Exploring the Growth Potential of Japanese Snow Resorts from Financial Data

Exploring the Growth Potential of Japanese Snow Resorts from the Financial Data of Resort Companies in the U.S. and Europe

Due to the issue of global warming, snow is becoming a scarce resource. The number of participants in skiing and snowboarding in Japan has significantly decreased from 18 million to 2.8 million. By analyzing corporate financial data and business strategies, aggressive inbound strategies can be drawn from the European examples, and strategies for tapping into domestic latent demand from the U.S. examples. This exploration aims to investigate the growth potential of Japanese snow resorts in the future.

1. The Environment Surrounding Snow Resorts

Due to the issue of global warming, snow is becoming a scarce resource. A Canadian paper indicates that even if greenhouse gas emissions are curtailed according to the Paris Agreement, the number of snow resorts capable of hosting the Winter Olympics will be limited to eight cities (Sapporo, Beijing, Pyeongchang, Calgary, Salt Lake, St. Moritz, Cortina d'Ampezzo, Albertville) by the end of this century. As global warming reduces the number of snow resorts worldwide, Japanese snow resorts, which are situated at lower altitudes (500-2,000m) compared to the representative European and American resorts (1,000-3,000m), are said to pose less risk of altitude sickness. Additionally, the relatively short travel time from major cities to snow resorts in Japan, due to the country's narrow land and closer distance between the coastline and mountain ranges, may increase the relative attractiveness of Japanese snow resorts as tourist resources. Niseko, Rusutsu, Hakuba, Arai, and Myoko have become famous overseas as powder snow resorts, attracting investment in real estate development. Nozawa, Iwatake, Niseko, and Okuibuki have been investing in new gondola and lift facilities, as well as hotel development. In this way, Japanese snow resorts are being reassessed as valuable tourism resources, exploring their growth potential.

2. Confirming the Financial Data of Snow Resorts in Japan, the U.S., and France

By reviewing the business content of representative ski-related companies in Japan, the U.S., and France, we will verify the business model of snow resorts. We will compare the profit and loss statements (P&L) of the three major listed companies in each country (Nippon Ski Resort Development Co., Ltd., Vail Resorts, and Compagnie des Alpes) mainly by sales ratio and other KPIs. The comparison focuses on three items: the sales ratio of snow resort business to total sales, the sales ratio of the lift unit (within the snow resort business) to snow resort business sales, and the EBITDA/sales ratio of the snow resort business. In the case of Compagnie des Alpes (CDA) in France, which centers its business on leisure and snow resort operations, the sales from the snow resort business account for about half of the total sales (43.4%). The EBITDA/sales ratio of the snow resort business is 30.9%, second only to Vail Resorts in the U.S. According to CDA's IR materials, the sales ratio of the lift unit is about 95%.

When comparing Nippon Ski Resort Development and Vail Resorts, both companies have a high sales ratio of over 85% for the snow resort business to total sales (Vail Resorts refers to the snow resort business as the mountain division). The sales ratio of the lift unit (listed as lift ticket sales or lifts) is about 60% for Nippon Ski Resort Development, which is higher than Vail Resorts, but the EBITDA/sales ratio is 32.4% for Vail Resorts, higher than Nippon Ski Resort Development. Generally, the profit margin of the lift unit (including maintenance costs) is not as high as other units such as food and beverage or rental, so the higher sales ratio of the lift unit for Nippon Ski Resort Development may result in a lower EBITDA/sales ratio for the snow resort business compared to Vail Resorts.

3. Confirming the Business Strategies of Snow Resorts in Japan, the U.S., and France

Next, we will confirm the business strategies of each company. Nippon Ski Resort Development, initially focused on expanding the number of snow resort facilities through M&A, has recently been actively expanding operations revenue through the management of snow resorts (without owning the facilities) and increasing summer season sales, aiming to expand operational income rather than asset growth. Vail Resorts generates abundant cash flow by selling pre-season passes and invests aggressively in lift units, among other things. Additionally, it is expanding acquisitions and business alliances of snow resorts. CDA diversifies business risks associated with climate and seasonality specific to the snow resort business by operating theme parks.

