Most resorts in Colorado are seeing a huge surge in revenues while at the same time seeing visitation number remain almost flat. Although this seems counter intuitive, fortunately for the ski industry, they have the ability to raise prices to compensate for lower visitation therefore driving top line revenue. This sounds like a great position to be in; is it really? Unfortunately, the details lurk beneath the surface.
Last winter, visitation declined .2 percent, yet revenue surged on average 7.2% as room rates continued to climb higher. (source: Denver Post) In essence as if it is a mystery, skiing is expensive and getting more expensive. Skiing is definitely not a cheap sport by the time you pay for lodging, tickets, equipment, food, etc…
How can a business continue to increase prices while visitation is decreasing?
What does this tell us. Basically, this means that the pricing of ski resorts is “inelastic” in economic terms. This allows resorts more flexibility in pricing since in the short term there aren’t many viable substitutes for skiing. Colorado has the most reliable snow conditions in the country and therefore premiums are paid for the Colorado ski trip. In a nutshell, the people who were going to ski are still going to ski even if it is a little more expensive.
Who skis the most?
According to the National ski association, “the person who skis the most in any given year is 65 and older” (source Denver Channel 4). This number is continuing to creep up every year. This age group of skiers is less price sensitive than many other demographics. For example, if you are fresh out of college making 40k/year, it is unlikely you are going to spend over 5% of your income on one ski vacation. You have tons of other obligations, student loans, car payments, rent/saving for a house, etc.. and therefore less disposable income.
Why does age matter?
The future of any sport is its youth and getting younger generations interested. Younger generations are more price sensitive as there are other competing interests for time and the substitution effect is more prevalent. For example, a young couple might choose to go on a cruise as opposed to the ski hill. This exhibits, in economic terms, price elasticity. This means that this group of consumers is much more sensitive to price increases. As prices continue to climb, alternatives become more prevalent.
Look at these two statistics:
- 58 percent of national visitors earn $100,000 or more, compared to 23 percent of all U.S. households. (Bend Bulletin- ski survey)
- The average income is 100,980 (Golf magazine)
These statistics should frighten an avid snow sports fan. What this shows is that skiing is almost identical to golf regarding demographics. Golf has declined 30% in the last 15 years (Bloomberg). Will skiing follow the same trend?
Over time, all goods/services become elastic/ sensitive to price.
With time, it is possible to find substitutes or learn to live without something when it wasn’t possible under the pressure of time. The classic example is oil. If the price of oil rose tomorrow, people would grumble over breakfast for a couple days but still fill their tanks. In the long run, however, people might buy hybrids or smaller cars that use less gas. The same is true for entertainment/leisure choices like Golf or Skiing.
Older avid skiers might be fine to continue to pay higher rates at ski resorts, but people can’t ski forever. As age in skiing continues to increase along with price this is a huge warning to the ski industry as younger consumers are much more sensitive to price increases. The pricing decisions today are scaring away the next generation of snow sport enthusiast. In the long run seeing revenue up and bookings down should be a wake-up call for the industry.
Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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