Vail Resorts’ heads into pivotal season | VailDaily.com

Vail Resorts’ heads into pivotal season

Cliff Thompson

NWS Adam Aaron 12-15 MK

The next four months, which are make-or-break months for the company, will be pivotal as the company looks to regain profitability, which it failed to achieve last ski season for the first time in a decade.”Last year was a pretty tough year,” said Adam Aron, CEO and chairman of the board of Vail Resorts. “The war just decimated us.”Aron’s comments, and those of other members of the company’s management, were made at a Vail town meeting entitled “The Future of Vail: What a Difference a Year Can Make.” The meeting was both report card and a look into the future as well as an attempt to demonstrate what Vail Resorts has done that has been beneficial in the mountain towns in which it operates.The profitability of the company is a key consideration for the town of Vail, which has been suffering a decade-long rollback of retail activity. The town and ski company are joined at the hip on major redevelopment projects in Vail Village and Lionshead.Aron suggested if the company isn’t profitable this year, it could threaten nearly $500 million in redevelopment funding for Lionshead and elsewhere, an extensive plan billed as “Vail’s New Dawn.”The company’s real estate development activities are a catalyst that “transform resorts,” Aron said.”Horrible juxtaposition’The meeting, attended by 20 people, was designed to show the community what the company is doing and how what it is doing could affect other businesses and governments in the area. The audience generated a handful of questions for Aron, many of them about the company’s marketing and advertising strategies.”Vail Resorts is a different company than it was seven years ago,” Aron said. It’s now four times the size it was with five ski resorts, multiple hotels and a profitable real estate division, he said.”There are plusses and minuses to that (growth),” Aron said. “We run the risk of losing touch with our local communities.”Aron said in the last seven years Vail Resorts has invested $350 million in projects in Eagle County, including Blue Sky Basin, $23 million; remodeling of the Marriott; acquisition of the Lodge at Vail; and $110 million to develop Red Sky Ranch in Wolcott, among other projects.Aron said the company’s $14.5 million pretax loss last year came on the heels of what was shaping up to be the company’s most profitable year ever. That was interrupted when the war in Iraq broke out in March, when the company does 25 percent of its ski business. He called the situation a “horrible juxtaposition.”A portion of the loss also came when the company restated earnings; sustained greater than anticipated development costs associated with the Ritz-Carlton, Bachelor Gulch; and $4.8 million in expenses in a failed joint venture near Gilman.”All the profitability was drained out of the company,” he said.Another resort?Inside the company, managers resorted to describing the international challenges they were facing – recession, war, terrorism – as “plagues.”The company has pared nearly $40 million from its operating expenses in the last two years. That consisted in eliminating some jobs, consolidating other positions and operational cost-cutting.Vail Resorts also was able to pay down $41 million in debt last year leaving the company with long-term debt of $562 million – 3.5 times average cash flow.”We’re not heavily leveraged,” Aron said. “We don’t have a debt problem.”Newly-elected Vail Town Councilman Kent Logan asked about the company’s growth strategy for the next five years.”We want to grow the company’s three divisions – mountain division, lodging and real estate,” Aron said. A portion of that growth will come from acquisitions, and the rest from revenue increases. Aron said it’s likely Vail Resorts will acquire more hotels and even a ski resort. On acquiring another ski resort Aron refrained from specifics, saying Vail Resorts is “picky” about what property it will consider acquiring, providing the price is right. He did say likely acquisition candidates are contained in the top 20 ski resorts in the country.Since 1997 the company has diversified its business model. Then, winter season revenue amounted to 90 percent of the company’s annual revenue; now it accounts for 75 percent and summer business accounts for the balance. Aron said the company has no contingency plans to combat additional “plagues.””We think we’ve taken our cost structure as low as possible,” he said. “A terrorist attack is the big risk.”On-hill accomdationsRob Swimm of Scotch on the Rockies questioned Vail Mountain Chief Operating Officer Bill Jensen about marketing to Front Range skiers who could crowd the mountain to the possible detriment of more lucrative out-of-state guests.”We feel we can accommodate everyone,” Jensen said. Vail Mountain last year had more than 15,000 skiers at once on its 5,300 acres half a dozen times, he said.Jensen said destination skiers account for 65 percent of Vail’s revenue while day and overnight skiers- the fastest growing segment- account for 10 percent and locals account for 13 percent of skier days.In closing, Aron said the company will have a successful year if five things happen: it continues to snow; there is not another war; the economy improves; the company grows revenue and continues to take advantage of its cost reductions.SIDEBAR: $17.5 million awarded in wrongful deathSub hed; Contractors and Vail Resorts held jointly responsibleBy Cliff ThompsonWords: 288A Wyoming jury Tuesday awarded $17.5 million in compensatory damages to family members of David R. Williams, who died of carbon monoxide poisoning Aug. 1, 2001 in the Vail Resorts-owned Snake River Lodge.That compensation will be paid by the resort operator’s insurance company.”All of us at Vail Resorts and our various subsidiaries have the deepest sympathy for Mrs. Williams and the family of Dr. Williams and are profoundly sorry for the tragic accident that took place at the Snake River Lodge & Spa in August of 2001,” said Adam Aron, CEO of Vail Resorts. “We have long wanted to settle this matter and now that the trial is over we hope that the family can bring closure to their loss.”The plaintiffs had requested $22 million in actual damages and punitive damages, which would not have been covered by the company’s insuror.Williams died when carbon monoxide seeped from a malfunctioning heating boiler below the room where he and his wife spent the night. Joette Williams suffered brain damage from exposure to the toxic gas.Vail Resorts acquired 51 percent of the Snake River Lodge and Spa, located outside Jackson, Wyo., in Teton Village. The company was found to be 47. 5 percent responsible for the incident while two Jackson Hole contractors, who were working on the boiler, were found to be 52.5 percent responsible.To award punitive damages the jury had to prove there was intent to harm the plaintiffs.Aron in a conference call reagarding earnings earlier this month expressed concern a large punitive damage award would hurt the company’s bottom line. In its year-end financial statements released last month, the company revealed it had lost $14.5 million on revenue of $710 million.Cliff Thompson can be reached at 970-949-0555 x450 or cthompson@vaildaily.com