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Merger mania Consolidation has changed the face of mountain resort ownership, but is the real competition among ski resorts? By Bob Barnett Sitting together at a table in the conference centre last month to announce that Whistler Mountain was now part of the Intrawest Corporation, both Hugh Smythe and Charles Young explained the impetus for the deal was the changing face of mountain resort ownership. "The competition has been fun and exciting to this point but it’s a different game now. We’re at the point where the landscape is changing very quickly. We’re in a different league now," was how Smythe, president of Intrawest’s Resort Operations Group, put it. Young, whose family had, with the Barker family, owned Whistler Mountain for the past 17 years, said: "We looked at the changing landscape of ownership over the last year. We had George Gillett (former chairman and owner of Vail) visit us... and we decided on this deal with Intrawest." Indeed, the landscape has changed. In the last 12 months 16 mountain resorts have been "consolidated" under one of the four companies that now dominate the ski resort industry in North America, Vail Resorts, Intrawest, the American Skiing Company and Booth Creek Partners. Ten of the top 12 Western resorts in Snow Country’s fall rankings, and seven of the top 12 Eastern resorts, are now owned by companies that own more than one ski area. But even though merger mania has exploded in the mountain resort industry, there are at least a couple of different schools of thought behind acquiring resorts. Vail Resorts, which earlier this month received approval of its merger with Ralcorp Holdings, has concentrated its efforts in Colorado’s Front Range. The Vail, Breckenridge and Keystone ski areas are first, second and third in terms of skier visits in the Front Range, the three resorts combining for more than 4 million last winter. Beaver Creek, the other significant member of the Vail Resorts empire, is sixth in skier visits to the Front Range, attracting more than 500,000 last season. Since 1992 Vail Resorts has been owned by Wall Street financier Leon Black’s Apollo Partners Ltd., a $7 billion enterprise that specializes in buying companies in trouble, turning them around and then selling them. Vail Resorts was never in financial trouble, but former owner George Gillett was forced into bankruptcy and had to sell Vail and Beaver Creek to Apollo. Black himself was the top mergers and acquisitions advisor to junk-bond king Michael Milken in the ’80s. As Apollo’s strategy with most companies has been to sell them when they are operating profitably and the market is right, some in the industry have found it surprising that Black continues to hold on to Vail. The Ralcorp merger and the appointment last summer of Adam Aron, formerly head of Norwegian Cruise Ship Lines, as chairman of Vail Resorts suggests Apollo may have a long-term plan for its mountain resorts. At any rate, what Vail Resorts is attempting to do now is to control an entire region, not only by controlling the ski resorts but by controlling how people get there, what Smythe calls the "channels of distribution." This winter, Vail bought $10 million worth of airline seats, which helped convince four major air-carriers to schedule daily flights from cities like New York, Los Angeles, Chicago, Minneapolis and Miami into the Eagle Airport, about 40 minutes from Vail. By controlling the airline seats Vail can offer discount rates and packages. For instance, a skier in New York — the largest single skier market on the continent — can fly any day of the week to Eagle for $299. "Direct flights from New York to Eagle, that tells you how the stakes have gone up and how fast the industry is changing," Smythe says. "You don’t just price your tickets and sit back. It’s no longer ‘build it and they will come.’ By guaranteeing airline seats they are, in effect, in the airline business." In addition to direct flights from major cities to Eagle Airport, Denver is a major hub on the hub-and-spoke system of North American air travel. There are 62 flights a day into Denver from Los Angeles, New York, Chicago, Boston, San Francisco and London; Eagle adds another eight flights a day, although none from London. By comparison, there are 24 flights a day into Vancouver from those same ski markets, plus two a day from Tokyo. The American Skiing Company, controlled by Les Otten, appears to have adopted a strategy similar to Vail’s. With seven of the largest ski areas in New England, accounting for about 3.5 million skier visits last year, ASC is the dominant player in the region. ASC has also taken steps to control the channels of distribution in the large East Coast skier market. The company is benefitting from Amtrak’s high-speed passenger rail service from Washington D.C., with stops in Baltimore, Philadelphia and New York City, to Rutland, Vermont at speeds up to 100 mph. The service includes a free shuttle bus direct to Killington. In contrast to the regional approach taken by Vail and ASC, Intrawest has acquired ski areas in the major mountain regions across the continent. "We think the opportunities of geographic diversification are as good or greater (than the regional approach)," Smythe says. "We have