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A long cold winter ahead

B.C.’s government could wind up running the ski hills


 

Not a single snowflake has fallen on Whistler, but the famed B.C. resort town is already feeling a chill. Last week, Fortress Investment Group, the New York-based hedge fund that owns Intrawest ULC, Whistler-Blackcomb’s parent company, narrowly averted bankruptcy. After a week of fierce speculation that Fortress would fail to make a deal, an 11th-hour package to refinance its $1.7 billion in Intrawest debt came through. But the relief may be short-lived.

Over the past two decades, B.C. has become a paradise for skiers, snowboarders and outdoor enthusiasts. But many feel that thanks to a host of threats, Whistler’s close call is just the beginning, and the province’s resort boom could turn into a bust. The industry has kept on opening new hills and building new resorts even as skier numbers have flattened, and the visitor demographic is aging quickly. As the global economy slows, B.C.’s many resorts and condo developments may be facing an ugly awakening.

The most immediate threat facing the industry comes from an impending global recession. Americans in particular have been hit hard by the financial crisis, and a full quarter of Whistler’s visitors are from the U.S. Already, the local tourist board is predicting a 12 per cent decline in visits this season. But a worrisome, longer-term threat is on the horizon too. As today’s skiers age, they’re not being replaced by younger blood. Ridership on B.C. ski lifts peaked at 6.2 million in the winter of 2001-2002, and within the next decade, skier visits are projected to drop by half a million. These days, when the toques come off, you’re likely to see a head full of grey hair; the average skier age is 40, and getting older each year.

Oddly enough, though, fewer skiers may not be the industry’s biggest problem. That’s because the ski industry doesn’t make much money from skiing anymore, says Paul Kedrosky, a California-based CNBC analyst and editor of the Infectious Greed business blog. Ski hills are intrinsically not that profitable, he explains. They have massive, fixed costs due to snow-making and daily run maintenance, plus the army of staff who run the lifts, day lodges, parking lots and ski patrols. So lift-ticket revenue, which brings in $50 to $60 a head for less than six months of the year, isn’t the real money-maker. “The dirty secret of the ski industry is that there isn’t a ski industry,” says Kedrosky. “It’s a real-estate industry.” And indeed, in 2006, real-estate profits alone made up two-thirds of Intrawest’s $268-million operating profit.

Since much of the money in the ski industry now comes from selling property, it’s no surprise that as real estate has boomed in B.C., so have the hills. Adding fuel to the fire, the province has “incentivized” resort-sector development, says an official with the resort development branch of B.C’s Tourism Ministry. Not only does the province subsidize the industry with cheap land, priced at $5,000 per acre for the first 10 years, but the 1985 Commercial Alpine Ski Policy stipulates that if a ski hill goes bankrupt, or the owners walk away, the province is required to step in and run the resort until a buyer can be found.

Given all those incentives, it’s no surprise that over the past five years, the local ski industry has undertaken its biggest expansion ever. Less than a year ago, the province’s newest billion-dollar hill, Revelstoke Mountain Resort, opened for business. Four B.C. resorts are currently undergoing complete overhauls, and just last week, developers cut ribbon at an all-season resort in the northern B.C. town of Smithers. Three more developments are pending approval, including Jumbo Glacier, a controversial $450-million project near Invermere, whose 20 lifts will allow year-round skiing on a series of glaciers in wilderness terrain, and Juliet Creek, a resort slated for the Coquihalla Pass, a two-hour drive from downtown Vancouver.

When Victoria agreed to backstop the industry in 1985, B.C. had a smattering of low-key mom-and-pop hills. Now the province is standing behind an industry worth several billion dollars, and as Whistler’s close call showed, parts of that industry are on shaky ground.

As long as boomers were snapping up holiday properties in B.C., and the province’s ski hills were choked with Brits and Americans, the ski industry was a money machine. When Revelstoke’s first two condo projects hit the market 18 months ago, they sold out in three hours. But what will happen if B.C.’s real estate market hits the skids? Resort properties are particularly prone to real-estate busts—when money gets tight, the holiday home in the mountains is the first to go. Because of this, Kedrosky believes the “perfect storm” could be about to hit. And it won’t be one of those helpful storms that dumps a layer of killer powder. It could be the nastiest storm B.C.’s ski hills have ever seen.


