportunity to collect valuable customer data and to charge higher day passes – costing more than $100 per day - during the winter months.
Independent resorts are getting in on the action too. In Europe, it’s now particularly common for independent but neighbouring resorts to join together to offer multi passes. There is also a trend towards other forms of partnerships. Dolomiti Superski brings together 12 independent resorts in the Italian Dolomites, and markets them under one brand, selling one pass covering the whole area. The Best of the Alps brings together and markets 12 of the most stylish resorts in the Alps. In such a competitive environment, partnerships represent the best opportunity for resorts to grow and not get left behind. The Swiss resort, Verbier, recently announced a partnership with Liverpool Football Club, becoming their official winter destination partner.
The huge and regular investments that resorts need to make, to ensure that their infrastructure - primarily lifts – are up to date, helps to create a situation whereby the stronger resorts get stronger, whilst those that are unable to make the necessary investments, get left behind. Of course, the real winners of the ongoing consolidation in the ski industry are the owners of the large resorts and their customers. Customers benefit from having access to larger ski areas, covering different regions, with lower prices and better facilities. Owners benefit from rising profits, improved valuations and in the case of Vail Resorts, a soaring share price. From 2015 to 2018, Vail Resorts shares rose by more than 200%.
But despite the improving fortunes of the largest and most successful market participants, the ski industry - as a whole - is facing significant headwinds. The total number of global skier visits hasn’t grown for the best part of a decade, currently hovering somewhere between 300 and 400 million visits per year. Well over half of these visits occur in the developed, mature markets of the European Alps and North America, which have been struggling to grow since the turn of the millennium, due to an ageing demographic and low population growth. In the UK, more than two-thirds of skiers are aged between 43 and 65. Throughout the industry, there are concerns over a lack of millennial uptake. Repeat seasoned skiers represent a large proportion of total visits, and the return rates of first-time skiers are particularly worrying. Millennials are increasingly choosing to spend their money on other experiences, and the ski industry now has to compete with non-ski destinations, culinary experiences and anything that is remotely ‘instragrammable’. Skiing has always been an expensive sport, favoured by the affluent, and so it’s no surprise that generation rent - with their lower disposable incomes - are choosing to spend their money elsewhere. Worries over Brexit, a stronger Swiss Franc and a weaker Russian Rouble have all combined to hurt the Alpine ski industry. Further afield, the Japanese ski industry – once one of the largest - has been decimated, with skier visits down by half, over a twenty to thirty-year period.
Established and mature resorts in the European Alps are now facing competition from emerging destinations in Europe, such as Andorra and Bulgaria. These emerging destinations are often deemed more affordable than their more established competitors and have been stealing customers at the lower end of the market. The entry of new resorts to an already saturated market, without the addition of new customers, serves to dilute industry revenues even further.
Another serious – but currently less tangible – threat is climate change. The lower altitude resorts of Germany and Austria are amongst the most sensitive to warmer temperatures, with an OECD report concluding that a 1°C increase in temperature would lead to a 60% reduction in the snow reliable ski areas in Germany. Modern snowmaking equipment can only help to a certain extent. Such equipment is expensive, and with Austrian resorts already spending more on infrastructure than their cross-border competitors, it remains to be seen if this is a sustainable solution. To compound matters, there are worries that such snowmaking practices damage the natural environment.
The ski equipment industry is also struggling to come to terms with changing buying patterns. Global ski sales have fallen by half, from over 6 million in the 1980’s to around 3 million today. This is partly due to a lack of serious innovation, but it largely reflects the shift from purchasing to renting ski equipment.
In the face of such formidable obstacles, the ski industry is fighting back. Equipment manufacturers are increasingly focusing on direct to consumer selling - cutting out the wholesale markets – with its higher margins. Social media has provided new avenues for companies to cultivate their brands and engage customers. This is also increasingly true for ski resorts, who now try to attract customers in novel and modern ways, in an effort to appeal to a younger audience. Equipment providers are focusing more on customisation, e.g. of ski boots, and applying new technologies, such as Graphene in skis. They are concentrating on the higher end of the market, where they can sell differentiated products for higher prices, with higher margins. Ski resorts are now taking a more customer centric approach, focusing on client satisfaction and all-round ski experience. The larger resorts now operate with a more holistic perspective and have developed a range of attractions that complement their ski offerings, such as spas, ice skating, tobogganing and horse drawn carriage rides. Some have even branched out into hosting huge mountain music festivals, featuring world renowned artists. Resorts have realised that the main objective is to get customers on the slopes for as long as possible, enjoying themselves, so they will spend more, and come back as repeat customers.
There is still hope for the future of the industry. Whilst the mature areas of Western Europe and North America suffer from stagnating visitor levels, there is encouraging growth in Russia and large parts of Asia. In Russia, huge levels of state backed investment relating to the Sochi 2014 Winter Olympics have helped to stimulate the domestic ski market, with ski visits doubling over the last 5 years. Although some of this increase in domestic visits is a result of less Russians travelling to foreign ski resorts, the majority stems from new skiers, who have been enticed by the recent vast improvements in resort standards and infrastructure.
But the biggest growth market is China. Skier visits have almost doubled in the last 4 years, to 19 million in 2018. Since 1996, more than 600 new ski resorts have been built. The Chinese government has set very ambitious targets of having 300 million active participants in winter sports (with 120 million skiers) and more than 1,000 ski resorts, by the Beijing Winter Olympics in 2022. With an estimated 12 million skiers in China currently, this would represent exponential growth for the industry. If the Chinese get even close to these targets, then China will become easily the biggest ski market in the world. China is already home to the worlds largest indoor ski arena, which was built at a cost of $6 billion. Although the Chinese ambitions stem from a desire to win medals on a global stage, it looks like such growth could be central to the future prosperity of the global ski industry. Even though Chinese skiers are unlikely to travel overseas to European and North American resorts in great numbers, there will be a huge increase in Chinese demand for Western ski equipment, such as skis, boots, clothing, lifts, snowmakers, snow groomers etc. Experienced ski resort operators will also be able to export their knowledge and best practices to these new, inexperienced resorts. As the Chinese government begin to plough billions into their winter sport vanity programme, the rest of the ski industry watches on with bated breath.
GCIS - Commercial Intelligence - Market Intelligence