{"id":10760,"date":"2016-11-04T02:30:01","date_gmt":"2016-11-04T06:30:01","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/climate-change-may-present-opportunities-for-vail-resorts\/"},"modified":"2016-11-04T02:30:01","modified_gmt":"2016-11-04T06:30:01","slug":"climate-change-may-present-opportunities-for-vail-resorts-inc","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/climate-change-may-present-opportunities-for-vail-resorts-inc\/","title":{"rendered":"Climate Change May Present Opportunities for Vail Resorts, Inc."},"content":{"rendered":"

Vail Resorts (NYSE: MTN), based in Broomfield, Colorado, is a $6.2B owner and operator of mountain resorts. MTN\u2019s business is split into three operating segments: Mountain, Lodging, and Real Estate, with its Mountain segment accounting for 82% of net revenues in fiscal year 2016[1]<\/a>. The Company operates ten mountain resorts and three urban ski areas (shown in Exhibit 1 below)[2]<\/a>, and is the largest ski mountain operator in the United States with approximately 38% market share[3]<\/a>.<\/p>\n

Exhibit 1: MTN\u2019s mountain resorts and urban ski areas (excluding recent acquisition of Whistler) [4]<\/a><\/p>\n

\"map-of-vail-mountains-jpeg\"<\/a><\/p>\n

Climate change has already had an outsized impact on the winter sports industry, with warmer weather, droughts, and seasonal changes causing a decline in snowfall. Warmer weather has led to declining snowfall across the U.S. by causing more winter precipitation to fall as rain rather than snow[5]<\/a>. Regional droughts brought on by climate change have also adversely impacted snowfall at some of MTN\u2019s mountains. From 2012 through 2014, MTN\u2019s California resorts experienced annual snowfall totals that were less than 60% of average, with the 2013-14 ski season producing snowfall of just 29% of average[6]<\/a>. Warmer weather has additionally shortened the ski season, as it takes longer for sufficient snowfall to amass.<\/p>\n

Operators such as MTN can use snowmaking equipment to offset lower snowfall, but snowmaking carries its own problems. Snowmaking is highly energy intensive; energy costs are typically a ski resort\u2019s second highest cost, after labor[7]<\/a>. MTN\u2019s snowmaking operations accounted for approximately 24% of its total energy use in 2013[8]<\/a>.<\/p>\n

Snowmaking also involves tremendous amounts of water. A 200 foot wide ski run with a drop of 1,500 feet would require 400,000 gallons of water to make one foot of snow[9]<\/a>. Climate change could curtail MTN’s access to water by increasing the severity and frequency of droughts, which would limit its ability to make snow.<\/p>\n

Despite these challenges MTN has taken a number of steps to mitigate the impacts of climate change, and is likely better positioned than its competitors to address ongoing concerns.<\/em><\/p>\n

As the largest player in the sector MTN has more capital to invest in cost-saving sustainability initiatives, and more ability to drive non-ski revenue. MTN also benefits from geographic diversity and the ability to market across resorts. As climate change continues to threaten the industry, MTN can act as a consolidator and look for opportunities to acquire struggling resorts.<\/p>\n

MTN has a track record of trying to reduce its own footprint. In 2008 MTN launched its \u201cTarget 10\u201d initiative to reduce the company\u2019s overall energy consumption by 10%[10]<\/a>. Just three years later MTN exceeded its goal, primarily by altering employee behaviors such as turning off lights and not idling vehicles.[11]<\/a> MTN has also made capital investments over the years to lower its ongoing energy costs, for instance investing $1 million at two of its resorts to replace air compressors (used in snowmaking operations) with high-powered energy efficient compressors[12]<\/a>.<\/p>\n

MTN has been expanding its non-ski offering by adding summer resort activities such as mountain biking, hiking, and horse-back riding[13]<\/a>. By continuing to improve its year-round offerings, MTN can mitigate the impact of lower winter revenues.<\/p>\n

MTN is also geographically diversified and has avoided the Northeast. Five of MTN\u2019s resorts are in Utah and Colorado, which have so far seen a smaller decline in snowfall than other states[14]<\/a>. Costumers may be driven to MTN\u2019s resorts by declining ski conditions in the Northeast. One study of Northeastern U.S. ski resorts estimated that only four out of fourteen would remain profitable by 2100 under a higher-emissions scenario[15]<\/a>. In addition to being outside the Northeast, MTN\u2019s multiple locations allow it to market the \u201cEpic Pass,\u201d which provides unlimited seasonal access to all resorts, and accounts for ~40% of lift ticket revenue[16]<\/a>.<\/p>\n

In addition to the mitigation steps noted above, MTN should consider becoming even more of an industry consolidator. As smaller resorts with fewer resources begin to struggle with the effects of climate change, it will create opportunities for MTN to acquire them at depressed prices. By instituting best practices at these resorts, such as utilizing energy efficient snowmaking equipment and driving summer revenues, MTN should be able to engage in accretive acquisitions. Acquiring new resorts will also increase MTN\u2019s diversification and boost the value of their Epic Pass tickets.<\/p>\n

