Aspen Skiing Co. forecasts a strong winter
November 19, 2010
ASPEN – Aspen Skiing Co. officials are cautiously optimistic they will reap the rewards this winter of not panicking during the recession and the ongoing, slow recovery.Unlike a lot of companies inside and outside the ski industry that adopted a slash-and-burn approach to survive the economic collapse, the Skico stuck to its core principles and strategy.The Skico managed a 4.3 percent increase in skier visits last season when business was flat overall for the Colorado ski industry. Company officials hope to build off that success in 2010-11 and continue the slow climb to pre-recession business levels.CEO Mike Kaplan said the Skico is positioned well for recovery, thanks in large part to the long view taken by the owners of the privately held firm, the Crown family. A little luck helped as well.The company was fortunate to have completed many of its major, on-mountain capital improvements before the recession struck in fall 2008. The Elk Camp Gondola was installed in Snowmass in 2007. The Sheer Bliss high-speed detachable quad chairlift was added the following year. Those multi-million dollar improvements were essential to make Snowmass a consistent competitor as the top ski resort in the country.Other improvements included the renovation of the Little Nell Hotel, the Skico’s five-star, five-diamond crown jewel at the base of Aspen Mountain, and the addition of a significant amount of affordable housing.All those costly expenditures were made before the economy crashed. The timing was fortunate, said Skico Senior Vice President David Perry, because ski area operators generally tighten the purse strings during economic downturns because of uncertainty about revenues. “Major capital projects just dry out,” he said.Kaplan said the recession created one obvious blemish in the plan to renovate Snowmass.”We were well-positioned to weather the downturn from an investment standpoint, and our balance sheet and the strength of our staff,” Kaplan said. “As I look back, the one big thing that’s missing is the completion of Base Village [at Snowmass]. But considering what’s happened in the world and that sector of the economy, I feel very good about our positioning and the way we managed it.”Base Village remains a question mark. Developer Related Westpac ran out of financing and defaulted on loans, so the project stalled when only half-completed. A foreclosure sale is scheduled in December. Kaplan is hopeful that a new owner will emerge with the financial clout to finish the village, even if the original plan must be abandoned for a new version that matches fiscal realities.
While it was good fortune that the company completed many of its expensive projects before the economy tanked, its broader response to the recession was by design. The Crown family continued to take the long view and remain committed to core attributes “that got us here,” Kaplan said. “In most downturns, most companies cut their marketing budget and they cut their environmental affairs budget,” Kaplan said. “We did the opposite. On the marketing side, we said this is an opportunity. We think there is a gap in the marketplace. Let’s step up and fill that gap.”Perry said the ski industry was hit by the financial crisis like almost every other business sector. Some resorts responded by cutting the money devoted to special events, or they reduced grooming, or skimped on customer service.”People looked to throw overboard anything they could jettison that had a cost line item,” Perry said. “We definitely saw it as an opportunity to go against the grain.”The Skico increased its marketing budget before the 2008-09 season and now maintains that higher level of spending. The company won’t divulge what it spends on marketing for competitive reasons.
The company also made sure to maintain strong customer service while trying to cut expenses and boost efficiency. The actual number of people that the Skico employs is down from a few years ago, but it fills essentially the same number of positions, Kaplan said.In the past, many employees worked part-time out of preference. They devoted other time to a second job.Now, the Skico employs more full-time workers, and thus needs fewer bodies. That benefits workers who rely on their Skico job for full-time pay. They can get all the hours they want. It benefits the company because it provides benefits like health insurance and ski passes to fewer people.By avoiding massive staff cuts, the Skico also avoided damaging morale. A cut in staff can demoralize the remaining workers and the entire community, Perry said. As the leaders of the largest private-sector employer in the upper valley, Skico officials knew their staffing decisions would have implications for the entire area. They kept that in mind, even as they searched for efficiencies.”You can tell in a minute if you arrive at a resort and the employees are down and the morale is low,” Perry said. “Your experience as a guest is negatively affected. We wanted to make absolutely certain that didn’t happen.”Kaplan said the company will still have about 3,200 positions for the bulk of the season and 3,500 at the brief peak around Christmas and New Year’s.
Maintaining customer service only pays off if you continue to have guests. The recession has upped the ante in the competition for skiers and riders.”We saw inevitable ramped-up competition on price packages and travel,” Perry said. “Whenever there’s a downturn, people are scrambling around to drop prices as fast as they can.”As a rule, Aspen doesn’t do discounts. They are good for consumers, but resorts that rely on discounts for short-term gains create the risk of devaluing their “brand” in the long-term, Perry said. So, the Skico uses different tactics to compete with other major destination ski resorts in the West.The Skico has always been targeted by critics who question how the resort can be serious about competitive pricing when its walk-up window rate for a single-day lift ticket at prime time is nearly $100.Skico officials counter that a small percentage of its customers pay that top price. Lower prices are available for multi-day tickets at least seven days in advance.But instead of dropping price, the Skico generally increases components in the package. Two seasons ago, the Skico offered an unprecedented number of special packages, and it expanded the offerings last year.One of the more successful packages offers a free lift ticket and free lodging for a child when an adult purchases a package. Another bargain adds a day of skiing and lodging to a purchase of four lift tickets and a four-night stay.For the family from Cleveland, Aspen may never compete with a resort like Winter Park strictly on price. But Perry said the Skico always gets good marks for value. That’s why it follows a “value added” strategy with its specials.”We’ve got a marketplace that’s flooded with deals and we want to compete,” Perry said. “We believe adding things is actually a better solution to that than just dropping price. If you just take the same product and reduce the price and think you’re going to enhance the value long-term, I think you’re mistaken.”
