The Canadian-American Ski Resort

Leader

MIE 499Capstone

Dr. Ian Lee

Presented by:Ann Robbins

Christopher Taylor

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Table of Contents

Subject Page

Company Background 6

Business Operations 7

Industry and Associations 8

Major Competitors 9

Macro-Environment Analysis 11

Technological Analysis 12

Economical Analysis 17

Socio-Cultural Analysis 20

Political-Legal Analysis 27

Macro-Environment Analysis Summary 31

Industry Analysis 32

Strategic Group Map 32

Five Forces Analysis 35

Direct Competitors 36

Threat of Entry 39

Substitutes 42

Power of Suppliers 46

Power of Buyers 49

Summary of Five Forces 51

Driving Forces 53

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Key Success Factors 54

Summary of Industry Analysis 55

Firm Analysis 56

Primary Activities 57

Inbound 58

Operations 60

Outbound Logistics 62

Marketing and Sales 64

Service 66

Support Activities 67

Firm Infrastructure 67

Human Resources Management 69

Technological Development 70

Strategic Competitive Advantage 71

Resources 72

Capabilities 74

Core Competencies 76

Sustainable Competitive Advantage 76

Ability to Integrate Resort development and operations 77

Widespread resort locations for easier access 78

Capabilities in all facets of hospitality 78

Firm Analysis Summary 80

Corporate and Business-Level Strategy 81

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Corporate Strategy 82

Business Strategy 87

Corporate and Business-Level Strategy Recommendations 91

Corporate-Level 91

Business-Level 93

Intrawest in Review 94

Appendices

Resort Ownership subsidiaries A

NAICS explanation B

Revenue Breakdown C

Selected Economic Data for U.S. D

U.S. Economic Indicators E

Average Gas Prices F

Population of persons 65+ G

Percentage increase in population 65+ H

Non-resident travelers entering Canada/Mode of Transportation I

U.S. Health Club Membership Trend J

Direct Competitors Analysis K

Competitor Prices L

Backyard Blizzard list of Customers M

Chairlift Manufacturers N

Annual Reports for 4 competitors O

Ski Resort Industry Ratios P

5

Normalized Financials Q

Intrawest Corp.

Estimated Industry

Vail Ski Resorts, Inc.

American Ski Company

Booth Creek Ski Holdings

ROI/ROE/Profitability Graphs R

Resort Locations Map S

6

Company Background

Intrawest was started by Joseph Houssian in 1976 as a Vancouver real estate

development firm that primarily built houses and apartments in Alberta and British

Columbia1. An MBA graduate from the University of British Columbia, Mr. Houssian

quickly turned Intrawest into a successful company. In 1979, Intrawest was incorporated

in Delaware, USA. In 1981, Intrawest ventured into commercial properties, and acquired

a shopping center in Calgary2. Starting in the mid 1980s, Intrawest Corporation went into

the ski operations business when it bought a 50% share of Blackcomb ski resort in British

Columbia. From the start, Intrawest invested heavily in the resort, trying to make it a

destination rather than a one-day ski spot.

In 1990, Intrawest went public and entered the Toronto Stock Exchange (TSE) with the

symbol ITW. It used its new capital to purchase the Tremblant resort, located in Montreal

Canada, as well as 1,800 acres of surrounding property3 in order to develop a ski

community with shops, hotels, condos and townhomes.

In 1994, Intrawest Corporation spun off its real estate arm as Intrawest Properties and

concentrated in purchasing more resort areas. It bought Stratton resort in Vermont that

year and the Snowshoe ski area in West Virginia a year later. In 1997, Intrawest entered

the New York Stock Exchange (NYSE) with share trading as IDR. A purchasing

machine, Intrawest Corporation bought large stakes of (or just outright), more and more

1 http://www.intrawest.com/about/executives/joe.html 2 Ibid. 3 http://www.hoovers.com

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resorts throughout the United States from Hawaii and California to New Jersey. It also

diversified a bit when it bought Sandestin, its first warm-weather resort in Florida in

1998. Intrawest went international when it purchased a stake of Compagnie des Alpes

located in France (the largest ski operator in the world)4. It also purchased ski rentals and

accessory chains, helicopter companies and golf courses in Canada and the United States.

By 2000, Intrawest slowed its buying spree and started concentrating on developing its

villages throughout the country. All in all, Intrawest Corporation is involved in 18 resorts

(Appendix A). Through its subsidiaries, the Company is engaged in the development and

operation of mountain and golf resorts principally throughout North America5.

Business Operations

The company’s operations division is divided into two parts ski/resort operations and real

estate development. The ski/resort operations are then further segregated into two

segments, mountain resort and warm-weather resort operations. The mountain resort

operations deal with all activities at the company’s nine resorts including reservations,

retail and helicopter businesses. Warm-weather resort operations deal with golf resort

activities. Revenues for Ski/Resort Operations accounted for $485 million or 49.2% of

the total revenues in 20026.

The company’s real estate division is segregated into resort development and resort club

groups. The resort development group deals with condo-hotels, townhomes, and family-

4 http://www.intrawest.com/about/executives/joe.html5 Ibid.6 http://wwww.intrawest.com

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homes outside of the village that owners can own or timeshare. The company also leases

spots in the village proper for businesses. The resort club aspect generates less that 10%

of total real estate business so it is not reported as a separate business segment7. Revenues

for the Real Estate Division accounted for $487 million or 49.7% of total revenues in

20028.