 <\/p>\n

(Word Count: 723)<\/p>\n

[1]<\/a> Vail Resorts, Inc. (Nov 2016). 2016 Form 10-K. Retrieved from www.capitaliq.com<\/p>\n

[2]<\/a> Vail Resorts. Investor Relations. Vail Resorts and Whistler Blackcomb Complete Strategic Combination<\/i>. N.p., 17 Oct. 2016. Web. 3 Nov. 2016. <http:\/\/investors.vailresorts.com\/releasedetail.cfm?ReleaseID=993851>.<\/p>\n

[3]<\/a>\u00a0Alvarez, A. (2016). IBISWorld Industry Report 71392. Ski and Snowboard Resorts in the US.<\/em>\u00a0Retrieved November 3, 2016 from IBISWorld database.<\/p>\n

[4]<\/a> Vail Resorts, Inc. (Nov 2016). 2016 Form 10-K. Retrieved from www.capitaliq.com<\/p>\n

[5]<\/a>\u00a0Samenow, Jason. “Much of the U.S. Seeing More Rain and Less Snow Due to Climate Change.” The Washington Post<\/i>. 5 Apr. 2016. <https:\/\/www.washingtonpost.com\/news\/capital-weather-gang\/wp\/2016\/04\/05\/report-much-of-the-u-s-seeing-more-rain-and-less-snow-due-to-climate-change\/>.<\/p>\n

[6]<\/a> Bebb, Donna. Climate Exposure Impact on Equity Valuation: Case Study of Vail Resorts, Inc.\u00a0<\/i>Steyer-Taylor Center for Energy Policy and Finance<\/i>. Stanford, Web. <http:\/\/media.law.stanford.edu\/organizations\/programs-and-centers\/steyer-taylor\/Vail_Final.pdf>.<\/p>\n

[7]<\/a>\u00a0Ibid.<\/p>\n

[8]<\/a> Ward, Bob. “Vail: Bigger Company, Smaller Footprint.” The Aspen Times<\/i>. 18 Dec. 2013. Web. <http:\/\/www.aspentimes.com\/news\/vail-bigger-company-smaller-footprint\/>.<\/p>\n

[9]<\/a> Bebb, Donna. Climate Exposure Impact on Equity Valuation: Case Study of Vail Resorts, Inc.\u00a0<\/i>Steyer-Taylor Center for Energy Policy and Finance<\/i>. Stanford, Web. <http:\/\/media.law.stanford.edu\/organizations\/programs-and-centers\/steyer-taylor\/Vail_Final.pdf>.<\/p>\n

[10]<\/a> Ward, Bob. “Vail: Bigger Company, Smaller Footprint.” The Aspen Times<\/i>. 18 Dec. 2013. Web. <http:\/\/www.aspentimes.com\/news\/vail-bigger-company-smaller-footprint\/>.<\/p>\n

[11]<\/a>\u00a0Ibid.<\/p>\n

[12]<\/a>\u00a0Ibid.<\/p>\n

[13]<\/a> Vail Resorts, Inc. (Nov 2016). 2016 Form 10-K. Retrieved from www.capitaliq.com<\/p>\n

[14]<\/a> Samenow, Jason. “Much of the U.S. Seeing More Rain and Less Snow Due to Climate Change.” The Washington Post<\/i>. 5 Apr. 2016. <https:\/\/www.washingtonpost.com\/news\/capital-weather-gang\/wp\/2016\/04\/05\/report-much-of-the-u-s-seeing-more-rain-and-less-snow-due-to-climate-change\/>.<\/p>\n

[15]<\/a>\u00a0Ibid.<\/p>\n

[16]<\/a> Bebb, Donna. Climate Exposure Impact on Equity Valuation: Case Study of Vail Resorts, Inc.\u00a0<\/i>Steyer-Taylor Center for Energy Policy and Finance<\/i>. Stanford, Web. <http:\/\/media.law.stanford.edu\/organizations\/programs-and-centers\/steyer-taylor\/Vail_Final.pdf>.<\/p>\n","protected":false},"excerpt":{"rendered":"

While the ski resort industry faces climate change challenges, Vail Resorts is uniquely positioned to succeed.<\/p>\n","protected":false},"author":2116,"featured_media":10761,"comment_status":"open","ping_status":"closed","template":"","categories":[1218,1650,372,373,370],"class_list":["post-10760","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-climate-change","category-mountain-resorts","category-ski","category-snowboard","category-vail"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/climate-change-challenge-2016\/","yoast_head":"\nClimate Change May Present Opportunities for Vail Resorts, Inc. - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/climate-change-may-present-opportunities-for-vail-resorts-inc\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Climate Change May Present Opportunities for Vail Resorts, Inc. - 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