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  1. 1. The Canadian- American Ski Resort Leader MIE 499 Capstone Dr. Ian Lee Presented by: Ann Robbins Christopher Taylor
  2. 2. Table of Contents Subject Page Company Background 6 Business Operations 7 Industry and Associations 8 Major Competitors 9 Macro-Environment Analysis 11 Technological Analysis 12 Economical Analysis 17 Socio-Cultural Analysis 20 Political-Legal Analysis 27 Macro-Environment Analysis Summary 31 Industry Analysis 32 Strategic Group Map 32 Five Forces Analysis 35 Direct Competitors 36 Threat of Entry 39 Substitutes 42 Power of Suppliers 46 Power of Buyers 49 Summary of Five Forces 51 Driving Forces 53 Key Success Factors 54 2
  3. 3. Summary of Industry Analysis 55 Firm Analysis 56 Primary Activities 57 Inbound 58 Operations 60 Outbound Logistics 62 Marketing and Sales 64 Service 66 Support Activities 67 Firm Infrastructure 67 Human Resources Management 69 Technological Development 70 Strategic Competitive Advantage 71 Resources 72 Capabilities 74 Core Competencies 76 Sustainable Competitive Advantage 76 Ability to Integrate Resort development and operations 77 Widespread resort locations for easier access 78 Capabilities in all facets of hospitality 78 Firm Analysis Summary 80 Corporate and Business-Level Strategy 81 Corporate Strategy 82 3
  4. 4. Business Strategy 87 Corporate and Business-Level Strategy Recommendations 91 Corporate-Level 91 Business-Level 93 Intrawest in Review 94 Appendices Resort Ownership subsidiaries A NAICS explanation B Revenue Breakdown C Selected Economic Data for U.S. D U.S. Economic Indicators E Average Gas Prices F Population of persons 65+ G Percentage increase in population 65+ H Non-resident travelers entering Canada/Mode of Transportation I U.S. Health Club Membership Trend J Direct Competitors Analysis K Competitor Prices L Backyard Blizzard list of Customers M Chairlift Manufacturers N Annual Reports for 4 competitors O Ski Resort Industry Ratios P Normalized Financials Q 4
  5. 5. Intrawest Corp. Estimated Industry Vail Ski Resorts, Inc. American Ski Company Booth Creek Ski Holdings ROI/ROE/Profitability Graphs R Resort Locations Map S 5
  6. 6. Company Background Intrawest was started by Joseph Houssian in 1976 as a Vancouver real estate development firm that primarily built houses and apartments in Alberta and British Columbia1. An MBA graduate from the University of British Columbia, Mr. Houssian quickly turned Intrawest into a successful company. In 1979, Intrawest was incorporated in Delaware, USA. In 1981, Intrawest ventured into commercial properties, and acquired a shopping center in Calgary2. Starting in the mid 1980s, Intrawest Corporation went into the ski operations business when it bought a 50% share of Blackcomb ski resort in British Columbia. From the start, Intrawest invested heavily in the resort, trying to make it a destination rather than a one-day ski spot. In 1990, Intrawest went public and entered the Toronto Stock Exchange (TSE) with the symbol ITW. It used its new capital to purchase the Tremblant resort, located in Montreal Canada, as well as 1,800 acres of surrounding property3 in order to develop a ski community with shops, hotels, condos and townhomes. In 1994, Intrawest Corporation spun off its real estate arm as Intrawest Properties and concentrated in purchasing more resort areas. It bought Stratton resort in Vermont that year and the Snowshoe ski area in West Virginia a year later. In 1997, Intrawest entered the New York Stock Exchange (NYSE) with share trading as IDR. A purchasing machine, Intrawest Corporation bought large stakes of (or just outright), more and more 1 http://www.intrawest.com/about/executives/joe.html 2 Ibid. 3 http://www.hoovers.com 6
  7. 7. resorts throughout the United States from Hawaii and California to New Jersey. It also diversified a bit when it bought Sandestin, its first warm-weather resort in Florida in 1998. Intrawest went international when it purchased a stake of Compagnie des Alpes located in France (the largest ski operator in the world)4. It also purchased ski rentals and accessory chains, helicopter companies and golf courses in Canada and the United States. By 2000, Intrawest slowed its buying spree and started concentrating on developing its villages throughout the country. All in all, Intrawest Corporation is involved in 18 resorts (Appendix A). Through its subsidiaries, the Company is engaged in the development and operation of mountain and golf resorts principally throughout North America5. Business Operations The company’s operations division is divided into two parts ski/resort operations and real estate development. The ski/resort operations are then further segregated into two segments, mountain resort and warm-weather resort operations. The mountain resort operations deal with all activities at the company’s nine resorts including reservations, retail and helicopter businesses. Warm-weather resort operations deal with golf resort activities. Revenues for Ski/Resort Operations accounted for $485 million or 49.2% of the total revenues in 20026. The company’s real estate division is segregated into resort development and resort club groups. The resort development group deals with condo-hotels, townhomes, and family- 4 http://www.intrawest.com/about/executives/joe.html 5 Ibid. 6 http://wwww.intrawest.com 7
  8. 8. homes outside of the village that owners can own or timeshare. The company also leases spots in the village proper for businesses. The resort club aspect generates less that 10% of total real estate business so it is not reported as a separate business segment7. Revenues for the Real Estate Division accounted for $487 million or 49.7% of total revenues in 20028. Industry and Associations Intrawest has the SIC code of 4011 which broadly describes the Hotel/Motel industry9. The NAICS equivalent was more specific and was listed as 721110/701111- Traveler Accommodation, which includes: Alpine skiing facilities, summer resort hotels, Tourist lodges, and Resort Hotels without casinos10. Industries in the Accommodation sub sector provide lodging or short-term accommodations for travelers, vacationers, and others. (Appendix B) There is a wide range of establishments in these industries. Some provide only lodging only while others provide meals, laundry, and recreational facilities, as well as lodging. Lodging establishments are classified in this sub sector even if the provision of complementary services generates more revenue. The types of complementary services provided vary from establishment to establishment11. 7 http://www.intrawest.com 8 Ibid. 9 http://www.census.gov 10 http://www.census.gov 11 Ibid. 8
  9. 9. Some associations related to this industry include (but are not limited to): • Professional Association of Innkeepers International • Meeting Professionals International • The Council on Hotel, Restaurant, and Institutional Education • The Hotel and Catering International Management Association • BOMA International • Institute of Real Estate Management • National Association of Industrial and Office Properties • American Resort Development Association • National skiing areas associations • American resort development associations • Canadian resort development association Major Competitors (From Multex Investor http://www.marketguide.com) The major competitors were not selected based on industry. In fact some of Intrawest’s obvious competitors were listed in different industries and SIC codes altogether. Vail Resorts Inc. (MTN) Vail Resorts, Inc. is one of the leading resort operators in North America. The Company's resorts and resort hotels provide a comprehensive resort experience throughout the year 9
  10. 10. to a diverse clientele with an attractive demographic profile. The Company’s operations are grouped into three segments, Mountain, Lodging and Real Estate, which represent 65%, 25% and 10%, respectively, of the Company’s revenues for the 2002 fiscal year. For the 3 months ended 10/31/02, revenues increased 56% to $113.9MM. 12 In 2002, Vail Resorts Inc. employed 4,700 people. Booth Creek Ski Holdings With six ski resorts and more than 6,000 acres of ski terrain, Booth Creek is one of the largest ski companies in the US. The company focuses on regional resorts near major skiing populations, such as Boston, San Francisco, and Seattle. The resorts offer a range of services, including equipment rentals, restaurants, retail sales, and skiing lessons; some are open in the summer for golf, mountain biking, and conferences. In 2002, revenues totaled 12 million dollars with 5,000 permanent employees. American Skiing Company (AESK) American Skiing Company is engaged in the operation of nine alpine ski resorts (like Sugarbush) in the United States and in the development of mountainside real estate, which complements the expansion of its on-mountain operations. For the 39 weeks ended 4/28/02, revenues fell 24% to $251.8M. In 2002 AESK had 12,000 employees. 12 http://www.multexinvestor.com 10
  11. 11. Macro-Environment Analysis Upon determining the threats and opportunities within a company’s macro environment, four key segments are analyzed. These segments include: technology, economic, socio- cultural and political-legal. The technological segment includes creating new knowledge and translating it into new outputs, products, processes and materials. The economic segment analyzes the nature and direction of the economy in which the company competes or may compete in. The socio-cultural segment deals with society’s attitudes and cultural values. The political-legal segment includes organizations and interest groups that can affect the body of laws and regulations guiding interaction among nations.13 Intrawest is divided evenly into two main businesses, resort operations and resort development. This unique company has led to an unclear determination of a specific industry in which it operates. By a closer analysis of Intrawest’s direct competitors, namely Vail Resorts, American Skiing Company and Booth Creek Ski Holdings, Inc. we deducted that the majority of revenue was generated through resort operations versus resort development (Appendix C). For example, Vail Resorts, Inc. resort operations make up 90% of their sales whereas real estate only accounted for 10%.14 Therefore, the TESP Analysis focuses on the resort operations business. 13 Hitt, Michael. A, R. Duane. Ireland, and Robert R. Hoskisson. “Strategic Management: Competitiveness and Globalization (Concepts) 5e”. United States: South-Western, 2003, p. 47-52. 14 http://global.factiva.com/en/nds/screeningList.asp 11