strong products in each market. Our ski areas are the best in each location — if not the best now, they can be." The most obvious advantage to Intrawest’s strategy is that if one region is having a poor snow year the company’s other resorts can likely take up the slack. Booth Creek and Boyne USA, two other companies that own multiple ski areas, have adopted a similar strategy. Intrawest is also collecting data on skiers and snowboarders at each of its resorts, and with the geographic diversity of its ski areas the data is presenting a more detailed picture of the markets across North America than what Vail or ASC may be getting. That data is being used to cross-market Intrawest’s resorts and to tailor packages to specific markets. Already Blackcomb passholders can get discounts at Mont Tremblant, but Smythe feels there is potential for a lot more market interaction, Mammoth skiers, for instance, skiing Panorama, Copper or Whistler. But the biggest factor in Intrawest’s acquisition of resorts is real estate development. While Vail and ASC have sought to control the channels of distribution, Intrawest’s formula has been to develop real estate at the base of the mountain and then be involved in or control themed retail, rental accommodation, food and beverage operations, ticketing, vacation clubs and real estate sales. Smythe is blunt about Intrawest’s advantage over Vail and ASC in real estate development: "We’re in the business and they’re not. "Nobody else is doing it at the level we are. We’ve talked to every ski area in North America, except for a couple. We’re partners with Vail (in building a village at Keystone). We’ve got invitations from another three major resorts in North America — that builds us ongoing ski business." But it only builds ongoing ski business if the real estate development produces "warm" beds, those that can be rented out on a nightly basis. The model for this, of course, has been Whistler, which Smythe says is bringing on more warm beds next winter (1,200 rooms) than most of the other ski resorts in North America combined. By contrast, many resorts in the United States have sold off their real estate in the form of multi-million-dollar single family lots. That can produce a lot of cash for the ski areas once, but the beds may be "cold" 50 weeks out of the year. But does all this explain the pace of consolidation — the changing landscape — in the ski resort industry in the last year? In the September issue of Snow Country magazine business writer Christopher Byron noted that the costs of running ski resorts are sky rocketing, and a study by the National Ski Areas Association suggests almost one-third of American ski areas are losing money. "In short, these companies have their backs to the wall. That’s why the industry has been consolidating into fewer and fewer hands," Byron writes. "Who can survive? Mega-resort operators like Intrawest of Canada and Les Otten’s American Skiing Company... These firms have the staying power and access to capital that’s needed to keep growing in the face of the industry’s uncertainties. In that sense, they’re no different from a company like The Home Depot, which, like it or not, is rapidly putting neighbourhood hardware stores out of business all over America." Indeed, steady growth is a key factor, as skiers and boarders have come to expect high-speed lifts, gourmet meals on the mountain and immaculately groomed runs — and they certainly won’t tolerate crowds the way they did in the ’60s and ’70s. To meet those demands a company must have deep pockets. "Consolidation allows development to a world-class level," Smythe says. Someone with a little different take on consolidation is Al Raine. Raine was a key figure in the development of the Whistler Village and was the first to recognize the potential that Blackcomb held for skiing. "I think the merger of Whistler and Blackcomb has a lot of bottom line benefits for the community," Raine says. "I think the mountains spent a lot of money marketing to the Vancouver market which had already made its decision to go to Whistler. It was a waste spending money to promote one mountain over the other." But while the merger of Whistler and Blackcomb should create greater efficiencies in marketing, Raine doesn’t understand the consolidation that has taken place across the continent. "I don’t understand how three or four companies buying up all the ski resorts in North America is beneficial. I have some difficulty understanding how this is good for the consumer. You can have inter-changeable passes and tickets without buying up the other ski area." Raine, who has been working for six years to develop a ski area at Cayoosh Creek, between Pemberton and Lillooet, suggests one factor motivating the consolidations may be that it is extremely difficult to develop new ski areas anywhere in North America. "But I don’t understand the argument that says you have to do it (consolidate) to be competitive. Can one company operate seven or eight areas more efficiently? I don’t know." One local skier with experience in the stock market, noting that Vail Resorts is about to make its initial public offering on the New York Stock Exchange and that Intrawest is already a public company, suggested the consolidation craze may be stock driven; buying