The increased marketing and the continuation of package deals could position Aspen-Snowmass for a strong season. The hotel industry expects a strong year in 2011, figuring that spending will increase. The pent-up demand for travel and vacations could result in more families taking ski trips.”Two years ago, we talked to all of our employees and the community about the deep-pockets-and-short-arms syndrome,” Perry said. “People still had money but they weren’t reaching into their pockets to spend it. It didn’t matter if you were affluent or not, you were being careful about spending. And we really noticed that here.”The Skico’s income from food and beverage sales at its on-mountain and base-area restaurants was down, fewer customers took ski lessons, and ski and snowboard sales and rentals tapered off.”Last winter, that started to rebound pretty significantly,” Perry said. “It surprised us. It was better than expected.”Other factors seem to be working in Aspen-Snowmass’ favor for the coming campaign. The number of seats on commercial aircraft is at a high level. The weak U.S. dollar will entice travelers from major markets like Australia, Brazil and Germany.”So far, forecasts are good,” Perry said. “It’s early numbers still, but we see reasons for optimism in advanced bookings for this winter.”Maybe most importantly, skiers and riders won’t have to wait until Thanksgiving for snow to materialize. Higher elevations, generally above 9,000 feet, have already been hammered with numerous storms.Kaplan acknowledged he is optimistic going into the new ski season. “But ask me next week. I’ll get scared again,” he quipped.
In the long-term. Kaplan and his team of top Skico executives are diversifying the Skico’s revenue sources, a business concept known as vertical integration. Instead of just selling lift tickets and enticing customers to take ski school lessons, the Skico wants additional pieces of the consumer spending pie to offset the multi-million-dollar investments in chairlifts.”As skier-day growth flattened out in the ’80s, it became clear that to get a return on all the investment you have in capital and infrastructure and facilities, just selling lift tickets wasn’t going to be enough,” Kaplan said. “It wasn’t going to sustain the ski area.”So the Skico has steadily increased its take when a diner eats, a skier rents boards or a customer falls into bed after a night on the town. The trend started before Kaplan took the Skico helm from Pat O’Donnell in November 2006. But when Kaplan was promoted, Skico managing partner Jim Crown said he expected Kaplan, an MBA from Denver University, to find ways to sharpen the Skico’s strategic business plan.The Skico’s growth in the sales and rental business has forged ahead during Kaplan’s watch. Four Mountain Sports along with D&E Shops have expanded to eight distinct locations with additional satellite stores. The greatest strategic value of the stores is the lucrative rentals of skis, snowboards and boots. The Skico has a leg up on competitors because it can tout its rental outlets with customers purchasing advance lift tickets, and include rentals in package deals.The Skico has also taken over more on-mountain restaurants as leases have expired and renovations were required. “It’s a ton of money, so to not operate it and lease it out at a subsidized rate just doesn’t make sense,” Kaplan said. It now operates 15 restaurants.The Ajax Tavern at the base of Aspen Mountain is a prime example of the Skico’s strategy. When the operator didn’t want to renew the lease a couple of years ago, the Skico jumped in. The site is critically important to the ski experience. The Skico wanted the site to continue to attract people who wanted to chill out after a day on the slopes, drink a beer and listen to some music. It didn’t want to risk losing that atmosphere to some other use, Kaplan said.In the same vein, the company decided to expand its hotel holdings in April by purchasing the freshly renovated Limelight Lodge in the heart of Aspen for $38 million.”That’s one of the things since I took this job – we stepped back and said, ‘OK, what businesses are we in, what businesses should we grow and develop?’ The hotel-hospitality [area] is one that we thought we had capacity to grow,” Kaplan said.Skico geared up 18 months ago to manage The Residences at The Little Nell, developed independently at the base of Aspen Mountain. It was prepared to manage additional projects at Base Village in Snowmass that didn’t come to fruition.”We sort of ramped up for growth [pre-recession],” Kaplan said. “As Snowmass slowed down, we continued to believe there were other opportunities and the Limelight sort of fell in our laps.”The longtime owners were financially strapped when the recession hit right after their renovation. The Skico wanted to make sure the Limelight, a moderately-priced property, remained in the “hot bed” inventory and was not converted into time-share condominiums.The Skico has some economies of scale to use in the hotel business – like management expertise and accounting. But Kaplan said he doesn’t want the company to grow too large in any one area: restaurants, retail or hotels. “Right-sizing,” he said, is just as important as growth as the Skico email@example.com