  12. 12. Intrawest is a Canadian based company, however the majority of its business, both resort operations and development is within the United States. Intrawest has 10 resorts that are located within the United States from the East coast of Vermont to the West coast of California. Due to the heavy involvement in the United States and Canadian markets the TESP Analysis focus will be on both Canada and the United States. The TESP analysis will include technological issues such as snowmaking machines, online security and ski lifts. Economic analysis will include the three-year economic forecast for the Canadian and U.S. economies and also current exchange rates. Other economic issues that affect the ski industry are a possible recession due to upcoming war and the correlating decrease of consumer spending. Socio-cultural issues include aging of the population, obesity of the population and the drive for healthier lifestyles. The threat of terrorism in the United States and the heightened security at boarder check points. Political-legal issues include the accidents in relation to the ski lifts, safety regulations in regards to snowboarding and environmental regulations that ski resorts must abide by. The TESP Analysis will summarize the opportunities and threats that are currently facing the ski resort industry in both Canada and the United States. Technological Analysis Technology is an ever-changing aspect of the business world. The changes in technology greatly affect business as well as our own personal lives. Major technological 12
  13. 13. opportunities for the ski resort industry are increased ski lift technology, snowmaking machines, and online booking. Opportunities An advance in ski lifts is by use of planetary gearboxes. These small size, low weight and high-torque characteristics are playing a major role in evolution of cableway and ski lift technology. They are being utilized in urban transport systems, amusement parks and also scenic areas, which are both difficult for land travel and environmentally sensitive. The old medium-to-high output torques consumed a lot of space and was heavy and expensive. The Brevini’s gearbox is known to have carried a 3000-person cable car in an hour in Hanover, 2000, which is instilling their competitive advantage. While comparable in price, some of the major advantages of the planetary gears include that it is 60% lighter and about half the size of a conventional gearbox with the same output. The planetary units offer efficiencies up to 98%, high reliability, inline assembly, easy disassembly and re-assembly, and high transmittable torque values with lower costs in comparison to other reduction gear systems. Hydraulic motor drives are used instead of electrical motors, which provide an advantage of absorbing some of the shock loads from cable car operation internally. Brevini is an international company, which allows them to support the cable car/ski, lift industry with a highly effective pre and after-sales operation, providing service and parts worldwide. This is a necessary service because lifts need to be shut down periodically so 13
  14. 14. parts can be serviced and replaced as necessary. This local availability allows a decrease in downtime and overall minimization of lost revenue.15 As global warming continues and the winter season gets drier, ski resorts are dealing with the lack of snow. Winter tourism will be affected by less snowfall and shorter skiing seasons.16 People waiting to head to the slopes are being discouraged by the lack of snowfall. The snow making machines are helping to ease the affects of this problem. Resorts are not waiting for nature to take its course anymore, snowmaking machines are taking over where nature is lacking. The earliest snowmaking machines were made from leftover household plumbing supplies and irrigation equipment. Although technology has improved the idea is still the same, the greatest advantage is snow can be created much more quickly.17 A snowmaking system can convert up to 9,000 gallons of water per minute of snow.18 That much water could be used to fill a standard 16’ by 32’ swimming pool and create enough snow to bury a football field (including end zones) with nearly three and a half feet of snow. This technology has assured that there will be a ski season even if nature doesn’t cooperate. Although snowmaking technology is available natural snow is still ideal to skiers and resort owners.19 15 “More torque puts planetary gearboxes to new uses” 14 June 2002. http://www.engineeringtalk.com/news/brv/brv109.html 16 “Government inaction against Climate Change will wreck top tourist destinations”. http://www.panda.org/news_facts/newsroom/ 17 Selingo, Jeffrey. “Machines Let Resorts Please Skiers When Nature Won’t”. http://www.ausblick.org/Old%2-Pages/snowmachines.htm 18 American Skiing Company website http://www.peaks.com/html/info/faq.html 19 Selingo, Jeffrey. “Machines Let Resorts Please Skiers When Nature Won’t”. http://www.ausblick.org/Old%2-Pages/snowmachines.htm 14
  15. 15. Online booking has proved to be a technological opportunity for the ski resort industry. Online booking has boosted resort bookings over the past several years and a new technology has been created to increase the efficiency of the process for resort patrons. Datalex and Resort Technology Partners (RTP) worked together to create a new distribution technology for leisure travel enterprises. The focus of this new technology is to better represent the facilities available, to broaden the scope of customer online self- service travel booking and to realize increased efficiency is sales, distribution and reservations management operations.20 Online booking will assist in the reservation process for potential consumers. This new system was established to create a user- friendly interface that will allow for any data necessary to be available. Online reservations can be made without the hassle and commission of a travel agent. Threats The main disadvantage for snow making machines is the high operating cost. Making snow does not come at a cheap price, it costs about $40,000 per acre to install and $1,700 to operate the machines.21 For resorts, operation cost is usually the second largest after labor. With the affects of global warming on ski resorts, snow making technology is an opportunity, however the increasing need for man made snow will increase the cost and in the long run a potential threat on the resort industries finances. 20 “New Technology at Vail Resort Takes Online Booking to New Heights”. Business Wire. Oct. 7, 2002. http://web.lexis.nexis.com 21 Selingo, Jeffrey. “Machines Let Resorts Please Skiers When Nature Won’t”. http://www.ausblick.org/Old%2-Pages/snowmachines.htm 15
  16. 16. More resorts are investing in helicopters, which are replacing the need for ski lifts. Helicopters are allowing runs to be longer and in low traffic areas, however because it is an emerging technology costs are high. However, extreme skiers with extra income may be willing to pay the higher prices for the bigger thrill of unexplored mountains. Online purchases still have consumers worldwide in an uneasy state. Internet purchases have grown in the United States with increased security practices, however in Canada and Asian countries online purchases are slow to increase. Consumers are still weary about the security of having their information online where it seems that everything is accessible. In Canada, web shopping is increasing but at a slow pace. According to Statistics Canada, in 2001 about 2.2 million households spent $2 billion on the Internet. Up from 1.5 million households spending $1.1 billion in 2000, but still just a small percentage of the $621 billion total spent in Canada last year.22 Only 16% of households used the Internet to make travel arrangements.23 Individuals expressed the most concern about security and privacy with online purchases. This report also stated that individuals use the Internet to browse for information and utilize it as a pricing tool, but do the purchasing at the store. 2000 2001 22 “Web shopping expansion slow in Canada: report.” Calgary Herald, Sept. 20, 2002. http://web.lexis- nexis.com/universe/ 23 “Web shopping expansion slow in Canada: report.” Calgary Herald, Sept. 20, 2002. http://web.lexis- nexis.com/universe/ 16
  17. 17. Household 1.5 million 2.2 million Spending $1.1 billion $2 billion Economical Analysis Opportunities The resort industry is making their resorts a one-stop shop. The idea is to have individuals stay for a long weekend instead of just taking a day trip. Customers making these resorts a weekend trip instead of a day trip is generating more revenue by sales in retail, restaurants and lodging. The control of all resort operations generates more revenue for the parent companies. By having package deals available customers will be willing to spend more money with the idea that they are saving money in the long run. The U.S economy is not growing as quickly as it has been in the past few years, but it is growing. For this year it is expected that GDP will grow at 2.5% and in 2004 it will grow even more at 3.5%.24 (Appendix D) With an increase in GDP and a decrease in the unemployment rate over the next few years there is a probable growth in disposable income, which will increase consumer spending on luxury items such as travel. The 2003 proposed dividend tax cuts for individuals will cause a slight increase in disposable income and should increase the likelihood for larger investments in companies such as the resort industry. 24 “Selected Economic Data for 2002, 2003, and 2044” http://www.lexis.nexis.com 17