Industry and Associations

Intrawest has the SIC code of 4011 which broadly describes the Hotel/Motel industry9.

The NAICS equivalent was more specific and was listed as 721110/701111- Traveler

Accommodation, which includes: Alpine skiing facilities, summer resort hotels, Tourist

lodges, and Resort Hotels without casinos10. Industries in the Accommodation sub sector

provide lodging or short-term accommodations for travelers, vacationers, and others.

(Appendix B) There is a wide range of establishments in these industries. Some provide

only lodging only while others provide meals, laundry, and recreational facilities, as well

as lodging. Lodging establishments are classified in this sub sector even if the provision

of complementary services generates more revenue. The types of complementary services

provided vary from establishment to establishment11.

7 http://www.intrawest.com 8 Ibid.9 http://www.census.gov 10 http://www.census.gov 11 Ibid.

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Some associations related to this industry include (but are not limited to):

Professional Association of Innkeepers International

Meeting Professionals International

The Council on Hotel, Restaurant, and Institutional Education

The Hotel and Catering International Management Association

BOMA International

Institute of Real Estate Management

National Association of Industrial and Office Properties

American Resort Development Association

National skiing areas associations

American resort development associations

Canadian resort development association

Major Competitors

(From Multex Investor http://www.marketguide.com)

The major competitors were not selected based on industry. In fact some of Intrawest’s

obvious competitors were listed in different industries and SIC codes altogether.

Vail Resorts Inc. (MTN)

Vail Resorts, Inc. is one of the leading resort operators in North America. The Company's

resorts and resort hotels provide a comprehensive resort experience throughout the year

to a diverse clientele with an attractive demographic profile. The Company’s operations

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are grouped into three segments, Mountain, Lodging and Real Estate, which represent

65%, 25% and 10%, respectively, of the Company’s revenues for the 2002 fiscal year.

For the 3 months ended 10/31/02, revenues increased 56% to $113.9MM. 12 In 2002, Vail

Resorts Inc. employed 4,700 people.

Booth Creek Ski Holdings

With six ski resorts and more than 6,000 acres of ski terrain, Booth Creek is one of the

largest ski companies in the US. The company focuses on regional resorts near major

skiing populations, such as Boston, San Francisco, and Seattle. The resorts offer a range

of services, including equipment rentals, restaurants, retail sales, and skiing lessons; some

are open in the summer for golf, mountain biking, and conferences. In 2002, revenues

totaled 12 million dollars with 5,000 permanent employees.

American Skiing Company (AESK)

American Skiing Company is engaged in the operation of nine alpine ski resorts (like

Sugarbush) in the United States and in the development of mountainside real estate,

which complements the expansion of its on-mountain operations. For the 39 weeks ended

4/28/02, revenues fell 24% to $251.8M. In 2002 AESK had 12,000 employees.

Macro-Environment Analysis

12 http://www.multexinvestor.com

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Upon determining the threats and opportunities within a company’s macro environment,

four key segments are analyzed. These segments include: technology, economic, socio-

cultural and political-legal. The technological segment includes creating new knowledge

and translating it into new outputs, products, processes and materials. The economic

segment analyzes the nature and direction of the economy in which the company

competes or may compete in. The socio-cultural segment deals with society’s attitudes

and cultural values. The political-legal segment includes organizations and interest

groups that can affect the body of laws and regulations guiding interaction among

nations.13

Intrawest is divided evenly into two main businesses, resort operations and resort

development. This unique company has led to an unclear determination of a specific

industry in which it operates. By a closer analysis of Intrawest’s direct competitors,

namely Vail Resorts, American Skiing Company and Booth Creek Ski Holdings, Inc. we

deducted that the majority of revenue was generated through resort operations versus

resort development (Appendix C). For example, Vail Resorts, Inc. resort operations

make up 90% of their sales whereas real estate only accounted for 10%.14 Therefore, the

TESP Analysis focuses on the resort operations business.

Intrawest is a Canadian based company, however the majority of its business, both resort

operations and development is within the United States. Intrawest has 10 resorts that are

13 Hitt, Michael. A, R. Duane. Ireland, and Robert R. Hoskisson. “Strategic Management: Competitiveness and Globalization (Concepts) 5e”. United States: South-Western, 2003, p. 47-52.14 http://global.factiva.com/en/nds/screeningList.asp

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located within the United States from the East coast of Vermont to the West coast of

California. Due to the heavy involvement in the United States and Canadian markets the

TESP Analysis focus will be on both Canada and the United States.

The TESP analysis will include technological issues such as snowmaking machines,

online security and ski lifts. Economic analysis will include the three-year economic

forecast for the Canadian and U.S. economies and also current exchange rates. Other

economic issues that affect the ski industry are a possible recession due to upcoming war

and the correlating decrease of consumer spending. Socio-cultural issues include aging of

the population, obesity of the population and the drive for healthier lifestyles. The threat

of terrorism in the United States and the heightened security at boarder check points.

