New Peaks for Vail Resorts
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Broomfield, Colorado-based Vail Resorts (NYSE: MTN) is preparing to take on a new mountain peak in the Victorian city of Breckinridge, CO. Vail has been wrangling a bit with residents as well as the U.S. Forest Service for seven years to gain access to Breckinridge's Peak number six, which would bolster its resort acreage in the town by more than 20 acres.
Despite the amount of commerce and recreation that Vail has brought the region over the years, it is still dealing with territorial headwinds, but according to Rob Katz, Vail CEO, speaking at a recent Baron Investment Capital conference, the company isn't giving up on this "huge opportunity" any time soon.
After suffering through one of the mildest winters on record in 2012, the stock is up nearly 24% year-to-date. In a season where there was a precipitous 60% drop in natural snowfall, Vail's EBITDA only suffered a 3.8% decline, according to Katz. That's because the company, which operates some seven resorts around the U.S., had been readying its arsenal, something it continues to do today.
Vail's warchest appears to be organized with three distinct weapons for combatting whatever Mother Nature, the economy, or aging baby-boomers have to throw its way.
First, and as has been discussed, the company made a push toward seasonal passes. For $650, season pass holders can ski Vail mountains any time during the year. Considering the median household income for its skiers is over $200,000 per year, this flat--rate expense seems like quite a deal. The only catch seems to be that the passes must be purchased during the pre-season. Katz pointed out that the company sells more than 300,000 season passes per year and that these revenues account for some 35% of all lift-ticket sales.
Next, the company is taking on its aging baby boomers, who may not be skiing as much as they once were physically able to do. Vail has taken the innovative approach of using technology to attract and engage the next generation of skiers. In addition to using social media, the ski company built an RFID chip inside of its season passes and its lift tickets, explained Katz. That chip allows Vail to map the guest experience and provide personal statistics on ski runs. Vail even makes the process competitive by incentivizing skiers with rewards for special achievements.
Lastly, Vail is warding off summer skeptics who point to the seasonal nature of its business by turning its existing infrastructure into a summer theme park. The transition from a winter to a summer resort may seem like an easy enough transition but it required the support of Congress, which was only solidified several years ago. Now Katz expects that summer activities, which include attractions like zip-lines, will be a significant driver of cash flow and earnings, which the company has a habit of returning to its shareholders via a dividend.
Vail is entrenched in the communities in which it operates and has even helped to shape the schedules of airlines operating in the area. It has even provided financial incentives to influence the pace of flights into and out of Vail/Eagle Airport. Katz admits, however, that summer business is just not robust enough to make similar promises during these months.
An uptick in activity to Vail during its off-peak season stands to benefit some airlines and also online travel providers, such as Expedia (NASDAQ: EXPE) and Kayak Software (NASDAQ: KYAK), whose shares are up 20% and down 7%, respectively, in the past three months.
Expedia is probably taking note of a few events occurring in its rear-view mirror. TripAdvisor, a former Expedia business, just ramped up the competitive landscape with its acquisition of Wanderfly, a social-media expert. Also, Scott Durchslag, the former head of Expedia and whose signature is on the TripAdvisor spin-off, was most recently tapped by BestBuy to help write the electronic retailer's turnaround story, according to The Wall Street Journal. Expedia reports its quarterly earnings on October 25th.
Kayak, which is still in its first year of trading as a public company and which The Wall Street Journal recently pointed out received its financial backing from venture capital high-flyer Accel, is preparing to report its second round of quarterly results since its $100 million IPO in July. In its 2Q, Kayak generated a 36% rise in revenues to $76.9 million compared with last year’s period. The company projects 3Q revenues between $76-$78 million, that represents an increase of as much as 28% over the year-ago-period. Jan. 15, 2013 represents the end of a lock-up period for early investors in Kayak's stock, at which time a buying opportunity could arise.
As for Vail Resorts, the company certainly has diversified its revenue stream, and Katz appears hopeful about the prospects for Peak Six. With this diversified business model and one of the worst winters for skiers ever behind us, Vail Resorts just may be on its way to shaping into a bellwether stock.
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