  18. 18. Consumer Confidence in the Internet 150 $ in Billions 100 50 0 2001 2002 2003 2007 Years Over time, consumer spending and confidence in the Internet is expected to increase. Online booking also has the opportunity to reach a larger customer base on a global level. In the fourth quarter of 2001, sales reached $15 billion. In 2002, sales dropped a little to $11 billion but are expected to rise by the end of 2003 to $52 billion. By 2007, sales are expected to reach $105 billion25. This increased confidence in online consumption will directly affect the travel industry with increased sales in the Datalex and RTP technology discussed above. Threats One of the largest economical threats facing the resort industry is the current global situation. After the September 11th attacks people have restricted their spending. With the possibility of a war in Iraq individuals are skeptical that the economy will soon recover. With the unemployment rate of the rise, the relief from the recession is questionable. With fewer individuals working there will be less disposable income to put back into the 25 NUA Internet Surveys: Online retail spending to soar in the U.S. http://www.nua.ie/surveys/index 18
  19. 19. economy and workers will be more inclined to hold onto their money for fear of layoffs and unemployment. (Appendix E) Also over the past 6 years gas prices have increased. The increase in oil and gas affect the tourism industry overall. This increase is causing an increase in airline operating costs and in turn the customers tickets and as well as vehicle travel expenses. Individuals who are unsure of air travel and now driving to vacation destinations are also faced with increased gas prices. These prices may constrict individuals to local areas versus taking trips to resorts. (Appendix F) With the global and economic situation consumer confidence and consumer expectation in the United States and Canada has fluctuated over the past year. After the attacks of September 11th, consumer expectations index was low in Canada at 65 points and 60 points in the U.S. The consumer confidence index was low in September 2001 at 70 in Canada and 72 in the U.S. Below is the trend in U.S. and Canada’s confidence for the year of September 2001 to November 2002. Consumer Confidence Index 120 100 80 U.S. 60 40 Canada 20 0 Ja 1 02 Se 2 M 2 2 M 2 No 1 No 2 0 l-0 0 -0 -0 0 0 v- v- n- p- p- ar ay Ju Se 19
  20. 20. Consumer Expectations Index 100 80 60 U.S. 40 Canada 20 0 Nov-01 Nov-02 Jan-02 Jul-02 Sep-01 Mar-02 May-02 Sep-02 Socio-Cultural Analysis The resort industry, like any other industry is affected by changes in people’s attitudes, perceptions, values and actions. Important issues facing the resort industry deal with the demographics of aging, changes or lack thereof of travel, and the obesity issue. These socio-cultural trends have the capability to be positive or negative influences that translate into opportunities and threats that can either be taken advantage of or prevented. Without a doubt, the fastest growing segment of the U.S. population is the 65 plus age group. (Appendix G) In 2000, the older population numbered 35 million - eleven times more than the population a hundred years earlier.26 They represent 12.4% of the population or one in eight Americans and by 2030, will represent 20% of the population or 70.3 million27. Today, over half of the people 65 years and older live in nine states: State People 65+ 26 Older Americans: 2002, Administration on Aging, U.S. Department on Health and Human Services 27 Ibid. 20
  21. 21. California 3.6 million Florida 2.8 million New York 2.4 million Texas 2.1 million Pennsylvania 1.9 million Ohio, Illinois, Michigan, New Jersey Over 1 million 28 **See Appendix H for Population distribution in United States The elderly are less likely to change residence than other age groups. In 1999, only 4.2% of elderly households had moved since 1988 (compared to 16.5% of persons under 65)29. Of the nearly 22 million households headed by older persons in 2001, 80% were owners and 20% were renters30. In Canada, the number of persons age 65 and older was nearly 4 million in 200131. Projections described a steady increase of aging to nearly 6 million by 2016 and approximately 8 million elderly by 202632. The attacks on Sept. 11, 2001 did affect travel throughout the world, none more than in the U.S. They are largely responsible for the 20% drop in the travel industry revenues for 200133 including the $1.5 billion in immediate loss, $8 billion for the airline industry34. Flight Availability was greatly affected. In 1998, domestic departures ranged from 600,000 to 675,000 flights. In 2000, the numbers increased with a range between 650,000 28 Ibid. 29 Older Americans: 2002, Administration on Aging, U.S. Department on Health and Human Services 30 “American Housing Survey for the United States in 2001, Current Housing Reports” H150/01. 31 Statistics Canada http://www.statcam.ca 32 Ibid. 33 http://www.plunkettresearch.com/travel/travel_trends.htm 34 Ibid. 21
  22. 22. to 725,000 that year. Flights dropped drastically in 2001, lowering the number to 575,000. By January 2002, flights were slowly picking up to 1998 levels.35 Flight Availability 700000 680000 660000 640000 620000 600000 580000 560000 540000 520000 500000 1998 2000 2001 Same-day and Overnight Travel (more than one day) trends between Canada and the U.S. are important to resort industries especially since many resorts are located close to the U.S.-Canada border. Same day travel between the U.S. and Canada accounted for 66% of total travel from the U.S.36 Canada was the top country for overnight travel to the U.S. in 2000 with 51 million international overnight trips into the U.S. (29% from Canada).37 Canada was the second most popular destinations for Americans in 2000 with over 15 million trips. Overall travel from the U.S. to Canada has increased whereas travel from Canada to the U.S. has decreased. (Appendix I) 35 Bureau of Transportation Statistics http://www.bts.gov 36 North American Trade and Travel Trends U.S. Department of Transportation 37 Ibid. 22
  23. 23. As with same-day travel, ground transportation, particularly the use of personal vehicles is relied on more than air travel in overnight travel. In 1999, 37 million Americans entered Canada by car compared to 4 million by plane. In 2000, 36 million came in by car and 4 million by plane. In 2001, travel by car went down to 35 million but air travel stayed the same. (Appendix H) However, air travel is relied more heavily on overnight trips than same-day trips38. There has been a growing trend to lead a more active lifestyle in Canada and in the United States. Problems with obesity due to inactive lifestyles plague both nations. Current estimates from the 1998/99 National Population Health Survey (NPHS) indicate that the majority of Canadians (55%) are physically inactive. This figure has decreased since the early 1990s going from 62% in 1994 go 55% in 199839 yet the figures remain pervasive. Studies have shown that physical inactivity increases with age with a higher proportion of women (67%) than men (55)40. The level of inactivity however, as education level and income level increases41. The Surgeon General of the U.S. reported that 61% of adults in the U.S. were overweight or obese in 1999 along with 13% of children or adolescents almost 3 times more than in 198042. The economic cost of obesity in the U.S. was $117 billion in 2000 compared to $99 billion in 199543. 38 North American Trade and Travel Trends U.S. Department of Transportation 39 2001 Physical Activity Monitor http://www.cflri.ca/cflri/pa/surveys/2001survey/2001survey.html 40 Ibid. 41 Ibid. 42 The Surgeon General’s Call to Action to Prevent and Decrease Overweight and Obesity http://www.surgeongerneral.gov/topics/obesity/calltoaction/ 43 Ibid. 23
  24. 24. This epidemic has led both government bodies to promote a change of lifestyle and an increase of physical activity. This has led to increasing the individual’s education on the effects of obesity. As a result, there has been an increase in the number of U.S. health club memberships as well as health clubs in general. This has been steadily increasing since the 1990s. Health Clubs Health Club Memberships 44 Year (thousands) (millions) 1998 14 30 1999 15 31 2000 17 33 2001 18 34 **See Appendix J for Health Club membership trend There has been a correlation between health clubs and age. Baby boomers, now account for 12.4 million members or 37% of the health club population. As a percentage of the population today, 15 of every 100 people are members, up from 9.5 of every 100 in the 1980s. 45 Opportunities As the average out of state skier gets older, they tend to bring their families with them. This would increase the number of visitors to resorts each year for vacations. However, they become more interested in comfort rather than just skiing, so they want more 44 IHRSA/American Sports Data trend report http://www.ihrsa.org/industrystats/ 45 Ibid. 24
  25. 25. entertainment for the entire family. This would benefit a well-rounded resort that offers amenities such as spas, fine dining, shops, and extracurricular activities. Another opportunity would be resort destinations situated within states with a high population of elderly and or retirees. Since they tend to move less, they would provide a steady income stream to any resort that fulfills their needs. Americans and Canadians cite pleasure as the most common reason for same-day and overnight travel46. With the majority of the travel made by personally owned vehicles, resorts located near the border would get a lot of business. As good relations between the two countries continue, the flow of traffic will only get better. This is a great opportunity for the resort industries especially those with skiing/golfing or sports related activities available. The level of inactivity decreases as education and income levels increase. This would benefit any industry dealing with physical activities and wealthier people (i.e. ski resort). Another opportunity would be the fact that resorts are more expensive and therefore those that can afford to go for longer periods of time are much fewer. This would add on to the luxury status of the place, a privilege wealthier people could afford. Threats 46 Ibid. 25