Political-legal issues include the accidents in relation to the ski lifts, safety regulations in

regards to snowboarding and environmental regulations that ski resorts must abide by.

The TESP Analysis will summarize the opportunities and threats that are currently facing

the ski resort industry in both Canada and the United States.

Technological Analysis

Technology is an ever-changing aspect of the business world. The changes in technology

greatly affect business as well as our own personal lives. Major technological

opportunities for the ski resort industry are increased ski lift technology, snowmaking

machines, and online booking.

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Opportunities

An advance in ski lifts is by use of planetary gearboxes. These small size, low weight and

high-torque characteristics are playing a major role in evolution of cableway and ski lift

technology. They are being utilized in urban transport systems, amusement parks and also

scenic areas, which are both difficult for land travel and environmentally sensitive. The

old medium-to-high output torques consumed a lot of space and was heavy and

expensive. The Brevini’s gearbox is known to have carried a 3000-person cable car in an

hour in Hanover, 2000, which is instilling their competitive advantage. While comparable

in price, some of the major advantages of the planetary gears include that it is 60% lighter

and about half the size of a conventional gearbox with the same output. The planetary

units offer efficiencies up to 98%, high reliability, inline assembly, easy disassembly and

re-assembly, and high transmittable torque values with lower costs in comparison to other

reduction gear systems. Hydraulic motor drives are used instead of electrical motors,

which provide an advantage of absorbing some of the shock loads from cable car

operation internally.

Brevini is an international company, which allows them to support the cable car/ski, lift

industry with a highly effective pre and after-sales operation, providing service and parts

worldwide. This is a necessary service because lifts need to be shut down periodically so

parts can be serviced and replaced as necessary. This local availability allows a decrease

in downtime and overall minimization of lost revenue.15

15 “More torque puts planetary gearboxes to new uses” 14 June 2002. http://www.engineeringtalk.com/news/brv/brv109.html

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As global warming continues and the winter season gets drier, ski resorts are dealing with

the lack of snow. Winter tourism will be affected by less snowfall and shorter skiing

seasons.16 People waiting to head to the slopes are being discouraged by the lack of

snowfall. The snow making machines are helping to ease the affects of this problem.

Resorts are not waiting for nature to take its course anymore, snowmaking machines are

taking over where nature is lacking. The earliest snowmaking machines were made from

leftover household plumbing supplies and irrigation equipment. Although technology has

improved the idea is still the same, the greatest advantage is snow can be created much

more quickly.17 A snowmaking system can convert up to 9,000 gallons of water per

minute of snow.18 That much water could be used to fill a standard 16’ by 32’ swimming

pool and create enough snow to bury a football field (including end zones) with nearly

three and a half feet of snow. This technology has assured that there will be a ski season

even if nature doesn’t cooperate. Although snowmaking technology is available natural

snow is still ideal to skiers and resort owners.19

Online booking has proved to be a technological opportunity for the ski resort industry.

Online booking has boosted resort bookings over the past several years and a new

technology has been created to increase the efficiency of the process for resort patrons.

Datalex and Resort Technology Partners (RTP) worked together to create a new

16 “Government inaction against Climate Change will wreck top tourist destinations”. http://www.panda.org/news_facts/newsroom/17 Selingo, Jeffrey. “Machines Let Resorts Please Skiers When Nature Won’t”. http://www.ausblick.org/Old%2-Pages/snowmachines.htm18 American Skiing Company website http://www.peaks.com/html/info/faq.html 19 Selingo, Jeffrey. “Machines Let Resorts Please Skiers When Nature Won’t”. http://www.ausblick.org/Old%2-Pages/snowmachines.htm

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distribution technology for leisure travel enterprises. The focus of this new technology is

to better represent the facilities available, to broaden the scope of customer online self-

service travel booking and to realize increased efficiency is sales, distribution and

reservations management operations.20 Online booking will assist in the reservation

process for potential consumers. This new system was established to create a user-

friendly interface that will allow for any data necessary to be available. Online

reservations can be made without the hassle and commission of a travel agent.

Threats

The main disadvantage for snow making machines is the high operating cost. Making

snow does not come at a cheap price, it costs about $40,000 per acre to install and $1,700

to operate the machines.21 For resorts, operation cost is usually the second largest after

labor. With the affects of global warming on ski resorts, snow making technology is an

opportunity, however the increasing need for man made snow will increase the cost and

in the long run a potential threat on the resort industries finances.

More resorts are investing in helicopters, which are replacing the need for ski lifts.

Helicopters are allowing runs to be longer and in low traffic areas, however because it is

an emerging technology costs are high. However, extreme skiers with extra income may

be willing to pay the higher prices for the bigger thrill of unexplored mountains.

20 “New Technology at Vail Resort Takes Online Booking to New Heights”. Business Wire. Oct. 7, 2002. http://web.lexis.nexis.com21 Selingo, Jeffrey. “Machines Let Resorts Please Skiers When Nature Won’t”. http://www.ausblick.org/Old%2-Pages/snowmachines.htm

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Online purchases still have consumers worldwide in an uneasy state. Internet purchases

have grown in the United States with increased security practices, however in Canada and

Asian countries online purchases are slow to increase. Consumers are still weary about

the security of having their information online where it seems that everything is

accessible.

