Wasatchman

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Vail just announced that due to soft pre-holiday activity, the company now sees full year earnings to be below previous expectations (see link below).

https://www.marketwatch.com/story/vail-resortss-stock-tumbles-after-much-lower-than-expected-pre-holiday-resort-visits-2019-01-11

The announcement comes on the heels of disappointing earnings during the offseason. Vail seems to not be blaming the increased competition from the IKON pass, but I wonder if this is a bigger factor than Vail is letting on. I thought (and still do think) that longer-term, the consolidation of the industry will actually benefit Vail as the industry becomes a duopoly. However, the short-term competitive impact may be greater than anticipated. And after all, this year's IKON pass was such a good deal with partner resorts that i don't even know how they can do it, and wonder if it is even sustainable (I'm thinking the number of partner resort offerings next year will drop off dramatically on IKON or at least AltaBird won't be offered).

Anyway, my guess is IKON this year is having a greater impact than Vail is letting on. Perhaps next year, Vail won't raise prices so much?

Thoughts?
 

Lorenzzo

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Missing an earnings forecast, or guidance, is often followed by a higher cost of capital and less access to additional capital, particularly in a non-mainstream industry which ski resort ownership is. It often not only affects the co. that missed but others in the industry, particularly those with similar business plans. That effect is likely here though not certain, although if the stock price retains today’s loss it approaches certainty.

In any event capital raising windows are finite. If it does play out that way and Vail needs capital their source may be asset sales and they would face pressure to underproject and withhold funds for cap. improvements. This is good news if you don’t like Vail, Ikon ot their form of ownership. It opens the door for other types of owners to acquire.
 

RJS

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Or maybe it's the philosophy of ever-increasing pricing. Lift tickets exceeding $200 a day??????? That may encourage season pass sales but not new customer visits.
Does that mean that Vail's policy of charging more and more for skiing, with enough rich folk willing to pay the price has finally reached the point of diminishing returns?
We don't have enough information from Vail missing this one pre-holiday visit target to come to any conclusions about Vail's pricing strategy. According to the article, "Rob Katz said he believes the weak pre-holiday visitation resulted from concerns from two prior years of poor pre-holiday conditions at U.S. resorts." Katz's theory is interesting, he is essentially saying that for many consumers, their perceptions about conditions during a particular time frame (ex. the holiday) are shaped by their experiences in the proceeding year or two. So even though pre-holiday conditions have been stellar this season in Colorado, because they weren't great least season, fewer people have been visiting the Colorado resorts. It makes sense. Or maybe skiers are becoming wiser to the fact that pre-holiday just isn't a great time to plan a ski vacation very far in advance ;)? If you are planning something in advance, it's definitely worth checking out the lists by ZRankings or Tony Crocker on best-bet resorts for Christmas (I believe that Alta, Targhee, and Steamboat pop out as safe bets based on historical snowfall and % of terrain open).

Vail seems to not be blaming the increased competition from the IKON pass, but I wonder if this is a bigger factor than Vail is letting on. I thought (and still do think) that longer-term, the consolidation of the industry will actually benefit Vail as the industry becomes a duopoly. However, the short-term competitive impact may be greater than anticipated. And after all, this year's IKON pass was such a good deal with partner resorts that i don't even know how they can do it, and wonder if it is even sustainable (I'm thinking the number of partner resort offerings next year will drop off dramatically on IKON or at least AltaBird won't be offered).
@Wasatchman I really like your point about the short-term vs. long-term impacts of industry consolidation on earnings and visitation. I agree that increased competition in the short-term could squeeze profits while in the long-run companies like Vail and Alterra will prosper. It's hard to say what will happen at this time. There are certainly industries though where there is robust competition despite there only being a handful of major players. Let's also be careful here though to note the distinction between resorts that are owned by Vail/Alterra vs. resorts that are only partnered with them. Ikon/Epic is not the same as Alterra/Vail. This is a very interesting topic, I'm happy that you brought it up and I am curious as to what others think :).

How come you think that partner resorts will drop out of the Ikon Pass for next season? I'm not questioning this idea, I'm genuinely curious about why you believe that this could happen.
 

Kneale Brownson

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Does that mean that Vail's policy of charging more and more for skiing, with enough rich folk willing to pay the price has finally reached the point of diminishing returns?
I’m thinking so. I doubt I’d spend $200 plus for a one-day lift ticket.
 

Ken_R

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Does that mean that Vail's policy of charging more and more for skiing, with enough rich folk willing to pay the price has finally reached the point of diminishing returns?
I think so. The prices really got out of hand this year with on the hill food prices up about 10-15% from what I saw. Its crazy.

As an example my family (8 of them) will not be going to Beaver Creek again next season for their 8 day vacation. Too much cost / low value, even though they can afford it. Colorado in general has gotten very expensive but Vail/BC have gotten even more so. The experience has not improved greatly.

I did notice this year that Vail made more of an effort to groom more of the back bowls to make them nicer for most skiers. Gotta give them credit for that. It really helps in spreading skiers on more acres.
 

Dakine

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The curve of revenue v. ticket price is not linear.
At some price there is a tipping point where revenues fall rather then rise with increased price.
Maybe $ 200 is the magic number where droves of folks say screw it, let's go do another sport.

Or maybe this is an observable effect of climate change where folks subconsciously decide that skiing has become so unreliable that booking a long term ski vacation at Vail is too risky.
Vail with its huge number of visitors is a place where that effect would be statistically significant.
 

raytseng

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The curve of revenue v. ticket price is not linear.
At some price there is a tipping point where revenues fall rather then rise with increased price.
Maybe $ 200 is the magic number where droves of folks say screw it, let's go do another sport.

