Sunday, February 24, 2008

Size is important in the Ski Industry

I wrote in a recent article about Zermatt how ski resorts have been forced to invest and innovate to remain competitive. Today, I want to focus our attention in all Switzerland. We can found 650 mountain transport and ski lift companies in all the country. They provide access to 12,000 kilometres of ski slopes. With 11,000 employees, the companies are a key economic factor in mountain regions. All together they have a combined annual turnover of approximately SFr840 million.
But most of the Swiss resorts can not compete in the current circunstances. Most of them are small and located in peripheral regions, they have low cash flow, an inability to attract investment capital, and are crippled by high labour costs, services and food. According to professor Thomas Bieger, head of the Institute for Public Services and Tourism at St Gallen University: "The Swiss ski industry is split into two camps: bigger companies (who managed large international resorts) that are innovative and can keep pace with global developments, and too many operators in small ski areas who don't have the means to invest". Bieger told swissinfo that consolidation is one of the answers to the problem. "Only then do you have enough money to make investments". He believes only around 20 of today's 164 medium-to-large ski resorts in Switzerland can be competitive internationally. And the large investments being made by these top 20 are reflected in the price because"If you target the wealthy, you will have stable and higher revenues in the long-run".
Zermatt is one of the Swiss leading resorts with enough capacity to invest to remain competitive, and can afford to focus its attentions on wealthy holidaymakers. But in an increasingly global industry, ski resorts need to look to the international market to found their clients. In Zermatt Swiss market still account for about one-third of all nights spent in local hotels or apartments, but tourist director Daniel Luggen says the number of Swiss visitors has decreased over the past five years and "one of the reasons is that Zermatt has increased capacity (to meet foreign demand)".
Medium-sized ski areas have important reasons to be worried about their future. First of all they do not have the capacity to draw holidaymakers from international markets. Secondly, they have not the capacity to invest in new facilities. For example a recent study found that one in three Swiss ski lift companies could not afford to upgrade its snowmaking infrastructure – considered a vital survival strategy nowadays. They need outside investors to deal with this, but investors are only interested in "integrated" models where the infrastructure – from the lifts and sport shops to the hotels and restaurants – are under single management. But there is no one company running everything in the typical Swiss resort. "Investors need to be able to make money from income streams that aren't completely snow-related", Rusty Gregory, CEO of California's Mammoth Mountain ski area explained in swissinfo: "It's very important to consolidate these income streams before [they] can bring capital in to improve the lifts and other aspects of the resort". These resorts"are only active in small markets and so it will be much more difficult for them to attract capital or foreign investors" Luggen said. "I'm convinced that some of these resorts will have to close in future".