  26. 26. As skiers age, they ski less, the number of skiers will drop significantly as the Baby Boomer generation ages. From 1988 to 1994, the number of skiers dropped 16%47. Ski resorts would have to create new venues with which to attract younger skiers like faster gondolas, cheaper lift tickets, and new ski runs. The war against Iraq and the threat of terrorisms would be troublesome to the resort industry. Soaring gasoline and jet fuel prices would not only reduce the distance a person would drive, it would also raise the price of airline tickets. This could be considered an opportunity for those resorts located near the border. Threats of an imminent terrorist attack and reminders of attacks in other countries have made people cautious of traveling far distances. This would further reduce the number of people vacationing. With the threat alert being orange, border guards would be stricter in checking vehicles crossing into the United States. This not only will lengthen the waiting lines, it would also frustrate many individuals who might seek entertainment elsewhere. Health clubs are a more cost efficient way to lose weight or to be more active. They are usually located closer to an individual’s home and the membership costs are much cheaper. Resorts would be thought more of a vacation destination and be visited less often. Political-Legal Analysis 47 Hengesbaugh, Mark, “Has Skiing Boom Faded? Private Eye Weekly, Nov. 28, 1996 26
  27. 27. Politics and legislation play a big part in analyzing an industry. Changes in political attitudes could spell disaster for lobbyists and make way for legislation harmful to the industry as a whole. Some issues facing the resort industry deal with environmental issues, legislation dealing with liability. The environmental issue is one of the greatest concerns the resort industry, in fact, any industry has to face. Issues dealing with air pollution, acid rain, CO2 emissions, water pollution, bio-diversity reduction and wildlife depletion, and limited natural resources are extremely important to both the U.S. and Canada. The United States, with the world’s largest economy, is also the largest source of greenhouse gas emissions in the world. Canada, one of its neighbors, is affected by the acid rain caused by vehicle and industrial emissions. Injuries happen in any sport, even during professional competitions. The matter of liability is a major concern for resorts in terms of insurance premiums and the fact that a disaster can happen at anytime. An important legal aspect is the determination of what is construed as “inherent danger” statutes. Opportunities Resorts that show their “green” side by supporting and being at the forefront of environmental initiatives can be supported by the environmentalists and therefore get hassled less. Resorts could also ensure to minimize the environmental impact of guests by placing easily seen property boundaries and using efficient waste disposal methods. 27
  28. 28. The U.S. Skiing industry has had good relations with the U.S. Forest Service. In 1994, in an effort to increase public appreciation and knowledge of the natural environment and its value, the U.S. Forest Service and the Skiing Industry collaborated in a Memorandum of Understanding48. The result hoped for in this memorandum was to make people aware of nature and its importance by providing alpine recreational opportunities. With the U.S. Forest Service joining together with the ski resort industry, there would be no fear of unfavorable restrictions, and the cooperation would be mutually beneficial because the USFS is getting a percentage of gross sales. Threats The United States has enforced a sophisticated regulatory and legislative framework in regard to wildlife preservation (including species protection), land conservation, water systems management, recycling, and other environmentally friendly programs49. Environmental advocates have complained about power consumption and the reduction in water levels of lakes and rivers caused by snowmakers. As a result, several state agencies have required ski resorts to build large reserves to furnish water when water levels are low. Any legislation banning snowmaking machines would leave everything up to Mother Nature, who is unpredictable at best, would cause havoc in terms of securing a dependable cash flow. 48 USDA Forest Service http://www.wildwilderness.org/docs/ski-mou.htm 49 http://biz.yahoo.com/ifc/us/ 28
  29. 29. During 2000, substantial steps were taken in the legislation and policies that govern the Canada National Parks Act. The new version increases the stature of ecological protection. The old act maintained that the resort or park manager would protect natural resources by zoning and managing visitor use. The newer version states that management plans for all parks are to contain a clear set of ecological integrity objectives and indicators, and are to be tabled in the Houses of Parliament50. The new and improved act also limits the establishment of new runs or expanding old ones. These proposals are neither to disturb new land nor permit tree cutting51. These steps are harmful to ski resorts because it hinders the resort’s ability to improve itself or to attract new skiers. Not being able to expand will cause some resorts to stagnate. Another threat would be the possible changing relationship between the U.S. Forest Service (USFS) and the resorts. Right now resorts pay the USFS less than 3 cents for every dollar they make in gross sales52. Environmentalists are complaining at the low cost of renting acreage of land that could be used to protect animals and are screaming to increase rental fees for ski areas. A decision hasn’t been made yet but if fees do increase, so will the cost of staying at a resort. The amount of guests will decrease and so will the resorts’ revenues. Inherent danger statutes differ from state to state so the liability for injuries depends on where it happened. Colorado, Vermont, California, Utah and other states have construed the inherent danger statutes, to require a jury to determine the nature and extent of the 50 CPAWS http://www.cpawscalgary.org/legislation 51 Ibid. 52 Rogers, Paul Knight Ridder Newspapers, Jan. 10, 2003 http://www.fortwayne.com 29
  30. 30. duty.53 Idaho holds that any injury that is not a breach of the ski area’s duty is considered an inherent danger of the sport. New York, on the other hand states that there has to be a reasonable standard of care54 made by the ski area operator in order to prevent accidental injuries (such as not having a telephone pole in the middle of a ski run). A threat to the industry would be more stringent measures adopted by the states or a narrower viewpoint of what constitutes an inherent danger. When legislation faults ski area operators for injuries, premiums for liability insurance will skyrocket, raising operation costs and prices, and reducing the amount of visitors to resorts. A short-term political threat includes the relations between the United States, Canada and France. The lack of support that Canada and France showed the United States has put a strain on political relations. These tensions have trickled down into the population and may affect the travel between countries and the support of each other’s products. However, the Prime Minster Jean Chretien is expected to retire in 2004 and to be replaced by Paul Martin, former Minister of France. Martin has publicly criticized PM Chretien and has stated that rebuilding the relationship with the U.S. will be a major focus of his new administration.55 Macro-Environment Analysis Summary 53 Ibid. 54 Ibid. 55 Carmichael, Kevin. “Paul Martin’s Bid to Lead Canada to be tested in first debate.” http://quote.bloomberg.com/apps/news?pid=10000082&sid=aDSapjAaRfl8&refer=canada 30
  31. 31. In the macro-environment analysis, the degree of impact of each segment differs from industry to industry and firm to firm. The challenge with a TESP analysis is to recognize the greatest threats and opportunities facing the industry. The TESP analysis weighs the opportunities and threats when formulating the companies focus strategy. The TESP analysis of the resort industry showed the opportunities and threats that exist in the United States. Upon analysis of the resort industry the most important influence on the resort industry was the impact of global warming and environmental statutes/legislation faced by resort developers and operators. The greatest opportunity in the resort industry is online booking. These factors have the most influence on the resort industry and should be considered when determining a resort’s strategy. 31
  32. 32. Industry Analysis The industry analysis looks at various factors such as Porter’s 5 forces, the Strategic Group Map, Driving Forces and Key Success Factors. These factors all contribute to determining the overall long-term attractiveness in the company’s specific industry. These tools are important to help determine if a company is within an attractive industry and if it will prosper or fail. The ski resort industry has been volatile with the unpredictability of snowfall as well as with the current economic instability. The travel industry especially has felt the after affects of the terrorist attacks on September 11th, 2001. The restrictions on the industry have caused many firms to try to find new packages and amenities to draw customers in. The creation of a mountain village-based resort has allowed for the ski resort industry to target a niche market of individuals willing to spend the money on a weekend getaway. With the increase in DINK (Double Income No Kids) families, the outlet for spending has focused on traveling and getting away for the weekend from life’s stress. Strategic Group Map The strategic group map clusters firms in similar industries emphasizing similar strategic strategies. Strategic group maps can be helpful in identifying competition, positioning and profitability of firms within said industry. There are two types of group maps, inter- strategic and intra-strategic. Inter-strategic is all possible competition, whereas intra- 32
  33. 33. strategic is where the fiercest competition can be found. Through the utilization of strategic group maps both indirect and direct competitors can be identified. Intrawest has the SIC code of 4011 which broadly describes the Hotel/Motel industry56. The NAICS equivalent was more specific and was listed as 721110/701111- Traveler Accommodation, which includes: Alpine skiing facilities, summer resort hotels, Tourist lodges, and Resort Hotels without casinos.57 Industries in the Accommodation sub sector provide lodging or short-term accommodations for travelers, vacationers, and others. There is a wide range of establishments in these industries. Some provide only lodging while others provide meals, laundry, and recreational facilities, as well as lodging. Lodging establishments are classified in this sub sector even if the provision of complementary services generates more revenue. The types of complementary services provided vary from establishment to establishment58. The strategic group map below is the inter-strategic group map for the Traveler Accommodation industry: 56 http://www.census.gov 57 http://www.census.gov 58 Ibid. 33
