With its high end mountain resorts, unparalleled terrain, and unique season pass, Vail Resorts (VR) offered the full experience to the 8.5 million visitor to its 11 resorts this year. Vail Resorts has been able to thrive in an industry so dependent on Mother Nature because of the effective alignment between its business and operating models.
Vail Resort’s strategy is to focus on its continued promise to deliver a world class experience to its guests across all three of its business segments:
- Real Estate
VR has built its business model in order to attract the ideal customer; well off, destination bound, leisure travelers. Visitor bring home average annual incomes of $175K across all of VR’s resorts and average incomes as high as $275K at certain mountains. Moreover, the customer based is well diversified with nearly 10% hitting the slopes for the first time and a whopping 50% under the age of 35 years of age. Vail attracts such a wide array of wealthy clientele because they offer services to make the entire trip an experience—from skiing the gnarly terrain all day to unwinding with a good meal at the ski resort.
In a business where the fixed costs are quite literally mountainous, the key to success is expanding the customer base year-over-year to minimize the fixed cost per consumer. The number of visits to VR has increased over 10% each year since 2013 and VR is this year, expected to realize over $1.4B in net revenue and a net income over $115M. Such growth has sent VR’s stock prices soaring close to $125/share and has brought investors a 300% increase in their dividends since 2011.,  This is staggering considering only 45 of the 470 ski mountain in the U.S. are profitable and makeup 40% of all ski business.
How has Vail Resorts managed to continue to provide an excellent experience to its customers and to operate so profitably in years when fresh powder is harder to come by then a snowboarder at Alta? By innovating in how they approach collecting value from their customers and expanding their offerings in a market where the supply of ski resorts has been maxed out due to restrictive environmental regulations.
The mountain segment of VR’s business is fundamentally a risky business model because of a large resorts reliance on ample snowfall to cover a majority of the slopes. However, VR has done an excellent job of doing two things: “owning the skiers, and owning the mountain”. In other words, Vail Resorts heavily discounts their season pass, appropriately named the Epic Pass. Skiers pay $700 up front which can lead to huge discounts for consumers as they visit again and again for a fraction of the $100/day ticket price. However, because VR owns the lodging, stores, and restaurants in the mountain village, the company is able to still realize a sizeable income from even these deal seekers in addition to receiving $200M from 400,000 customers before any services need to be provided.  Moreover, upfront payment means VR has a steady revenue stream regardless of future snow conditions. Although a majority of the business remains lift tickets, the synergies that arise from the continued development of each of VR’s three market segments is what allows the company to continue its impressive trajectory of growth and profitability.
Additionally, Vail Resorts has done phenomenally well in diversifying their portfolio. They have continued to offer superior services to skiers around the world by acquiring numerous mountains in recent years and bringing everything from the lifts to the lodging up the Vail Resort standards if need be. Such acquisitions provide an even greater value for Epic Pass holders by giving these patrons a wider array of mountain choices which in turn strengthens the value proposition of the pass. Moreover, VR’s increasingly diversified location offerings has enabled the company to hedge the risk of an unprofitable portfolio due to poor weather conditions and will likely lead to continued growth in mountain visitors and acquisitions as VR continues to expand globally.
Cover Photo – http://blog.vail.com/
Vail Resorts Website
Vail Resort’s 10K
2015 Vail Resort’s Investment Conference Presentation