In Canada, web shopping is increasing but at a slow pace. According to Statistics Canada,

in 2001 about 2.2 million households spent $2 billion on the Internet. Up from 1.5 million

households spending $1.1 billion in 2000, but still just a small percentage of the $621

billion total spent in Canada last year.22 Only 16% of households used the Internet to

make travel arrangements.23 Individuals expressed the most concern about security and

privacy with online purchases. This report also stated that individuals use the Internet to

browse for information and utilize it as a pricing tool, but do the purchasing at the store.

2000 2001

Household 1.5 million 2.2 million

Spending $1.1 billion $2 billion

22 “Web shopping expansion slow in Canada: report.” Calgary Herald, Sept. 20, 2002. http://web.lexis-nexis.com/universe/23 “Web shopping expansion slow in Canada: report.” Calgary Herald, Sept. 20, 2002. http://web.lexis-nexis.com/universe/

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Economical Analysis

Opportunities

The resort industry is making their resorts a one-stop shop. The idea is to have

individuals stay for a long weekend instead of just taking a day trip. Customers making

these resorts a weekend trip instead of a day trip is generating more revenue by sales in

retail, restaurants and lodging. The control of all resort operations generates more

revenue for the parent companies. By having package deals available customers will be

willing to spend more money with the idea that they are saving money in the long run.

The U.S economy is not growing as quickly as it has been in the past few years, but it is

growing. For this year it is expected that GDP will grow at 2.5% and in 2004 it will grow

even more at 3.5%.24 (Appendix D) With an increase in GDP and a decrease in the

unemployment rate over the next few years there is a probable growth in disposable

income, which will increase consumer spending on luxury items such as travel. The 2003

proposed dividend tax cuts for individuals will cause a slight increase in disposable

income and should increase the likelihood for larger investments in companies such as

the resort industry.

24 “Selected Economic Data for 2002, 2003, and 2044” http://www.lexis.nexis.com

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Over time, consumer spending and confidence in the Internet is expected to increase.

Online booking also has the opportunity to reach a larger customer base on a global level.

In the fourth quarter of 2001, sales reached $15 billion. In 2002, sales dropped a little to

$11 billion but are expected to rise by the end of 2003 to $52 billion. By 2007, sales are

expected to reach $105 billion25. This increased confidence in online consumption will

directly affect the travel industry with increased sales in the Datalex and RTP technology

discussed above.

Threats

One of the largest economical threats facing the resort industry is the current global

situation. After the September 11th attacks people have restricted their spending. With the

possibility of a war in Iraq individuals are skeptical that the economy will soon recover.

With the unemployment rate of the rise, the relief from the recession is questionable.

With fewer individuals working there will be less disposable income to put back into the

economy and workers will be more inclined to hold onto their money for fear of layoffs

and unemployment. (Appendix E)

Also over the past 6 years gas prices have increased. The increase in oil and gas affect the

tourism industry overall. This increase is causing an increase in airline operating costs

and in turn the customers tickets and as well as vehicle travel expenses. Individuals who

are unsure of air travel and now driving to vacation destinations are also faced with

25 NUA Internet Surveys: Online retail spending to soar in the U.S. http://www.nua.ie/surveys/index

19

increased gas prices. These prices may constrict individuals to local areas versus taking

trips to resorts. (Appendix F)

With the global and economic situation consumer confidence and consumer expectation

in the United States and Canada has fluctuated over the past year. After the attacks of

September 11th, consumer expectations index was low in Canada at 65 points and 60

points in the U.S. The consumer confidence index was low in September 2001 at 70 in

Canada and 72 in the U.S. Below is the trend in U.S. and Canada’s confidence for the

year of September 2001 to November 2002.

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Socio-Cultural Analysis

The resort industry, like any other industry is affected by changes in people’s attitudes,

perceptions, values and actions. Important issues facing the resort industry deal with the

demographics of aging, changes or lack thereof of travel, and the obesity issue. These

socio-cultural trends have the capability to be positive or negative influences that

translate into opportunities and threats that can either be taken advantage of or prevented.

Without a doubt, the fastest growing segment of the U.S. population is the 65 plus age

group. (Appendix G) In 2000, the older population numbered 35 million - eleven times

more than the population a hundred years earlier.26 They represent 12.4% of the

population or one in eight Americans and by 2030, will represent 20% of the population

or 70.3 million27. Today, over half of the people 65 years and older live in nine states:

State People 65+

California 3.6 million

Florida 2.8 million

New York 2.4 million

Texas 2.1 million

Pennsylvania 1.9 million

Ohio, Illinois, Michigan, New Jersey Over 1 million 28

26 Older Americans: 2002, Administration on Aging, U.S. Department on Health and Human Services27 Ibid.28 Ibid.

21

**See Appendix H for Population distribution in United States

The elderly are less likely to change residence than other age groups. In 1999, only 4.2%

of elderly households had moved since 1988 (compared to 16.5% of persons under 65)29.

Of the nearly 22 million households headed by older persons in 2001, 80% were owners

and 20% were renters30.

In Canada, the number of persons age 65 and older was nearly 4 million in 200131.

Projections described a steady increase of aging to nearly 6 million by 2016 and

approximately 8 million elderly by 202632.

