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October 16, 2008

The Economy and Ski Season (h/t Alpengluhen)

Interesting commentary on the Economy and ski industry:

Most of the customers stated that they were thinking of pairing back their season for financial reasons. Destination resorts seemed to be big losers, with the following reasons:

1. Cost of airline tickets has gone up significantly
2. Cost of flying with gear has gone up
3. Most resorts have pushed their pass prices up again
4. Their stock portfolios have sunk radically

Which brought a renewed interest in the local resorts. Several folks were asking if it was worth buying a season pass, and just driving up. How long the snow stays fresh, etc. It's been interesting. Could this year see the rise/return of the local resort vs the destination resort?

I'm conflicted on this one. On one hand, having a larger money flow in for classes would be a nice change (I currently just brake even for teaching, which is why I have two jobs). On the other hand, it will mean larger crowds, and less fresh snow for me. Tough call.

As an aside, most of those mentioning #4 as their primary reason for skipping their trip(s) were shocked to hear our responses. Several of us have been playing the stock market for awhile and have invested heavily. Two of the guys in the shop are working there because they've already made their millions and now want to do something fun and rewarding. It's was fun to break people's perceptions of 20/30 somethings with a ski job not knowing anything about stocks.

I won't get too political but more than one person at Brian Head has mentioned that Barack Obama will be horrible for the ski industry. It is evident that prices are so high that only the affluent can afford to ski. Certainly only the rich can afford condos and second homes at ski resorts.

Barack talks about raising taxes on the "rich" making more than $250k per year. That is going to cause them to cut back on the ski resort homes and on their vacations. We have to keep in mind that skiing is a luxury item and it is the kind of thing that can be eliminated in bad economic times or when taxes/gas prices/airfare/etc. go up.

I am selfish. I own a second home that will not sell at Brian Head. The housing market is in the tank. Stocks are down. The economy is slowing. I am scared that I will not be able to sell my condo after Obama is elected. And he will be elected based on everything we now know.

Posted by Justin at October 16, 2008 12:34 PM

Comments

In my experience the "rich" earning over 250K have their own business or significant investments and their accountants help reduce the implications on any tax rise. I don't feel the few % tax rise Obama isn't going to make much difference to their standard of life, ski trips and purchasing decisions for second homes. The way the current administration has managed the economy has done way more damage for all but the uber rich in my opinion.

When picking a candidate I worry more about long term economic growth (as many people buy second homes by taking a deposit out of their investment portfolio) and environmental policy (as who wants a condo in a ski resort without snow if global warming has more of an effect in 20 years!).

I wouldn't like to guess who will ensure the strongest economic growth, but prefer Obama's environmental policy so he'd be my skiing candidate of choice!

Posted by: Rich at October 16, 2008 11:56 PM

The new social security tax will tax every dollar earned over $250,000 by 15%. We are not talking uber-rich, but rather most professional families. These are working folks that just happen to earn substantial incomes. These are the folks that ski and own second homes.

It is dangerous to make assumptions that the upper middle class will not drastically cut spending in the face of new taxes and a slow economy. The ski industry depends on upper middle class and high income folks.

Watch what happens to skier visits this season and next. Note how aggressive ski companies are being with prices and how aggressive the hotels and condo units are on rentals.

And by environmental policy, the only thing Obama will do differently is give more money in government pork to corn farmers plus build some windmills. =)

Posted by: Justin B. at October 17, 2008 12:08 AM

Income taxes are scary. Wealth and consumption taxes work best. Income taxes hurt skiing because the sport is driven by numbers and there just are not enough uberwealthy folks to keep the resort industry going at most of the smaller resorts. It is upper middle class wage earning families and their kids that drive the industry and they are who are going to be hit by both the economy and by tax increases.

Posted by: Justin B. at October 17, 2008 12:10 AM

Skiing may be a disposable income sport, but the fact that many of these destination resorts are populated with non-primary homes introduces other details in the decision process.

For example, how much will it cost to leave a secondary home sit idle for a season compared to the cost of travel and use the home. As you rightly point out Justin, the housing market is currently in a poor state which suggests these homes won't be sold. So the question becomes, what is the more economically viable option?

Renting out the home would typically be the answer, but this falls into the same problem of economic slow down. If homeowner A can't afford to go, why should renter B be able to afford the trip?

