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Slower growth in Epic Pass revenue, wider than expected first-quarter losses trigger steep drop in Vail Resorts stock

Vail Resorts’ chief Rob Katz told investors on Friday that he expected to sell 925,000 Epic Passes for the 2018-19 ski season

A skier makes their way through fresh snow in Vail Resort in December 2018. (Nina Riggio, Special to The Colorado Sun)
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The rise of a competitor to Vail Resorts’ industry-transforming Epic Pass this year has slowed the growth in season-pass revenue for the continent’s largest resort operator, which on Friday announced a big boost in capital spending as yet another volley of a blossoming pass war.

The market apparently did not like the decline in pass revenue, with shares of Vail Resorts falling more than $50 a share — more than 18 percent  — within hours of the earnings announcement, marking one of the biggest one-day sell-offs since the company went public 22 years ago.

Vail Resorts’ chief Rob Katz on Friday told investors that he expected to sell 925,000 Epic Passes for the 2018-19 ski season, which includes about 100,000 deeply discounted $99 military passes. The company reported 750,000 Epic Passes sold last season.

Take out the sales to new military-pass buyers, and the company said Epic Pass sales increased 8 percent in units and 10 percent in revenue compared to the same period last season. This year the Epic Pass is competing against Alterra Mountain Co.’s new Ikon Pass.

Last December Katz reported season pass sales were up 14 percent in units and 20 percent in dollars for the 2017-18 season over the previous season. In December 2016, he reported pass sales had climbed 16 percent in units and 20 percent in dollars over the previous season.

Epic Pass sales for 2016-17 and 2017-18 set records for Vail Resorts. So the 10 percent annual growth in Epic Pass sales revenue for 2018-19 marks Vail Resorts’ largest year-over-year decline in pass sale revenue growth since the pass debuted a decade ago.

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Katz was reluctant to point to the emergence of the Ikon Pass as the source of the plateauing pass revenue. He noted “slight” declines in Epic Pass sales in California’s Lake Tahoe region and Utah, where the company owns the Northstar, Heavenly and Park City resorts and Alterra owns Squaw-Alpine and Deer Valley.

Despite the softness in California and Utah, Katz said sales were strong in Colorado and the Northeast, where the company this summer added Vermont’s Okemo and New Hampshire’s Mount Sunapee ski areas to its roster of now 15 destination ski areas, that also includes Crested Butte Mountain Resort.

When queried on whether the rare slowing of Epic Pass revenue was caused more by the competition from Ikon or typical resort challenges with poor snow and a maturing pass market, Katz said the Ikon affirms Vail Resorts’ business model of pushing people away from day lift tickets.

“We think Ikon has a great product for the resorts in their network and we think their entry has helped the overall market, in that they have bought greater awareness and they are carrying the message around that if you are going to ski, you should buy a season pass,” Katz said.

Vail Resorts always loses money in its first quarter, when lifts are dormant in August, September and October. This year was no different with the company reporting a net loss of $107.8 million, compared to $28.4 million for the same period last year.

The loss grew due to expenses from the acquisition of four new ski resorts and a poor currency rate related to Australia’s Perisher resort, Katz said. The loss was wider than expected, contributing to the stock sell-off that comes as the company’s Colorado resorts — Vail, Beaver Creek, Breckenridge and Keystone — boast their best early-season conditions in many years.

Despite the increased first-quarter losses, Katz said Vail Resorts is on track to report $718 million to $750 million in earnings before interest, taxes, depreciation and amortization for the fiscal year.  That compares to $616.6 million in resort earnings for fiscal 2018, before the company added Crested Butte, Okemo, Mount Sunapee and Washington’s Stevens Pass ski areas to its portfolio.

Alterra executives say they expect to sell more than 250,000 Ikon Passes this year, a robust performance for a first-year product. The company — a partnership between Denver’s KSL Capital Partners and the Crown family that owns Aspen Skiing Co. — corralled 14 destination resorts in the last year, forging the Ikon Pass as a rival to the Epic Pass.

MORE: Alterra expects to sell 250,000 Ikon Passes, Vail Resorts says Epic Pass sales are up

The company inherited pass buyers for those 14 resorts, which include Winter Park, Steamboat, Utah’s Deer Valley and southern California’s Mammoth. According to an executive at the company, Alterra hoped to grow pass sales 25 to 30 percent from the resorts by adding access to 23 other ski areas through partnerships across the continent.

Just as the Epic Pass transformed the ski industry when it debuted in 2008 — delivering not just discounted skiing but a consistent boost of off-season revenue that lessened Vail Resorts’ financial risk from low-snow years — the new season-pass war promises even more change for the resort industry with competition benefitting skiers.

To wit, Katz is planning a record investment in his resorts for next season, directing up to $143 million toward improvements and upgrades. That compares to previous capital investments in the last four years of $131 million, $103 million, $100 million and $85 million. Alterra Mountain Co. plans to invest $555 million in its network of resorts over the next five years, including a new gondola opening this month at Winter Park and a new gondola for Steamboat in 2019-20.

The Vail Resorts improvements planned for the 2019-20 ski season include:

  • Snowmaking expansions at Vail, allowing the mountain to open one week earlier in November, with 387 new high-efficiency snowmaking guns.
  • Snowmaking expansion for Beaver Creek’s beginner-friendly Buffalo Park and a  renovation for children’s ski school.
  • New mobile technology enabling skiers who bought their pass online to get their passes from a mobile-ticket agent in the lift line.
  • A new barbecue restaurant for Park City on the Canyons side of the resort.
  • Space at the Grand Colorado hotel at the base of Breckenridge’s Peak 8 — on land the company sold to the hotel developer last year — for new ski school and childcare facilities. A new zipline will open at Breckenridge next summer.
  • Two new lifts at Stevens Pass and two on-mountain restaurant upgrades at Okemo.
  • Snowmaking upgrades at Keystone, enabling the resort to open three weeks earlier, positioning it to be the first resort to open in the country, Katz said.
Skier Bobby Meller makes his way down a trail at Keystone Resort. (Jesse Paul, The Colorado Sun)

The snowmaking expansion at Keystone is specifically aimed at rewarding skiers who buy the Epic Pass, Katz said.

“We are really making a push here to say, ‘Yeah, we are going to have a better product open earlier.’ We see an opportunity to make a statement. This is an investment in that loyalty program and we will see real benefit from that,” he said.

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