  34. 34. Company Revenue 2002 Market Share Employees (thousands) Resort Industry Intrawest 986 MM 31.5 % 21 M Winter Sports Inc. 1.6 MM .05% 130 Wyndham Intl. 1.31 B 41.8% 25 MM Fairmont 448 MM 14.3% 28 MM Hotel/Resorts Inc. Silverleaf 134 MM 4.3% 1.8 MM Vail 114 MM 3.6% 5M American Ski 426 MM 13.6% 12 M Company Booth Creek 12 MM .38% 5M Due to the vast array of companies in the Industry group map, the focus of the ski resort industry competitors has been on companies, including; Vail Resorts, Inc, American Ski Company, and Booth Creek Holding, Inc. This conclusion was made because the other companies listed above are competitors, but not part of the intra-strategic group. The intra-strategic group competition is more intense than the inter-strategic group competition.59 Considering this more intense rivalry the intra-strategic group map is listed below based on market share and number of employees. Intra-Strategic Group Map High Intrawest 59 Hitt, Michael. A, R. Duane. Ireland, and Robert R. Hoskisson. “Strategic Management: Competitiveness and Globalization (Concepts) 5e”. United States: South-Western, 2003, p. 65. 34
  35. 35. Vail Ski Resort Number of Employees American Ski Company Booth Creek Low Low High Market Share Five Forces Analysis By utilizing Porter’s Five Forces to analyze the resort industry, conclusions can be made in regards to permanent aspects of the industry, not the cyclical ups and downs. The five forces include: Direct Competitors, Threat of Entry, Substitutes, Power of Suppliers and Power of Buyers. The combined analysis of these “five forces” gives a better perception of the overall appeal of the industry. This will help a new company or even an existing company to incorporate the successful probability in the industry. The five forces are measured by the degree of influence of the force on the industry. Each force is ranked from 1 thru 5 depending on the degree of influence, 1 being the least influential and 5 being the most influential. I. Direct Competitors (3) 35
  36. 36. The direct competitors within the ski resort industry are listed in order of competition. The following companies also deal with village-based resorts, which include Vail Resorts, Inc., American Ski Company and Booth Creek Holdings, Inc. Vail is the second largest competitor in the ski resort industry in comparison of revenues, employees and locations across the United States. Booth Creek is the smallest competitor with the smallest revenues, least employees and restriction of locations to the west and northeast regions of the United States. (Appendix K) The major competitors were not selected based on similar SIC codes or industry. In fact some of the ski resort industries obvious competitors were listed in different industries and SIC codes altogether. These three major competitors were chosen because they are members of the intra-strategic group as developers and operators of village-based ski resorts. Vail Resorts Inc. (MTN) Vail Resorts, Inc. is one of the leading resort operators in North America. The Company owns and operates four ski resorts in Colorado, one ski resort in Lake Tahoe, California, and one summer resort in Grand Teton, Wyoming. In addition, the Company recently acquired a majority interest in Rock Resorts, which manages 10 luxury resort hotels across the United States. The Company's resorts and resort hotels provide a comprehensive resort experience throughout the year to a diverse clientele with an attractive demographic profile. The Company’s operations are grouped into three segments, Mountain, Lodging and Real Estate, which represent 65%, 25% and 10%, respectively, of the Company’s revenues for the 2002 fiscal year. For the 3 months ended 36
  37. 37. 10/31/02, revenues increased 56% to $113.9MM.60 In 2002, Vail Resorts Inc. employed 4,700 people. American Ski Company, Inc. American Skiing Company (ASC), formerly known as ASC Holdings, Inc., owns and operates major ski resorts, including The Canyons (Utah), Steamboat (Colorado) and Attitash Bear Peak (New Hampshire). The #3 ski resort owner in North America (after Intrawest and Vail Resorts) has been racked by losses and by debt.61 The company has suffered significant losses in recent years, and has focused on restructuring and debt reduction. To aide in this attempt, it recently sold its Sugarbush, Vermont resort and in April 2002, sold its Heavenly resort at Lake Tahoe to Vail Resorts for $100 million. The company also develops mountainside real estate that complements its expansion of non- mountain operations. American Skiing Company is a company run by skiers and snowboarders for skiers and snowboarders, rather than a real estate company that runs ski areas.62 Booth Creek Ski Holdings With six ski resorts and more than 6,000 acres of ski terrain, Booth Creek is one of the largest ski companies in the US. The company focuses on regional resorts near major 60 http://www.multexinvestor.com 61 http://www.hoovers.com 62 http://www.plunkettresearchonline.com 37
  38. 38. skiing populations, such as Boston, San Francisco, and Seattle. The resorts offer a range of services, including equipment rentals, restaurants, retail sales, and skiing lessons; some are open in the summer for golf, mountain biking, and conferences. Booth Creek also is planning residential development at resorts in California, New Hampshire, and Washington. Chairman George Gillett owns all Booth Creek's voting shares. In 2002, revenues totaled 12 million dollars with 5,000 permanent employees.63 Percentage of Market Share Intrawest 4% 17% Vail Ski Resorts 47% American Ski 32% Company Booth Creek Inc. Based on the strong presence in the market (as shown above with 47% market share), and the constraints of locations of the three main competitors within the industry, direct competitors were ranked a 3. It is ranked this high because of the fact that each company is within the intra-strategic group and there is intense rivalry for the same customer base due to similar services offered. However, it is also not ranked higher than 3 because of the instability in the financials of two of the three competitors. 63 From Multex Investor http://www.marketguide.com 38
  39. 39. By analyzing the difference between Intrawest’s net income in comparison to its competitors, Intrawest in the industry leader. For the past three years, Intrawest has been leading the industry with net gains while 2 of their 3 competitors have been operating at a net loss for the past three years. As is illustrated in the chart below. Net Income 100 50 Intrawest $ in millions 0 Vail 2002 2001 2000 American Ski -50 -100 Booth Creek -150 II. Threat of Entry (1) The alpine/ski resort industry has significant barriers to entry because the number of locations for such a venture is limited. Costs of resort development are high, and the regulations and permits are difficult to obtain and have to comply with strict environmental standards. The permits originally granted by the Forest Service were (1) Term Special Use Permits granted for 30-year terms, but which may be terminated upon 30 days written notice by the Forest Service if it determines that the public interest requires such termination and (2) Special Use Permits that are terminable at will by the Forest Service. In November 1986, a new law was enacted providing that Term Special Use Permits and Special Use Permits may be combined into a unified single Term Special Use Permit that can be issued for up to 40 years.64 Secretary of Agriculture has 64 Booth Creek 10k, www.boothcreek.com/ 39
  40. 40. the right to terminate any Term Special Use Permit upon 180-days notice if, in planning for the uses of the national forest, the public interest requires termination. The operations at the resorts require numerous permits and approvals from federal, state and local authorities, including permits relating to land use, ski lifts and the sale of alcoholic beverages. Operations are heavily dependent on its continued ability, under applicable laws, regulations, policies, permits, licenses or contractual arrangements, to have access to adequate supplies of water with which to make snow and service the other needs of its facilities, and otherwise to conduct its operations.65 The permits originally granted by the Forest Service were (1) Term Special Use Permits granted for 30-year terms, but which may be terminated upon 30 days written notice by the Forest Service if it determines that the public interest requires such termination and (2) Special Use Permits that are terminable at will by the Forest Service. In November 1986, a new law was enacted providing that Term Special Use Permits and Special Use Permits may be combined into a unified single Term Special Use Permit that can be issued for up to 40 years.66 Major expansions could require, among other things, the filing of an environmental impact statement or other documentation with the Forest Service and state or local governments under National Environmental Protection Act (NEPA) and certain state or local NEPA counterparts if it is determined that the expansion may have a significant impact upon the environment. Although the company has no reason to believe that it will 65 http://www.boothcreek.com 66 http://www.boothcreek.com 40
  41. 41. not be successful in implementing its operations and development plans, no assurance can be given that necessary permits and approvals will be obtained or renewed. The ski resort industry is undergoing a serious consolidation trend. In 1983, there were 735 independent ski areas, and in 2001, there are only around 490 ski areas. “Ownership of the smaller regional ski resorts remains highly fragmented.”67 However, the advancing technology and high cost in infrastructure overhaul will lead the smaller resorts to be acquired by larger resorts with more capital and better management capabilities. Despite this consolidation, the industry remains highly fragmented, as no other single resort operator accounted for more than 10% of the United States' 54.4 million skier visits during the 2001/02 seasons.68 Threat of Entry was ranked 1 because of the potential of high start-up costs as well as the difficulty in obtaining regulations and permits prior to operations. The costs can be allocated and funding found somewhere, however there is no guarantee that permits will be granted. Therefore threat of entry was ranked low as a 1. III. Substitutes (4) The days where compromises have to be made for different generations vacationing together are gone. These changes have caused an increase in substitutes for the ski resort 67 http://www.boothcreek.com 68 http://www.boothcreek.com 41