Rent it at a loss to the seasonal help? Maybe, but those crazy kids will just party all night and destroy the place (hypothetical and judgemental of course).

My prediction, they will go visit their non-primary homes, it's part of their behavior and self-identity. They'll probably leave stating "I won't go and ski" and shortly find that sitting in a ski town is really boring unless you're on the snow.

Posted by: Oft-piste at October 20, 2008 04:36 PM

Different resorts will get hit harder than others. I think destination resorts will see it hurt their rental market pretty bad. Homeowners will still buy season passes but not as many.

I think it really hurts places like Brian Head that is filled with day-trippers. It is going to kill the rental business, kill day trippers, and the resort just put a bunch of money into new lifts. I don;t know what it will do to places like Vail, but the uberrich can still ski all they want. It is the upper middle class folks that are getting hammered.

Posted by: Justin B. at October 20, 2008 11:31 PM

Just a hunch, but you're not voting for Obama then Justin?! ;)

I agree the day resorts will be hit a lot harder than the destination resorts. Gas prices and less money in peoples pockets will see to that.

In the grand scheme of things I'm less worried as people will always want to ski and the economy will bounce back in a couple of years. If you can, keep hold of your condo, enjoy the less crowded slopes and spend time in the mountains.

If society totally collapses, at least you'll be able to watch from somewhere with a nice view!

Posted by: Rich at October 22, 2008 12:10 AM

I can't vote for Obama in good conscience.

And if society totally collapses, I am going to make sure I am at 12,000 feet when it does. =)

Posted by: Justin B. at October 25, 2008 01:32 PM

All us hardcores will always find a way to ski!!!

Posted by: ParkCityPlush at October 25, 2008 04:59 PM

Im actually sad reading most of these posts for two reasons:
Firstly, this is confirmation that ski "resorts" are now really real estate ventures instead of actual ski areas. The corporate ski industry now features skiing only as an attraction for real estate investment. You are all now talking about just another real estate investment bubble.
Most posts sound oblivious to fundamental economics. Jobs are created by demand. Raising real wages will increase demand. 30 years of reagonomics has wiped out the middle class. In case you did not know, real wages have declined. The economy has been sustained only on debt and easy credte. Continuing the same policies is simply unsustainable. Those lucky ones with vacation homes (self included) should hope for a "bottom up" economic policy to overhaul the "trickle down" disaster.
Again, its just sad to read about the demise of skiing and the general ingorance of economics.

Posted by: willm at October 30, 2008 12:16 AM

Firstly, this is confirmation that ski "resorts" are now really real estate ventures instead of actual ski areas. The corporate ski industry now features skiing only as an attraction for real estate investment. You are all now talking about just another real estate investment bubble.

I am not sure whether that is a good thing or a bad thing. Is it that different from the golf industry? Do golf purists complain about how golf courses are really about selling real estate, not about golf itself?

30 years of reagonomics has wiped out the middle class.

Why do most Americans have cell phones, cable tv, internet access? The middle class still exists, it is just that today's middle class is not content without wifi in their house and a $4 latte. If the middle class does not exist anymore, why does Starbucks sell so many $4 Mochas?

The problem with the ski industry is that it is engaged in a escalating price war because of scarcity of resources. Prices are climbing because most resorts don't want skier visits to sustain them, they want to sell real estate and that depends on more affluent buyers instead of kids carpooling up on weekends.

We can debate whether this is good or bad, but I hear the same debate at Phoenix Suns games. Why do all the corporate seats in the lower level get filled with folks that don't even care about the games? Why are there luxury boxes and why do teams not care if my concession stand in the upper deck is even open for a lot of games? Because the ad revenue and the corporate seats make the money. Skiing makes their money off of real estate and real estate isn't doing well.

Now ski resorts will have to cut their operating losses by trying to increase revenue in other areas besides real estate since the market is down. But prices are so high that the sport is not affordable anymore and lots of middle class folks don't ski so it is tough to attract more visits.

But don't claim bottom up economics are going to help. It might give people more money to buy a pack of Menthols and some liquor because that is the bottom Obama is talking about. Not middle class folks. Middle class folks are going to see themselves pinched by higher taxes. And the rich will simply write off another investment loss to offset their capital gains and continue on their merry way. Upper middle class folks that work don't have write-offs and we are the ones that make the economy go.

Posted by: Justin B. at October 30, 2008 03:42 PM