The attacks on Sept. 11, 2001 did affect travel throughout the world, none more than in

the U.S. They are largely responsible for the 20% drop in the travel industry revenues for

200133 including the $1.5 billion in immediate loss, $8 billion for the airline industry34.

Flight Availability was greatly affected. In 1998, domestic departures ranged from

600,000 to 675,000 flights. In 2000, the numbers increased with a range between 650,000

to 725,000 that year. Flights dropped drastically in 2001, lowering the number to

575,000. By January 2002, flights were slowly picking up to 1998 levels.35

29 Older Americans: 2002, Administration on Aging, U.S. Department on Health and Human Services30 “American Housing Survey for the United States in 2001, Current Housing Reports” H150/01.31 Statistics Canada http://www.statcam.ca 32 Ibid.33 http://www.plunkettresearch.com/travel/travel_trends.htm 34 Ibid.35 Bureau of Transportation Statistics http://www.bts.gov

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Flight Availability

500000520000540000560000580000600000620000640000660000680000700000

1998 2000 2001

Same-day and Overnight Travel (more than one day) trends between Canada and the U.S.

are important to resort industries especially since many resorts are located close to the

U.S.-Canada border. Same day travel between the U.S. and Canada accounted for 66% of

total travel from the U.S.36 Canada was the top country for overnight travel to the U.S. in

2000 with 51 million international overnight trips into the U.S. (29% from Canada).37

Canada was the second most popular destinations for Americans in 2000 with over 15

million trips. Overall travel from the U.S. to Canada has increased whereas travel from

Canada to the U.S. has decreased. (Appendix I)

As with same-day travel, ground transportation, particularly the use of personal vehicles

is relied on more than air travel in overnight travel. In 1999, 37 million Americans

entered Canada by car compared to 4 million by plane. In 2000, 36 million came in by

car and 4 million by plane. In 2001, travel by car went down to 35 million but air travel

36 North American Trade and Travel Trends U.S. Department of Transportation37 Ibid.

23

stayed the same. (Appendix H) However, air travel is relied more heavily on overnight

trips than same-day trips38.

There has been a growing trend to lead a more active lifestyle in Canada and in the

United States. Problems with obesity due to inactive lifestyles plague both nations.

Current estimates from the 1998/99 National Population Health Survey (NPHS) indicate

that the majority of Canadians (55%) are physically inactive. This figure has decreased

since the early 1990s going from 62% in 1994 go 55% in 199839 yet the figures remain

pervasive. Studies have shown that physical inactivity increases with age with a higher

proportion of women (67%) than men (55)40. The level of inactivity however, as

education level and income level increases41. The Surgeon General of the U.S. reported

that 61% of adults in the U.S. were overweight or obese in 1999 along with 13% of

children or adolescents almost 3 times more than in 198042. The economic cost of obesity

in the U.S. was $117 billion in 2000 compared to $99 billion in 199543.

This epidemic has led both government bodies to promote a change of lifestyle and an

increase of physical activity. This has led to increasing the individual’s education on the

effects of obesity. As a result, there has been an increase in the number of U.S. health

club memberships as well as health clubs in general. This has been steadily increasing

since the 1990s.

38 North American Trade and Travel Trends U.S. Department of Transportation39 2001 Physical Activity Monitor http://www.cflri.ca/cflri/pa/surveys/2001survey/2001survey.html 40 Ibid.41 Ibid.42 The Surgeon General’s Call to Action to Prevent and Decrease Overweight and Obesity http://www.surgeongerneral.gov/topics/obesity/calltoaction/ 43 Ibid.

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Year44Health Clubs

(thousands)

Health Club Memberships

(millions)

1998 14 30

1999 15 31

2000 17 33

2001 18 34

**See Appendix J for Health Club membership trend

There has been a correlation between health clubs and age. Baby boomers, now account

for 12.4 million members or 37% of the health club population. As a percentage of the

population today, 15 of every 100 people are members, up from 9.5 of every 100 in the

1980s. 45

Opportunities

As the average out of state skier gets older, they tend to bring their families with them.

This would increase the number of visitors to resorts each year for vacations. However,

they become more interested in comfort rather than just skiing, so they want more

entertainment for the entire family. This would benefit a well-rounded resort that offers

amenities such as spas, fine dining, shops, and extracurricular activities.

44 IHRSA/American Sports Data trend report http://www.ihrsa.org/industrystats/ 45 Ibid.

25

Another opportunity would be resort destinations situated within states with a high

population of elderly and or retirees. Since they tend to move less, they would provide a

steady income stream to any resort that fulfills their needs.

Americans and Canadians cite pleasure as the most common reason for same-day and

overnight travel46. With the majority of the travel made by personally owned vehicles,

resorts located near the border would get a lot of business. As good relations between the

two countries continue, the flow of traffic will only get better.

This is a great opportunity for the resort industries especially those with skiing/golfing or

sports related activities available. The level of inactivity decreases as education and

income levels increase. This would benefit any industry dealing with physical activities

and wealthier people (i.e. ski resort). Another opportunity would be the fact that resorts

are more expensive and therefore those that can afford to go for longer periods of time

are much fewer. This would add on to the luxury status of the place, a privilege wealthier

people could afford.