  42. 42. industry. Substitute products are goods or services from outside a given industry that perform similar or the same functions as a product that the industry produces69. Cruises and vacation trips outside of the United States are two main substitutes to the type of vacation package that Intrawest and direct competitors offer. Cruises and resort destinations now cater to the young and old without compromising either’s enjoyment. Bookings have shown that families are traveling further than ever, a phenomenon that challenges the conventional trade wisdom that the number of hours flown should not exceed the age of the youngest child in years70. This is a threat for the more traditional “family ski trip” by giving more power to ski resort substitutes. Notwithstanding the poor environment faced by the travel leisure industry during 2001 due to a recession and the attacks of Sept. 11, the North American cruise industry maintained its strong growth and expanded its economic impact. The cruise industry increased its global passenger carryings by five percent to 8.4 million passengers worldwide and increased direct spending by the cruise lines and their passengers by six percent to $11 billion71. The estimated 2001 gross industry revenue was $13.8 billion with an operating income of $2.2 billion72. The industry quickly moved ships to new ports of call “closer to home” and implemented tighter security measures, enabling them to recover than the other travel sector industries73. They also established formal agreements to share security information with several governmental agencies such as the DOD, DOJ, DOS, FBI, INS and U.S. Customs in order to give their passengers a 69 Hitt, Ireland, Hoskisson, Strategic Management Fifth Edition, Thomson Learning Copyright 2003 pg.60 70 Staff, Five-Star Trek: The Next Generation, Weekend Financial Times, March 2003 pgs. 18-20 71 International Council of Cruise Lines, http://www.prnewswire.com, Oct. 11, 2002 72 Ibid. 73 Ibid. 42
  43. 43. greater feeling of security. The idea of the all-inclusive vacation is a major selling point for cruises. Cabaret shows and dancing, spas, and casinos (among others) are available to adults while kids can have access to video arcades, scavenger huts, tours, sports, movies, and arts and crafts. This is also another major selling point for cruises, parents can feel at ease and do their own activities while knowing their children are safe under the supervision of the staff. However, environmental concerns remain at the top of the industry’s list. According to Royal Caribbean's 1998 environmental report, a typical cruise ship generates about 25,000 gallons of oily bilge water on a one-week trip74. Further estimates show that, during one week, a typical ship generates 141 gallons of photo chemicals, seven gallons of dry cleaning waste, 13 gallons of used paints, five pounds of batteries, 10 pounds of fluorescent lights, three pounds of medical waste and 108 pounds of expired chemicals75. Some of this ends up in the ocean. During a one-week voyage, a ship will also generate about 210,000 gallons of sewage76. There has been increased Federal focus on cruise ships because of the industry's rapid growth and its unique threat. Unlike a typical freighter, which might carry a dozen crewmembers, a large cruise ship typically carries at least 2,000 passengers and 1,000 crewmembers, generating as much waste as a small city77. By avoiding proper disposal, 74 International Council of Cruise Lines, http://www.prnewswire.com, Oct. 11, 2002 75 Ibid. 76 International Council of Cruise Lines, http://www.prnewswire.com, Oct. 11, 2002 77 Ibid. 43
  44. 44. the cruise lines saved hundreds of thousands -- possibly even millions -- of dollars a year78. Several cruise lines have already been charged with illegal dumping and fined millions of dollars (Norwegian Cruise for $1 million, Royal Caribbean Cruise for $ 27 million and Carnival Corp. for $ 18 million). Some cruise lines have to refit their ships with new tamper-proof technology (to prevent dumping in the oceans), and some just need to be refitted. The high costs of replacing or repairing ships is high and so are the federal penalties imposed. Cruise prices would be affected by any penalties imposed. This could be a boom for the ski industry when skiing becomes cheaper than cruises. Another substitute for the traditional winter ski getaway are resort destinations inside and outside of the United States. From Hawaiian luaus to African safaris, from Caribbean getaways to romantic European forays, there are many resort destinations for families seeking a comprehensive vacation experience. The improvements in technology in the travel industry and the Internet have made it easier for people to book a flight to any place in the world no matter what the season. While regional ski market skiers tend to focus primarily on lift ticket price and round-trip travel time, destination travelers tend to be heavily influenced by the number of amenities and activities offered as well as the perceived overall quality of the vacation experience79. These resorts offer services that rival those of even the best ski resorts. Safaris offer visitors the opportunity to see animals and their habitats many have only seen in television shows. Caribbean beaches offer a delightful getaway from bustling cities. (Appendix L) 78 Ibid. 79 Booth Creek 10k www.boothcreek.com 44
  45. 45. Yet with the advent of 9/11, many tourists, especially Americans, have shortened the distance traveled in favor of more security.80 According to the TIA of America, the total number of overnight trips at least 50 miles in the U.S. increased 2% in 2001 to 1.018 billion over 2000.81 This could provide a threat to resorts outside the United States and Canada especially in terms of American visitors. This would be an opportunity for domestic ski resorts to take advantage of new fears. American Travel Expenditures 500 $ in billions 400 Domestic 300 Expenditures 200 Foreign travelers 100 Expenditures 0 2002 2001 The Power of Substitutes is ranked 4 because of the increasing fear of consumers of traveling longer distances and the possible increase in prices due to legal and environmental issues. The incurred costs of the cruise lines will affect the price to the consumers. Airlines are dropping prices however to compete with one another for passengers. However, as stated, many individuals wish to stay closer to home to avoid long flights to international and even some domestic destinations. IV. Power of Suppliers (4) The strength of suppliers within an industry is determined by:82 80 http://online.plunkettresearch.com/trends/ 81 http://online.plunkettresearch.com/trends/ 82 Hitt, Ireland, Hoskisson, Strategic Management Fifth Edition, Thomson Learning Copyright 2003 pg.59 45
  46. 46. • How critical the supplier goods are to a firm • Whether or not satisfactory products are available • If switching costs are high within the industry • The size and concentration of the suppliers • Whether or not firms are significant customers for the supplier group The main suppliers of the ski resort industry include companies that specialize in snowmaking machines, ski and snowboard equipment and ski lifts. A few of the snowmaking companies include Seymour Snow Company, Backyard Blizzard, Turbocristal, Snow Machines Incorporated (SMI) and Lenko. Backyard Blizzard supplies ski resorts around the world with snowmaking capabilities. (Appendix M) Turbocristal is a Canadian company that began in 1985. This company strives to have the latest technology and has sold over 1500 snow making machines that can be found in over 15 countries.83 SMI was founded in 1974 and has grown to be a leader in snowmaking because of its excellent products and availability worldwide.84 Lenko was established in 1955 and delivers more snowmaking machines than any other manufacturer. Since 1983, Lenko has sold more than 5000 snow guns and is located worldwide.85 There are quite a few snowmaking machine companies, so these suppliers have more power over the buyer. The ski equipment suppliers can be broken down into many different facets. These suppliers include companies such as K2, Atomic, and Leki. Also, snowboarding 83 http://www.turbocristal.com/presentationan.html 84 http://www.snowmakers.com/index.html 85 http://www.lenkosnow.com/ 46
  47. 47. companies include Heelside Snowboard Company, Allian Snowboards Inc, and Bond Snowboards. The bindings are also an important part of ski equipment and some of the major suppliers include Skyhoy and Linken Bindings.86 Heelside Snowboard Company is the last core manufacturer who has not been bought out, or subsidized by a non- snowboarding brand. The manufacture snowboards, bindings, boots, shoes and other snowboarding goods. K2 is an American company that has been around for over 40 years. They started in 1962 with the invention of the first fiberglass ski. The company focuses on technology and innovation and has been successful and well known throughout the ski industry. Heelside is located in Hood River, Oregon. Allian Snowboards, Inc. is also located in Oregon, and manufactures snowboards. Bond Snowboard is a multinational company based in the USA and Canada. Bond prides itself on using the most advanced technology while still allowing for affordable and reliable end products.87 The binding company Skyhoy is collaboration between Fritschi Swiss Bindings and Back diamond Equipment in step-in releasable binding. Linken Binding is a Norwegian manufacturer of a step-in plate telemark snow ski binding. Ski resorts are also dependent on ski lift companies to transport their skiers to mountaintops. Ski lifts and gondolas used to transport skiers and snowboarders to the top of mountains are crucial for the ski resort industry. These lifts shorten the time it takes to climb up the mountain and allows visitors to ski down multiple times. There are 86 http://www.outdoors-411.com/mfg/ 87 http://www.outdoors-411/com/mfg/ 47
