Vail Resorts Uproar Highlights a Subscription Model Risk

Vail Resorts led the travel sector in adopting the subscription model, debuting its Epic Pass in 2008, a product that has helped play a role in acquisitions of other properties. But ahead of this U.S. winter season, the giant resort operator decided to discount its subscriptions. The decision may have created more demand than the company could handle.

Some aggrieved skiers recently launched a petition to shame Vail Resorts for selling the pass and then allegedly not meeting the implied promise. As of Wednesday, more than 44,800 people had signed.

According to the petition, lift lines have been “out of control” either because of a staffing shortage or mismanagement. Parking lots have been often overfull, too, with staff telling unlucky guests they couldn’t use a facility if they couldn’t park.

Vail failed to run facilities at full capacity, particularly at its Stevens Pass Ski Resort in Washington state, according to the petitioners’ complaints. They claimed other Washington state resorts had nearly all of their ski terrain open, unlike Vail’s.

“The early months of this ski and ride season were challenging for a variety of reasons, including the nationwide staffing shortages,” said Sara Olson, vice president of communications.

Another factor: Vail required employees to be vaccinated. That policy — along with the fast-spreading omicron variant — led to its having about 10 percent of staff out of work during the winter holidays.

“In some departments, that was up to 30 percent,” Olson said.

It’s unclear if Vail will face any legal jeopardy. Washington State’s attorney general Bob Ferguson has been looking at the scores of complaints about the company that his office has received since December, the Denver Post reported.

“At certain peak times, especially over the holidays, we do see longer lines, as we always have – though when that happens, they usually clear up quickly as people move up and around the mountain,” Olson said. “Lines can also be the result of a lift stoppage or weather event. Even over the busy Christmas holiday season this year, 90 percent of lift line wait times across our resorts were under 10 minutes.”

The company has since been addressing the staffing issues related to the labor crunch in the U.S. travel sector.

“All of our largest resorts are operating with, or close to, 100 percent of terrain open,” Olson said. “Our smaller local and regional resorts continue to hire and get additional lifts and more terrain open each day. 

Epic Pass on Sale

The Epic Pass requires an upfront payment for the season and then lets skiers access up to 80 resorts rather than buy lift tickets one by one.

Vail took advantage of a pandemic-driven surge of interest in outdoor travel and activities to promote the pass.

Before this season began, Vail put the Epic Pass on a 20 percent off sale.

The discounting worked. In a December filing, the operator forecast it had sold 2.1 million Epic passes, up 76 percent from the earlier, pre-pandemic season of 2019-2020.

It also achieved a pandemic record. Vail sold 47 percent more pass products, generating 21 percent more in revenue, in the season through December 5 than in the prior year’s comparable period.

A Good or Bad Decision?

Sometimes good decisions have bad outcomes. Vail’s process for deciding to discount the Epic Pass with the information it had before the season’s start might have been good quality — even if the outcome of thousands of unhappy skiers wasn’t after the Omicron variant appeared.

Vail has faced financial difficulties during the pandemic. In the three months ending October 31, the company reported a net loss of $139.3 million on net revenue of $175.6 million.

In that context, the success of the pass sales helped sustain attendance and revenue this season.

“Season-to-date total skier visits were down 1.7 percent compared to the prior year season-to-date period, and down 18.3 percent compared to the fiscal year 2020 season-to-date period,” the company said in a statement.

The visitation numbers would likely have been down further without the pass promotion.

But the decision to discount the Epic Pass may have been unlucky rather than wrong.

“For an industry that has stagnant visitation over the last 20 years, we do think the sport will need to drastically reconsider how it feels about newcomers – and move away from this narrative about crowding,” Olson said. “Vail Resorts believes we should not shut the doors to the outdoors – and that we should all work to be more inclusive and inviting.”

Subscription Model as Tool for M&A Leverage

To grasp why Vail cares so much about its Epic Pass, one has to see see how the subscription model helps the company max out its mergers and acquisitions.

When Vail went public in the mid-1990s, it only had a couple of resorts. But now it has 40, and it dominates the most popular U.S. ski destinations.

The acquisition has meshed strategically with the Epic Pass.

“Every business they buy is an opportunity to convert some single-day visitors into passholders,” noted analyst Byrne Hobart in his newsletter The Diff.

“Owning multiple resorts gives them more customers over whom to amortize the cost of customer relationship management software and targeted marketing,” Hobart said. “Each new resort they buy sucks a little more oxygen out of the room for non-pass-based businesses.”

The Epic Pass has a “flywheel effect” that makes some acquisitions more valuable to Vail than other potential buyers who don’t have a comparable pass.

For example, Vail can cost-effectively acquire regional ski resorts near major urban areas as tuck-in acquisitions because people are more likely to buy a pass if they feel it’ll be an easy commute for them to reach the slopes, Byrne noted.

In December, the company closed a $118 million acquisition of a handful of small ski resorts. Included in the deal was Seven Springs — one of the largest resorts in Pennsylvania. It has 285 skiable acres located an hour’s drive from Pittsburgh.

“This will provide a regional destination for Epic Pass Holders in Pittsburgh as well as those in other critical markets such as Washington, D.C., Baltimore, and Cleveland, who will be able to ski more resorts close to home – and visit world-class mountains out west – all with one pass,” the company said.

“The growth in pass sales is not all from newcomers,” Olson said. “A significant portion of our pass growth has come from skiers and riders who were previously purchasing lift tickets.”

Some may like the pass because it offers less friction than buying lift tickets one by one.

“We have found that pass holders tend to spread their visitation out across the season, which certainly helps mitigate crowding to a specific moment in time,” Olson said.”

But analysts will note that the subscription revenue also provides Vail with a semi-predictable stream of upfront cash. The operator can use the cash to buy distressed assets at opportune moments.

The cash can also help fuel capital improvements. In September Vail announced a project that will add 21 new lifts across 14 resorts next season.

Climate Change Factor

Climate change is another reason why consolidation and subscriptions appeal to ski resort operators.

When we asked Vail Resorts about their subscription policy, they noted the following:

“Our pass strategy is important for the vitality and future of the entire ski industry amid the rising threat of climate change,” Olson said.

“Historically, the ski industry was ruled by weather, meaning if there was a good snow year, resorts, communities, and employees would thrive, but if it was a bad snow year – everyone would suffer,” Olson said. “The pass has had a tremendous impact on the stability of our industry, our company, and our communities.”

Subscriptions are appealing to Vail and other ski operators because climate change will likely disrupt operations with unpredictable snowfall and terrain changes.

Diversifying one’s risk against bad weather in different regions is another drive of consolidation.

As climate change thins their cash cow, operators need to increase the frequency of visitor spending. Turning resorts into four-season leisure campuses is another aspiration, analysts said.

Vail may or may not apologize for the allegedly reduced service at some of its resorts this season. It also may or may not offer some “make good” for Epic Pass subscribers whose moods have frozen over.

But you can be certain that Vail will seize any future opportunity it finds to boost its subscription model, given that it wants to ride out the mogul fields of climate change.