Or maybe this is an observable effect of climate change where folks subconsciously decide that skiing has become so unreliable that booking a long term ski vacation at Vail is too risky.
Vail with its huge number of visitors is a place where that effect would be statistically significant.
While I respect your analysis,
the business model is multidimensional and multivariable and does not follow simple microeconomic supply and demand curves.
It has many complexities with the synergies related among the multiple arms of business namely lodging FandB, their business partners, whole ski industry, and of course the epicpass and pass sales.
Raising or lowering 1-day ticket price is not only not Linear, but its not going to correlate to the bottom line revenue at all in any simple curve or function. The daypass is coupled t o maintain pass sales and then coupled lodging and the whole business. All of these work togehter as relationship variables together to contribute to the curve.
There are actually hidden economics at play; like how a restaurant sometimes needs to charge MORE in order to get MORE customers. Charging LESS or discounting prices actually causes fewer customers.

Or how dotcom tech startups engineers are not working for beans or in a garage and only for sweat equity for an IPO payout. In actually tech startup engineers are getting salaries ABOVE market rate in addition to a possible IPO lottery ticket.
 

Dakine

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Of course the Laffer curve is simplistic.
Once you have acquired enough data to calibrate your multivariate analysis feel free to share your model and results.
Simply pointing out that things are complicated is not useful, most folks already know that.
I'm more interested in my second hypothesis, that this is a subtle economic effect of climate change.
There is probably a masters level thesis in that.
 

Kneale Brownson

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Of course the Laffer curve is simplistic.

I'm more interested in my second hypothesis, that this is a subtle economic effect of climate change.
Considering the snowfall at Breck so early this season, business should be UP. I don't think it is.
 

Ken_R

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From a consumer point of view, once the value is lower than the cost, its over.

The value component is quite complex though.
 

SBrown

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We don't have enough information from Vail missing this one pre-holiday visit target to come to any conclusions about Vail's pricing strategy. According to the article, "Rob Katz said he believes the weak pre-holiday visitation resulted from concerns from two prior years of poor pre-holiday conditions at U.S. resorts." Katz's theory is interesting, he is essentially saying that for many consumers, their perceptions about conditions during a particular time frame (ex. the holiday) are shaped by their experiences in the proceeding year or two. So even though pre-holiday conditions have been stellar this season in Colorado, because they weren't great least season, fewer people have been visiting the Colorado resorts. It makes sense. Or maybe skiers are becoming wiser to the fact that pre-holiday just isn't a great time to plan a ski vacation very far in advance ;)? If you are planning something in advance, it's definitely worth checking out the lists by ZRankings or Tony Crocker on best-bet resorts for Christmas (I believe that Alta, Targhee, and Steamboat pop out as safe bets based on historical snowfall and % of terrain open).

...
Anecdotally, I have seen this. Many of our friends went to the beach this past holiday season even when they have epic passes anyway, or can afford the window rates. I think it is a fairly well established truth in the ski industry, that the past season affects future bookings -- even if it doesn't really make sense.
 

Lorenzzo

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While I understand the high daily rate is primarily to stimulate Epic Pass sales, they still pull in a good deal of revenue from it. I could envision the Executive Committee feeling they might miss their numbers, looking for ways to increase revenue and going too far. A logical precursor to a revenue miss. The party always ends and when it does there will be two things for sure:

1. Numeric distortion.

2. Executive spinning. One foot in plausibility, two in avoidance. i.e. last year's weather.
 

Ken_R

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Once bitten, twice shy.....ogsmile
Last season was VERY rough here in Colorado. 60 day cancellation policies do not help (some places have up to 90 day! no money back cancellation policies!).

Vail ski conditions last xmas (2017) were the worst I have seen during that same time period ever since I first started skiing in Colorado in 1988.

I guess yes, a lot of people got burned last season.

That said, Vail did not rest on their laurels. They have responded with improvements in snowmaking and grooming. They have the money. Other resorts are not so fortunate.
 

Dakine

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One good thing about our Midwest bumps is the total coverage snowmaking.
Nubs has nearly 300 guns and water is freely available.
When they put it all online they have to call the power company first and four 12" wells can't keep up with demand.
There is usually enough early cold to build a base that will last the season if the crew is on the ball.
So business thrives.
Other snow sports are not so lucky.
The XC and sled businesses are suffering and may not be viable much longer due to climate change.
The upper peninsula has a whole different climate and XC and sledding thrive if you can afford to get there.
This is a reversal of the past pattern where folks were able to fly west for great skiing on cheap airfare.
Midwest resorts had to adjust greatly and many went out of business because of cheap travel.
That may be over but I don't know if this is a significant factor in Vail's declining biz.
 

raytseng

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Considering the snowfall at Breck so early this season, business should be UP. I don't think it is.
I remember suprisingly reading from the previous filing, they lose money when the very early season snowfall is up, as they then need to open up rather then staying "closed due to conditions", (i.e. the "money hold"). Obviously, this shows the ratio btwn passholders and daypass varies within the season. Of course, if they aren't aubstantially open and have a good product by holidays, it goes the other way. So a fine line to max profits.
 
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Wasatchman

Wasatchman

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And another factor may be that the general economy might be weakening. There seems to be some signs that there could be a general economic softening noting a lot of retailers had a ho hum Christmas, soft iphone sales, housing market in some major cities is weakening, etc.
 

Lorenzzo

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And another factor may be that the general economy might be weakening. There seems to be some signs that there could be a general economic softening noting a lot of retailers had a ho hum Christmas, soft iphone sales, housing market in some major cities is weakening, etc.
It's a good bet they aren't talking about underlying reasons so since they didn't mention it, it's entirely possible.
 
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