Threats

As skiers age, they ski less, the number of skiers will drop significantly as the Baby

Boomer generation ages. From 1988 to 1994, the number of skiers dropped 16%47. Ski

46 Ibid.47 Hengesbaugh, Mark, “Has Skiing Boom Faded? Private Eye Weekly, Nov. 28, 1996

26

resorts would have to create new venues with which to attract younger skiers like faster

gondolas, cheaper lift tickets, and new ski runs.

The war against Iraq and the threat of terrorisms would be troublesome to the resort

industry. Soaring gasoline and jet fuel prices would not only reduce the distance a person

would drive, it would also raise the price of airline tickets. This could be considered an

opportunity for those resorts located near the border. Threats of an imminent terrorist

attack and reminders of attacks in other countries have made people cautious of traveling

far distances. This would further reduce the number of people vacationing. With the

threat alert being orange, border guards would be stricter in checking vehicles crossing

into the United States. This not only will lengthen the waiting lines, it would also

frustrate many individuals who might seek entertainment elsewhere.

Health clubs are a more cost efficient way to lose weight or to be more active. They are

usually located closer to an individual’s home and the membership costs are much

cheaper. Resorts would be thought more of a vacation destination and be visited less

often.

Political-Legal Analysis

Politics and legislation play a big part in analyzing an industry. Changes in political

attitudes could spell disaster for lobbyists and make way for legislation harmful to the

industry as a whole. Some issues facing the resort industry deal with environmental

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issues, legislation dealing with liability. The environmental issue is one of the greatest

concerns the resort industry, in fact, any industry has to face. Issues dealing with air

pollution, acid rain, CO2 emissions, water pollution, bio-diversity reduction and wildlife

depletion, and limited natural resources are extremely important to both the U.S. and

Canada. The United States, with the world’s largest economy, is also the largest source of

greenhouse gas emissions in the world. Canada, one of its neighbors, is affected by the

acid rain caused by vehicle and industrial emissions.

Injuries happen in any sport, even during professional competitions. The matter of

liability is a major concern for resorts in terms of insurance premiums and the fact that a

disaster can happen at anytime. An important legal aspect is the determination of what is

construed as “inherent danger” statutes.

Opportunities

Resorts that show their “green” side by supporting and being at the forefront of

environmental initiatives can be supported by the environmentalists and therefore get

hassled less. Resorts could also ensure to minimize the environmental impact of guests by

placing easily seen property boundaries and using efficient waste disposal methods.

The U.S. Skiing industry has had good relations with the U.S. Forest Service. In 1994, in

an effort to increase public appreciation and knowledge of the natural environment and

its value, the U.S. Forest Service and the Skiing Industry collaborated in a Memorandum

28

of Understanding48. The result hoped for in this memorandum was to make people aware

of nature and its importance by providing alpine recreational opportunities. With the U.S.

Forest Service joining together with the ski resort industry, there would be no fear of

unfavorable restrictions, and the cooperation would be mutually beneficial because the

USFS is getting a percentage of gross sales.

Threats

The United States has enforced a sophisticated regulatory and legislative framework in

regard to wildlife preservation (including species protection), land conservation, water

systems management, recycling, and other environmentally friendly programs49.

Environmental advocates have complained about power consumption and the reduction

in water levels of lakes and rivers caused by snowmakers. As a result, several state

agencies have required ski resorts to build large reserves to furnish water when water

levels are low. Any legislation banning snowmaking machines would leave everything up

to Mother Nature, who is unpredictable at best, would cause havoc in terms of securing a

dependable cash flow.

During 2000, substantial steps were taken in the legislation and policies that govern the

Canada National Parks Act. The new version increases the stature of ecological

protection. The old act maintained that the resort or park manager would protect natural

resources by zoning and managing visitor use. The newer version states that management

48 USDA Forest Service http://www.wildwilderness.org/docs/ski-mou.htm 49 http://biz.yahoo.com/ifc/us/

29

plans for all parks are to contain a clear set of ecological integrity objectives and

indicators, and are to be tabled in the Houses of Parliament50. The new and improved act

also limits the establishment of new runs or expanding old ones. These proposals are

neither to disturb new land nor permit tree cutting51. These steps are harmful to ski

resorts because it hinders the resort’s ability to improve itself or to attract new skiers. Not

being able to expand will cause some resorts to stagnate.

Another threat would be the possible changing relationship between the U.S. Forest

Service (USFS) and the resorts. Right now resorts pay the USFS less than 3 cents for

every dollar they make in gross sales52. Environmentalists are complaining at the low cost

of renting acreage of land that could be used to protect animals and are screaming to

increase rental fees for ski areas. A decision hasn’t been made yet but if fees do increase,

so will the cost of staying at a resort. The amount of guests will decrease and so will the

resorts’ revenues.

Inherent danger statutes differ from state to state so the liability for injuries depends on

where it happened. Colorado, Vermont, California, Utah and other states have construed

the inherent danger statutes, to require a jury to determine the nature and extent of the

duty.53 Idaho holds that any injury that is not a breach of the ski area’s duty is considered

an inherent danger of the sport. New York, on the other hand states that there has to be a

reasonable standard of care54 made by the ski area operator in order to prevent accidental

50 CPAWS http://www.cpawscalgary.org/legislation 51 Ibid.52 Rogers, Paul Knight Ridder Newspapers, Jan. 10, 2003 http://www.fortwayne.com 53 Ibid.54 Ibid.