 

A long cold winter ahead

  1. Nancy,
    If you are making the drive to the Coquihalla summit in 2 hours from Downtown vancouver, I salute you.

    Maybe now is the time to dial down these resorts – Jumbo Glacier is hated by the local residents. Juliet Creek is in the middle of nowhere and is guaranteed to fail without a rea estate bubble, leaving ugly scars in a beautiful section of country.

    I don’t know why the government is letting the industry cannibalize itself, when, as you say, the number of visits is dropping.

  2. CNBC analyst Parul Kedrosky is dead wrong: There are plenty of ski resorts in the U.S. , and a few in Canada, that are money-printing machines. They open quickly in late November/early December, operate day and night, and don’t stop until mid-March. Then they shut down tight until the next season, refusing to bleed with summer/fall business that in most cases, is a loser.

    These regional/day resorts feed off a close-in drive market. High jet fuel costs, and resulting higer fares? Fewer flights? Out of control bag check fees? No problem…this means even more skier visits pushed to resorts located in reasonable drive distances.

    These regional/day ski resorts often produce a 35% gross margins, year-in, year-out. I’ll take those returns against almost any industry in North America, except perhaps for a few week period during a stock market panic when gold is the place to be.

  3. Are we ever going to tire of corporate socialism? We are told by the private sector how great the `free` market is and yet they refuse to accept risk and certainly refuse to shar the profits. They demand iron-clad profit agreements for free sporting arenas that only seek to jack up the price of tickets so that the only people who can afford local sports are the corporate elite or those with second mortgages on property or maxed out credit cards. But there is not enough money in the purse to fully fund the health care system or the higher education system so these continue to teeter and consumers have to suffer. Perhaps the good guys in the private sector who always do it right and who really know what they are doing in contrast to the bumblers in the public service, will lend us a hand once again. What`s that? The `invisible hand` is picking the public pocket again? What are you a socialist or something? Save the ski hills or we will all perish you fools!

  4. As a tourism operator in the ski industry, my vision is maybe different:

    We should realize that the sport of skiing is not a cheap activity neither for the mountain operators neither for the customer.

    Fixed costs are important and everybody knows about this, though the only very successful ski resorts have realized that instead of the likes of Whistler Blackcomb that try to promote to a mass market, they chose to get the money where it is and where no crisis do really change the rich and wealthy way of life.

    So it is all about excellence, superior quality services and amenities that fuel the dream because skiing should be like a dream and very desirable.

    We should pay a prime to be accepted, like being a member of a classy Golf course it is the exclusivity of one desirable thing that will bring people to exceed their own limits and carry them to the required success and position to enjoy these expensive habits.

    Then it would push people to de better and maybe less people would be required to make these ski resorts profitable. Have a look at Deer Valley, Aspen, and mainly Courchevel, Meribel, Megeve, Verbier, St Moritz, Cortina d’Ampezzo….

    Once the resort is desirable the crowd will be ready to come to, maybe once a year, to experience the dream of living the high end lifestyle …

    I do believe in the Elite aspect of the ski resort and industry to bring the level of resort economy to a different level from the standards, untouched by dire economics because even if hit by recession, most of the wealthiest people on earth do not change their lifestyle!

  5. I agree, Whistler needs to stop trying to be something it is clearly not. If people want discount skiing then go to one of the small local mountains. Whistler resort needs to transform itself into a world class resort where people want to be if it is to become profitable. It is one thing to have the biggest mountains, the best snow, the largest vertical. It is quite another thing to say you can offer the best experience.

    Less people, means a better service can be offered which results in a better experience. Then the elite will make this home and I think everyone will profit a lot more from that.

    WB, Tourism Whistler and the RMOW needs to start studying the resorts that have been proven to book 100% for the holidays for the past 5 years like Verbier, Courchevel, Cortina, St. Moritz, Aspen and Deer Valley. None of those resorts can compete with the quality of skiing that we have in our own backyard, so it must be our services and marketing that needs to change! .

  6. 63% of people in the East Kootenays do not want the Jumbo’s 5000 Condominiums in the middle of pristine grizzly habitat. I would hazard a guess the number in the West Kootenays that do not want this monstrosity is even higher. Is there nothing that developers will not spoil forever.

    Beware development masquerading as tourism. Some places deserve to be isolated and wild..this is one of those places.

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