Latest economic turmoil could affect upcoming ski season
August 12, 2011
VAIL, Colo. – The federal debt ceiling chaos in Congress followed by a U.S. credit rating downgrade and a volatile stock market could have implications as the 2011-12 ski season nears.Analysts, however, just aren’t sure about what those implications might look like just yet.This summer in Vail has been a good one in terms of lodging occupancies and sales tax revenues, with some numbers approaching levels from before the 2008 recession.The 2008 recession has taught the valley a lot about consumers’ habits during uncertain economic times, said Ralf Garrison, director of the Mountain Travel Research Program, which studies economics in Western mountain resort towns.”What we know from the experience we had several years ago and from what we have studied over the last several years is that consumers don’t like economic uncertainty and the consequence is that they’re less likely to spend, especially in discretionary areas, which includes vacations,” Garrison said.The mountain resort industry, with Vail leading the pack, had begun to bounce back from the crashes it endured in 2008. Occupancy rates have been climbing, as well as room rates and consumer spending in general. Vail’s 2010-11 ski season saw record-setting numbers in both skier visits and in inches of snow, and the momentum has carried over into the summer.The recent turmoil in Washington, as well as a European debt crisis, has the potential of putting the valley back in the business of having to earn the demand of consumers, Garrison said.While the potential is there, Garrison and others agree it’s too early to know how the markets, and the consumers, will respond over the long term.Stan Cope, president of Gemini Resorts Management, which manages the Solaris residences, the Vail Mountain Lodge and Spa and the Lodge Tower, said it will be at least a couple of weeks before everything settles down.Wednesday’s drop in the markets were because of the situation in Europe, while Monday’s drop was a response to the United States’ credit rating downgrade. And the markets saw gains on both Tuesday and Thursday as investors snatched up deals.”What I’m seeing right now is nothing but a stock market that is being controlled by forces not necessarily connected to a long-term economic outlook,” Cope said. “I just think it’s way too early to speculate.”The town of Vail’s finance department hasn’t made any adjustments to its 2012 budget. Kathleen Halloran, the town’s director of budgets and financial reporting, said the town budgets conservatively from the start, which allows for some fluctuation with the marketplace.”That being said, we continue to watch for economic conditions that may potentially have an impact to Vail,” Halloran said.
In the latest report from Vail Resorts analyst Will Marks, of JMP Securities, revenue projections for Vail Resorts’ fiscal year 2012 are positive. New amenities at the company’s resorts, such as a new restaurant at Mid-Vail and new terrain at Northstar-at-Tahoe, for example, are big drivers for higher revenues, according to Vail Resorts and to Marks’ report.”… Vail spends approximately $100 million each year on its resorts (in total), which should lead to a better top line in the form of additional revenue streams and higher ticket pricing (perhaps justified by the better experience offered),” Marks’ June 10, 2011, report states.The report also projects a 2.5 percent revenue increase for Vail Resorts, with a 5 percent growth in mountain segment EBITDA (earnings before interest, taxes, depreciation and amortization).Marks said nothing has really changed since that report was released.”I am not concerned about the economic impact on local traffic,” Marks said via email to the Vail Daily. “If we see a large downturn from here, destination traffic could slow, although we have modeled fairly weak revenues in this regard. No concerns about real estate sales; we don’t expect much anyway, so a downturn wouldn’t impact our expectations.”In a Wachovia Capital Markets investor report for Vail Resorts, it shows that the S&P 500 in the six months prior to ski season, as well as GDP growth, are good predictors of skier visits – more so than snowfall in the region.Chris Romer, the Vail Valley Partnership’s executive director, doesn’t have a clear crystal ball, either. He said there are so many different outside factors influencing the global economy that it’s making for an economic roller coaster ride.Romer’s sense of Vail’s summer performance is that it has been great leading up to July 31, before the U.S. debt crisis, credit downgrade and stock market turmoil hit.While all of the tourism indicators this summer have been positive, Romer agrees it’s early in the season to make guesses or projections about winter.That being said, things are looking good so far.”We’re certainly pacing ahead of where we’ve been the last two years,” Romer said. “But the travel consumer has gotten savvy. They will wait for the best deal, and the uncertainty in the economy only adds to that.”
Lessons from the past show that consumers like to wait until the last minute before booking their vacations when the economy is unstable, especially when there are deals available.It’s a pattern that many local lodges and Vail Resorts have tried to get away from. Vail Resorts announced a change in its season pass offerings this season that requires the purchase of the following season’s pass for summer gondola access at Vail Mountain as one way to secure early pass sales.Thirty-five percent of Vail Resorts’ lift ticket revenues are received before the majority of the ski season has occurred, which the company says mitigates exposure to weather-sensitive guests, drives strong customer loyalty and generates additional spending.The latest information the company has released, in June, shows season pass sales for 2011-12 are up 19 percent in units and 27 percent in dollars.It’s still to early to know whether the recent market conditions will affect that pass sale momentum or early lodging and vacation bookings, Garrison said.”The market may be volatile for a while, but the consumers will settle down and their take on these market conditions will become better known, so stand by,” Garrison said.One thing that seems for certain, though, is that recent economic instability could have a reversal effect on the confidence that had been building back in recent months. That reversal could also prove true in terms of the recent gradual growth in daily room rates and occupancies in local lodges.”There’s no doubt that the consumers are going to feel pressure for their money and they’re going to look for better value or lower prices amongst competitors as a way of being frugal,” Garrison said. “… I’m not so concerned about the formal statements of the double-dip recession, but I am concerned about how consumers feel about their economic well being and how that will translate into vacation travel.”firstname.lastname@example.org