30

injuries (such as not having a telephone pole in the middle of a ski run). A threat to the

industry would be more stringent measures adopted by the states or a narrower viewpoint

of what constitutes an inherent danger. When legislation faults ski area operators for

injuries, premiums for liability insurance will skyrocket, raising operation costs and

prices, and reducing the amount of visitors to resorts.

A short-term political threat includes the relations between the United States, Canada and

France. The lack of support that Canada and France showed the United States has put a

strain on political relations. These tensions have trickled down into the population and

may affect the travel between countries and the support of each other’s products.

However, the Prime Minster Jean Chretien is expected to retire in 2004 and to be

replaced by Paul Martin, former Minister of France. Martin has publicly criticized PM

Chretien and has stated that rebuilding the relationship with the U.S. will be a major

focus of his new administration.55

Macro-Environment Analysis Summary

In the macro-environment analysis, the degree of impact of each segment differs from

industry to industry and firm to firm. The challenge with a TESP analysis is to recognize

the greatest threats and opportunities facing the industry. The TESP analysis weighs the

opportunities and threats when formulating the companies focus strategy.

55 Carmichael, Kevin. “Paul Martin’s Bid to Lead Canada to be tested in first debate.” http://quote.bloomberg.com/apps/news?pid=10000082&sid=aDSapjAaRfl8&refer=canada

31

The TESP analysis of the resort industry showed the opportunities and threats that exist

in the United States. Upon analysis of the resort industry the most important influence on

the resort industry was the impact of global warming and environmental

statutes/legislation faced by resort developers and operators. The greatest opportunity in

the resort industry is online booking. These factors have the most influence on the resort

industry and should be considered when determining a resort’s strategy.

32

Industry Analysis

The industry analysis looks at various factors such as Porter’s 5 forces, the Strategic

Group Map, Driving Forces and Key Success Factors. These factors all contribute to

determining the overall long-term attractiveness in the company’s specific industry.

These tools are important to help determine if a company is within an attractive industry

and if it will prosper or fail.

The ski resort industry has been volatile with the unpredictability of snowfall as well as

with the current economic instability. The travel industry especially has felt the after

affects of the terrorist attacks on September 11th, 2001. The restrictions on the industry

have caused many firms to try to find new packages and amenities to draw customers in.

The creation of a mountain village-based resort has allowed for the ski resort industry to

target a niche market of individuals willing to spend the money on a weekend getaway.

With the increase in DINK (Double Income No Kids) families, the outlet for spending

has focused on traveling and getting away for the weekend from life’s stress.

Strategic Group Map

The strategic group map clusters firms in similar industries emphasizing similar strategic

strategies. Strategic group maps can be helpful in identifying competition, positioning

and profitability of firms within said industry. There are two types of group maps, inter-

strategic and intra-strategic. Inter-strategic is all possible competition, whereas intra-

33

strategic is where the fiercest competition can be found. Through the utilization of

strategic group maps both indirect and direct competitors can be identified.

Intrawest has the SIC code of 4011 which broadly describes the Hotel/Motel industry56.

The NAICS equivalent was more specific and was listed as 721110/701111- Traveler

Accommodation, which includes: Alpine skiing facilities, summer resort hotels, Tourist

lodges, and Resort Hotels without casinos.57 Industries in the Accommodation sub sector

provide lodging or short-term accommodations for travelers, vacationers, and others.

There is a wide range of establishments in these industries. Some provide only lodging

while others provide meals, laundry, and recreational facilities, as well as lodging.

Lodging establishments are classified in this sub sector even if the provision of

complementary services generates more revenue. The types of complementary services

provided vary from establishment to establishment58.

The strategic group map below is the inter-strategic group map for the Traveler

Accommodation industry:

56 http://www.census.gov 57 http://www.census.gov 58 Ibid.

34

Company Revenue 2002

(thousands)

Market Share

Resort Industry

Employees

Intrawest 986 MM 31.5 % 21 M

Winter Sports Inc. 1.6 MM .05% 130

Wyndham Intl. 1.31 B 41.8% 25 MM

Fairmont

Hotel/Resorts Inc.

448 MM 14.3% 28 MM

Silverleaf 134 MM 4.3% 1.8 MM

Vail 114 MM 3.6% 5 M

American Ski

Company

426 MM 13.6% 12 M

Booth Creek 12 MM .38% 5 M

Due to the vast array of companies in the Industry group map, the focus of the ski resort

industry competitors has been on companies, including; Vail Resorts, Inc, American Ski

Company, and Booth Creek Holding, Inc. This conclusion was made because the other

companies listed above are competitors, but not part of the intra-strategic group. The

intra-strategic group competition is more intense than the inter-strategic group

competition.59 Considering this more intense rivalry the intra-strategic group map is listed

below based on market share and number of employees.

59 Hitt, Michael. A, R. Duane. Ireland, and Robert R. Hoskisson. “Strategic Management: Competitiveness and Globalization (Concepts) 5e”. United States: South-Western, 2003, p. 65.

