Vail Resorts owns and operates the most-visited mountains in the United States. Its properties include Vail Mountain (Colorado), Park City (Utah), and Heavenly Mountain (California). In the fiscal year ended July 2016, over 80% of its revenues were generated at its resorts, including lift tickets, lesson fees, rentals, and retail operations.
Customers visit Vail resorts for their outdoor sporting facilities, most notably skiing and snowboarding. Insufficient snowfall reduces customer visits, limiting Vail’s profit opportunity on a highly fixed cost base. Vail manages variable weather conditions with technology such as artificial snowmaking, at considerable cost. Excessive snowfall is not ideal, either, as it increases grooming costs and limits customer access. Given the importance of snowmaking, water and energy are critical resources.
Recently, Vail has contended with rising temperatures and declining snowfall in its core West Coast and Rocky Mountain geographies. Snowpack[i] was well below historical averages in both the 2014-2015 and 2015-2016 winter seasons in Central California, which hosts Heavenly Mountain and other Lake Tahoe properties (Figure 1).
Despite similarly weak snowfall in the 2012-2013 and 2013-2014 seasons, some industry observers dismiss the recent decline as an anomaly, given near-record snowfalls in Central California as recently as 2011. However, while recent precipitation levels were volatile, they exhibited a clear downward trend. In 2014, Christoph Marty, a researcher for Switzerland’s Institute for Snow and Avalanche Research, confirmed that “there will be less snow in the long run.”
Diversification, including geographic expansion, has been a key part of Vail’s strategy to mitigate climate change risk. In August, Vail announced an agreement to acquire Canadian ski resort Whistler Blackcomb for approximately $1 billion. As per Whistler CEO Dave Brownlie, the transaction would help both companies contend with “the unpredictability of year-to-year regional weather patterns.” Whistler follows Vail’s recent acquisitions in Wisconsin and Australia.
Post-Whistler, Vail CEO Rob Katz indicated that management remains “in the hunt for any future targets in the ski industry,” with a focus on the U.S. Northeast and Japan. The company has also been aggressively building out its summer offerings, although these activities are unprofitable.
Additionally, Vail has made considerable investments in artificial snowmaking. The long-term expense of operating these machines may be crippling: energy costs contribute an estimated 15-25% of a resort’s total operating expenses, half of which is directly related to snowmaking.
Water is another critical resource: a typical ski trail requires over 400,000 gallons of water per foot of artificial snow. Ski resorts demand the most water in early autumn, when supply is lowest—a challenge that has prompted Vail to purchase water rights and build storage reserves.
Vail has made progress “diversifying away” from the climate change problem. However, lower snowfall is likely to affect all geographies, and its summer offerings compete with several leisure activities. Therefore, the company must protect its winter sports business.
The cost of operating snowmakers may become unsustainable with reduced natural snowfall. Vail should explore less energy-intensive snowmaking equipment and processes. Vail also faces water supply risk in states such as California, where it does not own water rights. The company must explore options to secure access to water.
Vail is advantaged as the industry leader; it is a well-capitalized, multi-property organization that can withstand one or two problematic seasons. It will likely gain market share as its smaller competitors explore exit strategies.
As a leader, Vail also has ethical obligations. Vail must collaborate with the broader industry to develop best practices around sustainability. For example, it can support the National Ski Area Associations’ Climate Challenge,[ii] which promotes practices such as high-efficiency snowmaking.
Finally, Vail is a highly visible organization serving an affluent, “outdoorsy” customer base. It should use this platform to promote climate change awareness and encourage sustainable behaviors at the consumer level.
[i] Snowpack is a measure of the amount of precipitation a region receives as snow.
[ii] Whistler Blackcomb is currently a member of the NSAA’s Climate Challenge.
 Vail Resorts 10-K, fiscal year 2016: https://www.sec.gov/Archives/edgar/data/812011/000081201116000115/mtn2016073110-kforq4.htm#s8D53DFFD5FE75DF9A6F1BE940AB98C87, accessed October 2016.
 New York Times, “As Snow Fades, California Ski Resorts Are Left High and Very Dry,” November 23, 2014: http://www.nytimes.com/2014/11/24/sports/skiing/as-snow-fades-california-ski-resorts-face-a-brown-future.html?hp&action=click&pgtype=Homepage&module=second-column-region®ion=top-news&WT.nav=top-news&_r=3#, accessed November 2016.
 Bloomberg News, “Fake Snow, Real Money: The High-Tech Fight to Save California Skiing,” March 6, 2015: http://www.bloomberg.com/news/features/2015-03-06/fake-snow-real-money-the-high-tech-fight-to-save-california-skiing, accessed November 2016.
 The Wall Street Journal, “Vail Resorts to Buy Whistler Blackcomb,” August 8, 2016: http://www.wsj.com/articles/vail-resorts-to-buy-whistler-blackcomb-1470656971, accessed November 2016.
 Vail Resorts 10-K.
 Bank of America Merrill Lynch Global Research, “Notes from the road: Vail management meetings in NYC,” August 12, 2016, accessed November 2016.
 Bank of America Merrill Lynch Global Research, “It’s summer, so time to think about skiing! Raising PO’s for MTN and SNOW,” July 19, 2016, accessed November 2016.
 Stanford Law School, Steyer-Taylor Center for Energy Policy and Finance. “Climate Exposure Impact on Equity Valuation: Case Study of Vail Resorts, Inc..” by Donna Bebb, Research Fellow, 2015: http://media.law.stanford.edu/organizations/programs-and-centers/steyer-taylor/Vail_Final.pdf, accessed November 2016.