assets — like other ski areas — generally drives up stock prices. Joe Houssian, president of Intrawest, gave some credence to this theory when he told shareholders at the company’s annual meeting in Vancouver last November that much of Intrawest’s future growth will come from acquisitions. But regardless of the motivation for acquiring ski areas, what does the landscape look like now and what will it mean for skiers and boarders? Vail, the largest mountain resort operator on the continent, is also the most aggressive in going after destination visitors, and has specifically targetted Whistler’s visitors. Smythe said last month: "I know they sit in meetings and discuss how to attract skiers who are going to Blackcomb and Whistler, the Japanese market, the Germans." Vail Resorts has also said it plans to spend $20 million annually marketing its four resorts. "I would guess that Vail will try and control skiers in the Colorado market, they’ll say ski in our resorts, fly into our airport, we’ll satisfy you," Smythe says. With a huge marketing budget, a $10 million investment in airline seats and the ability to offer discount rates, Vail will get the attention of destination skiers. Intrawest’s response, at least in part, is: low prices will bring destination skiers in once, but will it bring return visits? Rather than getting into a ticket price war with Vail, as some other Colorado resorts are doing, Intrawest — assisted by a favourable U.S. exchange rate at its Canadian resorts — is betting that if it has the best mountains and offers the best experience, the destination skiers will return. There is also a school of thought that says you shouldn’t put all your eggs in one basket. Although Vail is more accessible by air than Whistler, ten 747s full of skiers is still only about 3,000 skiers. So despite the fact a lot of effort and money is spent wooing destination skiers, the local market and drive-up business is still crucial to even the biggest resorts. In Whistler’s case, about half the skier visits still come from the Lower Mainland and south-west corner of the province. That puts Whistler in competition with the smaller, independent resorts of the Interior. So where do they fit into the new resort landscape? "I think Sun Peaks, Big White — these areas serve a niche," Smythe says. "Big White and Sun Peaks have expanded significantly. They’re drawing Europeans, they have a different price point (from Whistler), a different product, but they’re competition." Raine, who now operates a hotel at Sun Peaks, agrees that the Interior resorts fill a niche and can compete with Whistler for Lower Mainland and destination skiers. That’s part of the reason he has trouble with the consolidation in the business; independent resorts can still compete. "You look at Telluride in Colorado. It’s an independent in a tough market, but they’re doing a pretty good job. It’s one of the fastest growing areas." But despite all the consolidation and the attempts to cut into other markets, the biggest competition facing the mountain resort business is not from other mountain resorts, it’s from the beach. When most North Americans think of winter vacations they think of warm, southern climates — that’s the destination market mountain resorts are missing. And the chances of cutting into that market have not been increasing. The number of skiers in North America has remained stagnant for years. Even when you factor in snowboarding, the growth curve remains relatively flat. Only about 4.4 per cent of the North American population skis or snowboards. Mike Bisner, director of marketing for Benetton Winter Sports, a company which owns Nordica ski boots and Kastle skis, believes there is a huge potential market for something in between skiing and snowboarding, something that’s easy to learn and doesn’t require a lot of preparation or restrictive equipment. He cites the growth in in-line skating as an example of a relatively new sport that, because it’s so easy to learn and to participate in, has taken off. A decade ago no one had heard of in-line skates. Today there are 30 million participants in the United States. By comparison, there are 12 million skiers in the United States, and only half of them ski each year. Colorado, the fastest growing state in the union and home to Vail and 28 other ski areas, has recently taken a huge step to boost the ski/snowboard market. Based on studies that showed people who learned to ski at age 10 were the most likely to continue skiing throughout their lives, Colorado has decided to give every Grade 5 student a season pass, good at any ski area in the state. The potential for building the Colorado ski market is staggering. But ignoring the fight for market share and the industry’s participation problems, can the average ski bum or wet butt take any measure of comfort from the increasingly corporate landscape of the ski resort world? Ed Pitoniak, former editor in chief of SKI magazine and now staff vice-president of ideas and product acceleration at Intrawest, says yes. "Most of the key people involved in the mergers — Hugh Smythe, Andy Daly at Vail, Les Otten — do fundamentally love sliding around on snow," Pitoniak says. "It’s not just about growing the business."

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