  48. 48. alternatives to ski lifts and gondolas such as rope pulls and helicopters. However, rope pulls, which use a conveyer/escalator approach to drag skiers and snowboarders, cannot go as far up the mountain, nor are they viable solutions for more vertical slopes. Helicopters are the up and coming method to get skiers to mountaintops that even lifts and gondolas haven’t reached. Helicopters give the customers the opportunity to go where not many have gone before and disregard long lines and huge crowds. However, helicopters are subject to weather conditions as well as high fuel and maintenance costs. Another problem the ski industry in the U.S. and Canada face are the limited number of suppliers for ski/chair lifts and gondolas. There are a little more than a dozen companies making lifts and gondolas in the world (Appendix N). However, many are merging like such as Poma/Leitner and Doppelmayr/Ctec (has 30% of market share in the United States).88 Others, such as PHB/Hall are already subsidiaries of the Doppelmayr Group, making choices even fewer. Doppelmayr is one of two ski lift/gondola manufacturers in the United States and Canada89. The power of suppliers is ranked a 4. This is due to the small amount of industry suppliers. The gondola/ski lift industry is condensing with mergers and acquisitions and the amount of snow making manufacturers are also under five. Suppliers would have the ability to charge higher prices for lower quality products since suppliers have dominance over the firm. Since there really is not a cost effective substitute to gondolas/ski lifts the ski resort industry is required to purchase these items to satisfy the buyer. With the 88 http://www.doppelmayrtec.com 89 Ibid. 48
  49. 49. decrease in precipitation the ski industry is also reliant on the technology of snow making machines. V. Power of Buyers (5) The ski resort industry and other service industries are dependent upon customers; therefore the power of buyers is ranked a 5. Substitutes of the ski resort industry are great, including, day ski destinations, golf, cruises and overseas accommodations. The uncontrollable factor of weather will also be a determining factor in the buyer’s decision to frequent these places. The overall service industry lives and breathes upon the ever- important customers decision to use their services. The fluxes in the economy and world situation greatly fluctuate consumer spending on leisure activities. The travel industry was slowing down even before the attacks of September 11th, but after September 11th, travel bookings decreased 60% equal to the level of the Gulf War in 1991.90 To individuals traveling there is no price that will match their need of a sense of security. The industry has continuous price wars and competitors are always trying to create a more unique environment to attract individuals. The intense competition in the ski industry increases the power of buyers because of the increased competition for similar markets. A similar product with similar customers will only gain the advantage by a unique customer service or special amenities that other competitors do not offer. The intra-strategic group of Intrawest, Vail Resorts, American Ski Company and Booth Creek, Inc. is highly competitive. With the current economic 90 http://www.hoovers.com/industry/snapshot/profile/ 49
  50. 50. situation, the power of buyers is extremely high. The competition in prices among competitors allows buyers to wait to the last minute to purchase and also look for the best deal over the Internet. Latest statistics show that 4 in 10 travelers (41%) book their reservations online.91 With this increasing dependence on Internet reservations individuals are waiting to the last minute to make reservations because they anticipate price drops. Switching costs are low. There is no penalty or loss in “frequent flyer” miles by choosing one ski resort over another. This makes it easier for skiers to choose their destination without having to consider costs. This is mostly affected by the price wars and last minute Internet bookings that are on the rise across the U.S. If individuals have their own skiing equipment it will also save them the costs of renting equipment making the only concern the cost of the ski lift passes and lodging. The power of buyers is ranked a 5. The overwhelming dependence on consumer spending puts the hospitality industry success or failure in the hands of the consumer. The traveler’s sense of security was affected by the attacks of September 11th. This event hurt the airline and travel industry overall. The increased uses of online purchases have also given the consumer an easier avenue to search competitor options and prices. Summary of Five Forces 91 http://online.plunkettresearch.com/trends/ 50
  51. 51. The direct competitors are ranked a 3. The strength and size of the four top competitors in the industry is varied in terms of the financial stability and profitability of each company. Therefore, the competitors are only ranked a 3, though they are all in competition for a similar market, there is currently one who is the most sound and successful. The threat of entry is ranked 1. This is due to the high start-up and operating costs as well as the regulations and permits that need to be acquired to establish operations. Though money can be raised through different sources there is no guarantee that permits will be approved. Government regulations dealing with the environment can adversely affect any reconstructions or expansions made by the firms. The power of substitutes is ranked a 3. Substitutes to the ski resort industry include cruises and overseas travel. With increased security concerns many individuals are staying closer to home so overseas travel is not as significant a threat as it used to be. Also, the cost of overseas travel is higher than traveling to a resort within the same state. The other major substitute to the ski resort industry is cruise line operations. Cruises have been increasing over the years because of the numerous amenities and family type packages available. The power of suppliers is ranked a 4 because of the relatively small amount of choices a firm has for critical products. The chair lift/gondola manufacturing companies are decreasing in number because of acquisitions and mergers. Ski equipment and snow making machines are also numbered with less than 10 main snow making machine 51
  52. 52. manufacturers and ski equipment companies. There are also limited suppliers of ski bindings that are essential to skis and snowboards. This allows suppliers to dictate the price of a product no matter what the quality. The power of buyers is ranked a 5. Since ski resorts are for a leisure activity it is not something that all individuals need to or are able to participate in the buyer has more power. The fluxes in the economy greatly affect the amount of money people are willing to spend and the places people are willing to go. The average overall numerical ranking for the five forces is a 3.4. As discussed above, the power of buyers is the most intense with a numerical ranking of 5. The industry average was a little bit different to calculate since the ski resort industry didn’t have a specific “industry” through SIC or NAICS codes. Based off of the annual findings for the intra-strategic group of Intrawest, Vail Resorts, Inc., American Ski Company and Booth Creek Holdings, Inc. (Appendix O) the industry average return on investment (ROI), the return on equity (ROE) and the industry growth rate for the past 3 years was computed. The estimated industry averages in 2002 include: ROI at 2.42%, ROE at –20.98%, Profitability at 2.40% and the 3-year growth rate at 8.46%. (Appendix P) These numbers, namely the negative return on equity (ROE) and the low return on investment (ROI) would conclude that the industry is unattractive. Driving Forces 52
  53. 53. Driving forces are elements in the macro or industry environments that are creating a permanent, structural industry change. For the ski resort industry we have found three key driving forces. These are the seasonality of the industry, online booking and global warming. A driving force in ski resorts is caused by the seasonality of the industry. Many ski slopes make all their money in three or four months of every year. In order to maintain a steady income stream, many resorts have built villages at the base of the slopes that cater to a visitor’s every need. This has led to the increase in family package vacations. The mountain is becoming not a one-day trip destination for the frequent skier, but a weekend or weeklong excursion by families and individuals with more disposable income. A second driving force is the increased usage of online booking. This is allowing for consumers to wait to later times to purchase vacations, which usually means a lower price offered by competitors as well as one’s own company. The increase in Internet booking could mean a slight decrease in money generated for those waiting for last minute deals to book their family vacation trips. A third driving force is global warming. The ski resort industry is dependent on snow to create the atmosphere for guests to enjoy. With the threat of global warming and decrease in precipitation, the ski resort industry is becoming more dependent on snowmaking machines. Though these machines are helpful when snow is scarce, it will be a huge 53
  54. 54. operating cost for the industry to continuously operate these machines if Mother Nature does not cooperate. Key Success Factors The key success factors in this industry include outsourcing, geographically diverse locations and the integration of resort development and resort operation. These three aspects are what set Intrawest apart from its competitors and makes it the industry leader. The unique symbiotic relationship that Intrawest has formed between resort development and resort operations allows them the distinct advantage of capital allocation. Also the integration between supplier, company and buyer would also help to decrease overhead costs throughout the industry. By acquiring manufacturers and distributors, expenses could be lowered while expertise is retained. By having various resorts in geographically diverse locations companies in the ski resort industry will be able to reach a larger market. Being located within driving distance of large metropolitan areas is another draw to a larger market. As illustrated above, there has been an increase in domestic expenditures while at the same time a decrease in flights. This indicates that people are traveling via automobiles and being within a driving distance will increase the probability of visitors. 54