Examining the business strategies in detail, Nippon Ski Resort Development has increased profitability outside of the lift unit by consolidating a ski rental company through M&A. The ski rental unit is generally said to have a higher profit margin than the lift unit. Additionally, it collaborates with other companies for real estate and accommodation units rather than focusing on self-development, aiming to increase the length of stay in snow resorts by providing a variety of attractions and expanding overall resort revenue. Vail Resorts secures ample cash flow by clearly defining target customers and promoting differentiated services, reinvesting in the lift unit. Specifically, it targets high-income earners with an annual income of $200,000 or more, selling season lift tickets for around $1,000 before the season to raise funds in advance. This cash flow can be used to fund new lift installations and other facilities. Financially, considering the deferred revenue over the past five years, Vail Resorts' practical CCC (cash conversion cycle) is negative. From a customer service perspective, Vail Resorts partners with high-grade snow resorts domestically and internationally and provides a differentiated service by selling the Epic Pass, a global season lift ticket, aiming to retain repeat customers. Vail Resorts primarily targets high-income domestic customers, providing differentiated services to retain repeat customers and using the abundant cash flow from pre-sold season lift tickets to enhance facilities.

CDA operates 10 domestic snow resorts, including Meribel in Trois Vallees and Val d'Isere, and 12 theme parks in five countries, with sales split approximately evenly. CDA's revenue expansion strategies include establishing year-round operations of snow resorts and capturing long-term vacation demand in Europe. Another strategy leverages its network of facilities across five European countries. In Europe, major snow resorts around the Alps (France, Switzerland, Austria, Italy) see increased inbound visitors from the UK, Germany, Belgium, and the Netherlands during the snow season, accounting for 30-70% of resort visitors. CDA already has a customer base through its theme parks in five European countries, making it easy to attract customers to its snow resorts during the snow season. In 2012, CDA entered into a capital and business alliance with Mac Earth, a representative company of Japanese snow resorts. In summary, CDA's business strategy is to attract inbound customers by establishing bases in neighboring countries during the snow season and to establish year-round operations of snow resorts.

4. The Potential of Japanese Snow Resorts

Examining the cases of North America and Europe provides insights into the future growth of Japanese snow resorts. In North America, the strategy is to set target customers mainly among domestic high-income earners, provide differentiated services to retain repeat customers, and use the abundant cash flow from increased sales to enhance facilities such as lifts. In Europe, the strategy involves establishing bases in neighboring countries to attract inbound customers during the snow season and establishing year-round operations of snow resorts.

Exploring Potential Domestic Demand

The price range of one-day lift tickets at Japanese snow resorts is often said to be cheaper than in North America, at around 4,000-5,000 yen. However, for the 2023-2024 snow season, more snow resorts have raised one-day lift ticket prices compared to the previous year, with nine locations increasing prices by more than 25%, and two locations charging over 8,000 yen. If specific target customers are identified and differentiated services are provided to retain repeat customers, the increased cash flow from price hikes could be used to fund new facility investments. Like the North American example, it would be necessary to continuously explore potential domestic demand through ongoing marketing efforts until the sale of season lift tickets for around $1,000 annually to high-income earners with an annual income of $200,000 becomes feasible.

Actively Attracting Inbound Tourists

The inbound ratio for Japanese snow resorts is estimated to be around 10% of the skiing and snowboarding population, with an estimated 590,000 inbound visitors in 2023. This is said to be about 1/100th of the inbound visitors to European snow resorts. By developing markets in neighboring countries such as China, Taiwan, Hong Kong, and Singapore and attracting skiers from these regions to Japanese snow resorts, the market size of Japanese snow resorts could expand. However, simultaneously deploying two strategies would require detailed planning of business strategies due to limited resources such as personnel and funds. Ropeway operators may face decisions on concentrating management resources on one strategy, necessitating explanations of business plans to shareholders, investors, and financial institutions. A clear vision of the medium-term plan for snow resorts and a competitive strategy with nearby facilities are necessary, and the process to achieve the target should be objectively and clearly explained.

5. Conclusion

Snow resorts are one of Japan's valuable tourism resources. As the domestic skiing and snowboarding population declines, snow resorts are at a point where they need to decide which customers to target and what business strategies to develop. Deloitte Tohmatsu Group can broadly support business due diligence for snow resort businesses, consultation on fundraising methods, and business partnerships with domestic and foreign companies. Feel free to contact us for consultation.