Vail Resorts' (NYSE:MTN) recent acquisition of Whistler Blackcomb may be paying dividends long before investors hoped. As we enter ski season in the Rockies, Vail's former flagship resorts -- Vail, Breckenridge, Beaver Creek, and Keystone -- are filled with grass and rocks, not the early season powder skiers want to see. Meanwhile, Whistler Blackcomb has already been pounded by early snows, and is planning for a November 24 opening. Diversity could be paying off for Vail Resorts.
Snow is an unpredictable thing
Owning a single ski resort can be risky because snowfall can be very unpredictable. A few bad years of snow and the business can quickly collapse. Vail Resorts was highly dependent on a fairly small region in Colorado for most of its revenue, a region that will have similar snowfall levels nearly every year. So the Whistler Blackcomb acquisition diversified the company's base, giving it weather diversification.
A similar strategy has been taken by competitors Intrawest Resorts (NYSE:SNOW), which has properties in eastern Canada, the eastern U.S., and Colorado, and to a lesser extent Peak Resorts (NASDAQ:SKIS) and its diversification across the eastern half of the U.S. But Vail is the biggest player in the winter sports business, and it's taking diversification to another level.
There's a balance between geographic diversification and synergies that can help draw customers to a wider range of resorts year in and year out.
Upping the season pass game
Vail's home base in Colorado is home to thousands of regular skiers who look forward to weekends on the slopes. That's helped Vail increase its season passes, known as the Epic Pass, to over 500,000 last year, ensuring a large cash inflow early in the season and reducing weather risk. But the Epic Pass will eventually help bring customers looking for powder to Vancouver as well.
The merger between Vail and Whistler Blackcomb happened too early in the season to incorporate the Epic Pass into all of the company's mountain properties this year, but you can see where it may be helpful in the future. If Colorado is dry, customers will make the flight to Vancouver for a weekend of powder to get their skiing in, or vice versa. They'll also be more likely to stay within the Vail family if they have an Epic Pass.
And it's important to have people flowing through the Vail system of resorts, because over half of revenue comes from items like lodging, dining, retail, and other items off the ski slopes.
Will 2016 be a record year?
Reducing risk in the portfolio by adding Whistler Blackcomb should help Vail be a more stable business long-term. And with snow falling in the Canadian Rockies and not the Colorado Rockies, the addition may have come just in time. After strong traffic at Vail's resorts last year, it may be Canada that provides the stability this year, which would justify Vail's big time acquisition.