What Can We Learn From Vail’s Metrics?
Vail Resorts released some metrics today on their season through April 22nd that I thought were worth a quick review because of some of the lessons it teaches any business about market positioning. I also want to discuss briefly accounting for season passes (try and contain your excitement). You can see the complete press release here. The numbers exclude Kirkwood, which was acquired by Vail only on April 12th.
Lift ticket revenue was down just 0.3%, in spite of a 12.6% decline in skier visits. Ski school revenue rose 0.3% while dining revenue fell 4.0% and rental/retail was down 0.3%. These numbers are compared to last year’s season through April 24th.
However, revenue per skier visit from ski school, dining and rental/retail combined rose 13.4%. I commented on Vail’s January 31st quarterly results back in March and said, in the title, “If You’re a Winter Resort, Be a Big One. With Rich Customers. And Great Facilities.” These numbers don’t do anything to make me reconsider that.
Lift ticket revenue benefits from season pass sales. Vail CEO Rob Katz referred the strength of that program in discussing these results. You get the money early and don’t have to give it back if it doesn’t snow or the buyers don’t come as often (Hmmm…. Some resort should look into offering a more expensive season pass with some kind of insurance feature that gave you back some amount of money if it didn’t snow a certain amount. Or maybe offered you a discount on next year’s pass.).
Since season passes have become more important as a revenue source for a lot of resorts, let’s talk about accounting for those revenues. The first issue is whether or not a resort is set up to scan passes. That is, do they specifically know how many times a season pass holder uses their pass?
Somebody I talked to who knows way more about this than I do estimated that between 50% and 65% of resorts now scan passes and I’ll bet that all the big, sophisticated ones do. Vail does.
Let’s assume first the case where you scan passes. If somebody paid $100 for a pass and they only come once, the resorts lift ticket revenue from that pass is $100 per visit. If they came ten times, it’s $10 per visit. Note that when Vail talks above about revenue per skier visit increasing 13.4%, they are not including lift ticket revenue.
Now that $100 is in the bank. And you’re not getting any more lift ticket revenue from that pass purchaser. But if they come a lot, they may bring friends and they’ll spend money at all those other places at your mountain. And the incremental operating costs of having that customer come more often are almost nothing. So a resort at the end of the season should hope that their lift ticket per visit from the person who bought the $100 season pass is about $1.00 a visit. Because the lower the lift ticket revenue per visit from that customer, the higher the total revenue for the season.
What the resort would really like is for that same customer to come 100 times but not buy the season pass. That could get us into an interesting discussion about how to price season passes and how customers perceive the utility of those passes, but maybe another time.
What if you don’t scan? Then I guess you just estimate a certain number of days based on conditions, past experience, anecdotal evidence and maybe activity at restaurants or the ski schools or something. Hopefully, that doesn’t translate into the “wing and a prayer” approach. If the number they use is higher than it actually was, then reported skier visits are over reported. But reported revenue per visit would be too low.
The person I spoke with suggested that in a season such as the one just ended, there might be a smaller percentage of visits on season passes and more on single tickets. If a resort that scans treats season passes in the oversimplified way I suggested for the $100 pass that would increase ticket revenue per visit. If resorts accurately track season pass usage, they probably saw a smaller percentage of visits on passes, more on single tickets. That should increase ticket revenue per visit.
The first conclusion, I guess, is that scanning is good. Without it, your financial statements can be fine (not necessarily good, but accurate), but your management information will, at best, be inconsistent from year to year. You’d want to not just scan your season passes, but every lift ticket every time it’s used.
I know scanning equipment costs money and takes training, but in this competitive, cost sensitive, weak economy environment it doesn’t seem like a luxury. To the 35% plus of you who are getting along without it, I’m forced to ask how much better you could do with it.
And if anybody out there things I’m nuts, let me know and I’ll be pleased to write about how you succeed without it.
The lesson is that good management information matters. I suppose I could write thousands of words on ways to account for season pass revenue (I’m actually getting kind of intrigued by it). When I was finished with what would probably be a really boring accounting discussion, I would have no doubt concluded that there were a few ways to do it that make sense. And I would further conclude that it wouldn’t matter which one you used as long as you applied it consistently and understood its strengths and weaknesses. That’s the way it is with management accounting.
Meanwhile, speaking of other lessons from Vail’s metrics, CEO Katz noted that cumulative snowfall was down 50% over Vail’s six resorts compared to last year. He credits a few things with their results in spite of that. They include “…increased yields from luxury and international guests.” He also points to their snowmaking capabilities, level of service, quality of facilities and available activities.
Now, you never expect to read these press releases and learn about how a company really, really, screwed up (Anybody who has been in business more than a few years and hasn’t really screwed up, please call me. I want to invest in whatever you’re doing). Still if, like Vail, you’ve correctly identified your customers, figured out what they want, and provide it to them, things are likely to go well.
Great recap, thanks Jeff!