This time of year, many skiers and snowboarders are drying out their boots for the final time, applying a heavy coat of summer wax to their boards, and wondering how long their goggle tan will last. Thoughts turn to mountain biking, surfing, buying next winter’s season pass…and when your favorite ski area is finally going to upgrade that old, slow chairlift to a high-speed quad.
The planning process for ski area upgrades and improvements happens all year, but the major construction typically occurs over the summer. The considerations that go into capital expenditures are numerous, including improving the customer experience, being more competitive in the marketplace, and having a positive return on investment (either by increasing revenue, reducing expenses, or a combination of both). You might be surprised how long the planning process can be and how expensive many projects are.
According to National Ski Areas Association (NSAA) statistics, US ski areas spent an average of $280 million per year for the past five seasons on capital improvements. In general, the spending falls into two major categories: 1) big, marketable, customer-friendly improvements (like a new lift or lodge) and, 2) behind-the-scenes improvements (think snowmaking efficiency or a new point-of-sale system).
“We strive to have a mix each year of improvements that excite skiers and boarders and are easy to communicate in promotional materials, as well as those that are necessary but are less sexy,” noted Charles Skinner, President/Owner of Lutsen Mountains in Minnesota and Granite Peak in Wisconsin.
Deciding how, when, and where to spend capital dollars is a long and complicated process at most ski areas. One important input is the opinions of the snowboarders and skiers who slide on the hill. Ski areas get feedback from customers in a variety of ways, including riding chairlifts with guests and online surveys. Customer feedback plays a big role, but is certainly not the only factor.
“Talking to our customers is a very important part of the decision making process, particularly if the feedback is redundant over time,” says Tom Lithgow, Vice President at CNL, a real estate investment trust that owns 18 ski areas in North America. “However, what the customer wants can’t be the sole reason for a capital investment.”
Not only are customer opinions important, but so are their patterns and habits on the hill. Smart ski area managers know how to measure and track where crowds are at what times of day, and how some modifications might improve a bottleneck or better balance the ski area’s capacity. Alan Henceroth, Chief Operating Officer at Arapahoe Basin, is one of those executives. “The design and development of a major project is centered on meeting or exceeding guest expectations. We pay very close attention not only to what guests tell us, but what their habits are,” Henceroth indicated.
Other considerations include potential cost savings and energy efficiency. The biggest energy hog at a ski area is the snowmaking system and, as a result, this is where ski areas often invest money to save energy and dollars. At Crystal Mountain in Michigan, the snowmaking system is critical to resort operations and receives attention almost every season. “Last summer, we upgraded our snowmaking piping, including installing larger pipe sizes to reduce water flow friction losses. The benefit is making more snow more quickly with less horsepower,” commented Jim and Chris MacInnes, owners and operators of Crystal Mountain. These types of upgrades help ski areas to reduce their energy consumption and lower costs, in addition to being able to get more trails open sooner and have a longer season.
Another factor in a largely seasonal business like skiing is whether the investment will have a contribution over the entire calendar year. As more ski areas consider ways to take advantage of their summer opportunities, discussions around capital investment are factoring in multi-season activities. “We consider what amenities and facilities will have year-around utilization, add value to the Crystal experience and make us more resilient. A good example is Crystal Spa which we built in 2008. Regardless of the season or weather, the spa is a desired guest amenity and contributes to profit from operations,” said Jim and Chris MacInnes. Indeed, nearly 20% of ski area capital expenditures are investments in non-winter activities.
Snowboarders and skiers usually underestimate the length of time and the expense that major capital improvements entail. It’s not the same as deciding which new skis to buy for next season. Most capital expenditures require years of planning, especially if the ski area is located on public land (such as the US Forest Service, which is the landlord for over 80 percent of ski areas in the Rocky Mountains).
“Customers tend to underestimate the complications, such as multiple layers of lengthy approval processes for improvements such as new terrain,” noted Charles Skinner. Depending on the ski area’s location, there might be four or more different layers of government that need to approve projects, which can cause lengthy delays.
Cost plays a significant role in the decision-making process. A new high-speed chairlift can cost between $4 and $6 million, a new lodge between $2 and $4 million, and a new snowcat groomer around $300,000. Ski areas need to be able to justify those investments with a forecast for increased business levels and revenue, which is a bit like forecasting the snow for the next 10 or more years – not the easiest or most precise exercise.
After an improvement has been made, it is challenging to isolate the specific impact of that change on the bottom line because there are so many other factors that impact skier visits (most importantly weather, snow, the economy, and competition).
The 2013-14 Season brought a slew of ski area upgrades and improvements. As you get your last day or two in on the hill this spring, look around for ways your favorite ski area could improve, and don’t hesitate to make your suggestions known to resort management. Ski areas have to continue to upgrade and improve to remain competitive and keep customers happy, but it’s important to realize how long and expensive these changes can be. Someday soon, they will replace that old, slow chairlift!