  55. 55. Summary of Industry Analysis Based on the information obtained through the Five Forces Analysis the ski resort industry is moderately unattractive. The dominance of the suppliers allows them to charge high prices for important products. This in turn lowers revenues for companies because firms cannot raise prices too much or risk alienating customers. Buyers have great power in this industry because there is many substitutes to skiing like going on a cruise, golfing, or sightseeing in foreign countries. Barriers to entry do keep out potential competitors due to the high start-up costs, the difficulty in obtaining permits for use of federal land, and the dwindling availability of unprotected land for developing resorts. Analysis of the financial data for the industry averages reaffirms that the industry is unattractive in general due to high overhead costs and too many variable costs. The negative ROE, low ROI and small profitability of the four major competitors within the ski resort industry illustrate the financial unattractiveness of the ski resort industry. (Appendix P) 55
  56. 56. Firm Analysis An important tool of a firm analysis is the value chain. The value chain is analyzed to recognize which parts of the firm are creating value and contributing to the sustainable competitive advantage. Understanding this issue is important because the firm earns above-average returns only when the value it creates is greater than the costs incurred to create that value92. A key action a firm must do is to add as much value to the product or service while making it as cheap as possible to produce. The value chain is grouped into two segments: primary activities and support activities. Primary activities deal with the creation of the product, its sale and distribution and the after-sale service. Support activities deal with helping the company to provide the primary activities such as Human Resource Management, Technological Development, Procurement, and the Infrastructure of the firm93. Ski and resort operations are highly seasonal. In Fiscal 2002, approximately 67% of the Company's ski and resort operations revenue was generated during the period from December to March. Furthermore, during this period a significant portion of ski and resort operations revenue is generated on certain holidays, particularly Christmas/New Year, Presidents' Day, school spring breaks, and on weekends. Problems during these peak periods, such as adverse weather conditions, access route closures and equipment failures, could have a material adverse effect on the Company's operating results. The Company's real estate operations tend to be somewhat seasonal as well, with construction 92 Hitt, Michael A., R. Duane Ireland, and Robert E. Hoskisson. “Strategic Management: Competitiveness and Globalization, 5th Edition”. United States: 2003. p. 92-95. 93 Ibid. 56
  57. 57. primarily taking place during the summer and the majority of sales being closed in the December to June period. Intrawest operates in a capital-intensive industry and has made significant capital expenditures to establish its competitive position. They spent $107.1 million in fiscal 2002 on acquisitions, resort operations capital improvements and other investments. Intrawest expects to incur approximately $20 million to $25 million per year in ongoing maintenance expenditures at its resorts. There can be no assurance that they will have adequate funds, from internal or external sources, to make all planned or required capital expenditures. A lack of available funds for such capital expenditures could have a material adverse effect on their ability to implement operating and growth strategies. Primary Activities Primary activities are the “product’s physical creation, its sale and distribution to buyers and its service after sale”.94 The primary activities include service, marketing and sales, outbound logistics, operations and inbound logistics. Each activity will be compared to competitors’ abilities and will be ranked as superior, equivalent or inferior. This comparison will show how Intrawest is the superior company in the Ski Resort Industry based on the different activities within its value chain. 94 Hitt, Michael A., R. Duane Ireland, and Robert E. Hoskisson. “Strategic Management: Competitiveness and Globalization, 5th Edition”. United States: 2003. p. 92-95. 57
  58. 58. Inbound Logistics Inbound logistics includes activities such as materials handling, warehousing, and inventory control that is used to receive, store and disseminate inputs to a product.95 As noted on Intrawest financials for the past three years, inventories were at 0% for two of the three years. In 2001, inventories were only at 1.40% of total assets (Appendix Q). The intense outsourcing that Intrawest practices decreases the need for warehousing, inventory and material handling. This trimming of unnecessary costs allows Intrawest to offer customers the highest quality of goods without manufacturing themselves. Inventory 30 In millions 20 Intrawest 10 Industry 0 2002 2001 2000 The bulk of Intrawest’s future production-phase development business has been positioned into two independent partnerships with projects commencing April 2003. The production-phase development business includes all the activities, which commence with groundbreaking and conclude with the delivery and sale of the final units. This new partnership will significantly reduce the capital requirements needed to support 95 Hitt, Michael A., R. Duane Ireland, and Robert E. Hoskisson. “Strategic Management: Competitiveness and Globalization, 5th Edition”. United States: 2003. p. 92-95. 58
  59. 59. Intrawest’s Real Estate business. Intrawest is achieving several objectives with these partnerships by significantly reducing the capital requirements of its real estate business; significantly reducing debt levels; and implementing separate and appropriate capital structures for Intrawest’s resort business and real estate business. This new project is a dramatic step forward in evolution from a capital-intensive business to a business model where reputation, expertise and customers are the basis for growth. This new model will generate significant free cash flow to support growth and create a more conservative risk profile. Leisura purchases land parcels for projects just prior to commencement of construction. Intrawest retains control; and the value appreciates on the rest of the land and its resorts. By placing the production-phase real estate business in separate and independent companies, Intrawest’s risk and debt is limited. Procurement includes activities that purchase the items required to produce a firm’s products. These include raw materials, supplies and fixed assets (machinery, laboratory equipment, office equipment and buildings).96 Procurement is narrow for Intrawest. Per the financial statements of Intrawest and it’s three main competitors, there were no R & D expenditures for the past three years (Appendix Q). This means all production is outsourced to other companies that specialize in their fields. For instance, the ski equipment from skis to chair lifts are all manufactured by specializing companies. This is an advantage to Intrawest because it keeps production 96 Hitt, Michael A., R. Duane Ireland, and Robert E. Hoskisson. “Strategic Management: Competitiveness and Globalization, 5th Edition”. United States: 2003. p. 92-95. 59
  60. 60. costs low, however this increases the power of supplier, which makes price fluctuation a possibility. This dependence on outside companies makes partnerships and relationships key to the continued success of Intrawest and the ski resort industry. This inbound logistics strategy has allowed for Intrawest to achieve a superior ranking because of the below industry percentage for the past three years. Intrawest has less inventory and costs related to that inventory than any of its three main competitors. Operations Operations include the activities necessary to convert inputs provided by inbound logistics into a final product form.97 As stated above, the majority of Intrawest’s various operational activities are outsourced. Intrawest is one of the few companies in the leisure/travel world that participates in all facets of the vacation experience - travel booking, accommodation and the creation and management of recreational experiences. The village-based resorts include shops, restaurants and village activities. This in turn will increase revenue from retail sales, sports equipment rentals and commercial rental income. Intrawest has a wide array of stores and amenities including: 11 resorts (majority ownership), six four-season resort villages, 19 golf courses, 16, 465 lodging units, 28,606 restaurant seats, 171 lifts (54-high speed), a significant investment in Companie des Alpes, 45% interest in Alpine 97 Hitt, Michael A., R. Duane Ireland, and Robert E. Hoskisson. “Strategic Management: Competitiveness and Globalization, 5th Edition”. United States: 2003. p. 92-95. 60
  61. 61. Helicopters Ltd. and owns Canadian Mountain Holidays (largest helo-operator in the world).98 Operating Income 150.00 $ in millions 100.00 Industry 50.00 Intrawest 0.00 2002 2001 2000 Intrawest is also above the industry average when comparing the operating income generated for the past three years. Both the industry and the Company have slightly increased for the past three years. Intrawest however has over twice as much operating revenue than as the industry. Real estate assembles a network of unique geographically diversified resorts and capitalizes on the advantages of this network. Intrawest is also partnering up with a real estate development firm, Leisura, as well as other investors in order to outsource the development of Intrawest land and development of properties/villages in the area The gross margin of Intrawest is under the industry average. The industry estimated average for 2002 was 23.40% whereas Intrawest’s gross profit margin was 19.90% (Appendix Q). However, the two main competitors who had higher profit margins operated at a net loss for the past three years. Intrawest’s closest competitor Vail Ski 98 http://www.intrawest.com 61