35

Intra-Strategic Group Map

High

Number of Employees

Low

Low HighMarket Share

Five Forces Analysis

By utilizing Porter’s Five Forces to analyze the resort industry, conclusions can be made

in regards to permanent aspects of the industry, not the cyclical ups and downs. The five

forces include: Direct Competitors, Threat of Entry, Substitutes, Power of Suppliers and

Power of Buyers. The combined analysis of these “five forces” gives a better perception

of the overall appeal of the industry. This will help a new company or even an existing

company to incorporate the successful probability in the industry. The five forces are

measured by the degree of influence of the force on the industry. Each force is ranked

36

Intrawest

Vail Ski Resort

American Ski Company

Booth Creek Holdings

from 1 thru 5 depending on the degree of influence, 1 being the least influential and 5

being the most influential.

I. Direct Competitors (3)

The direct competitors within the ski resort industry are listed in order of competition.

The following companies also deal with village-based resorts, which include Vail

Resorts, Inc., American Ski Company and Booth Creek Holdings, Inc. Vail is the second

largest competitor in the ski resort industry in comparison of revenues, employees and

locations across the United States. Booth Creek is the smallest competitor with the

smallest revenues, least employees and restriction of locations to the west and northeast

regions of the United States. (Appendix K) The major competitors were not selected

based on similar SIC codes or industry. In fact some of the ski resort industries obvious

competitors were listed in different industries and SIC codes altogether. These three

major competitors were chosen because they are members of the intra-strategic group as

developers and operators of village-based ski resorts.

Vail Resorts Inc. (MTN)

Vail Resorts, Inc. is one of the leading resort operators in North America. The Company

owns and operates four ski resorts in Colorado, one ski resort in Lake Tahoe, California,

and one summer resort in Grand Teton, Wyoming. In addition, the Company recently

acquired a majority interest in Rock Resorts, which manages 10 luxury resort hotels

37

across the United States. The Company's resorts and resort hotels provide a

comprehensive resort experience throughout the year to a diverse clientele with an

attractive demographic profile. The Company’s operations are grouped into three

segments, Mountain, Lodging and Real Estate, which represent 65%, 25% and 10%,

respectively, of the Company’s revenues for the 2002 fiscal year. For the 3 months ended

10/31/02, revenues increased 56% to $113.9MM.60 In 2002, Vail Resorts Inc. employed

4,700 people.

American Ski Company, Inc.

American Skiing Company (ASC), formerly known as ASC Holdings, Inc., owns and

operates major ski resorts, including The Canyons (Utah), Steamboat (Colorado) and

Attitash Bear Peak (New Hampshire). The #3 ski resort owner in North America (after

Intrawest and Vail Resorts) has been racked by losses and by debt.61 The company has

suffered significant losses in recent years, and has focused on restructuring and debt

reduction. To aide in this attempt, it recently sold its Sugarbush, Vermont resort and in

April 2002, sold its Heavenly resort at Lake Tahoe to Vail Resorts for $100 million. The

company also develops mountainside real estate that complements its expansion of non-

mountain operations. American Skiing Company is a company run by skiers and

snowboarders for skiers and snowboarders, rather than a real estate company that runs ski

areas.62

60 http://www.multexinvestor.com 61 http://www.hoovers.com62 http://www.plunkettresearchonline.com

38

Booth Creek Ski Holdings

With six ski resorts and more than 6,000 acres of ski terrain, Booth Creek is one of the

largest ski companies in the US. The company focuses on regional resorts near major

skiing populations, such as Boston, San Francisco, and Seattle. The resorts offer a range

of services, including equipment rentals, restaurants, retail sales, and skiing lessons; some

are open in the summer for golf, mountain biking, and conferences. Booth Creek also is

planning residential development at resorts in California, New Hampshire, and

Washington. Chairman George Gillett owns all Booth Creek's voting shares. In 2002,

revenues totaled 12 million dollars with 5,000 permanent employees.63

Based on the strong presence in the market (as shown above with 47% market share), and

the constraints of locations of the three main competitors within the industry, direct

competitors were ranked a 3. It is ranked this high because of the fact that each company

is within the intra-strategic group and there is intense rivalry for the same customer base

63 From Multex Investor http://www.marketguide.com

39

due to similar services offered. However, it is also not ranked higher than 3 because of

the instability in the financials of two of the three competitors.

By analyzing the difference between Intrawest’s net income in comparison to its

competitors, Intrawest in the industry leader. For the past three years, Intrawest has been

leading the industry with net gains while 2 of their 3 competitors have been operating at a

net loss for the past three years. As is illustrated in the chart below.

II. Threat of Entry (1)

The alpine/ski resort industry has significant barriers to entry because the number of

locations for such a venture is limited. Costs of resort development are high, and the

regulations and permits are difficult to obtain and have to comply with strict

environmental standards. The permits originally granted by the Forest Service were (1)

Term Special Use Permits granted for 30-year terms, but which may be terminated upon

30 days written notice by the Forest Service if it determines that the public interest

requires such termination and (2) Special Use Permits that are terminable at will by the

Forest Service. In November 1986, a new law was enacted providing that Term Special

40

Use Permits and Special Use Permits may be combined into a unified single Term

Special Use Permit that can be issued for up to 40 years.64 Secretary of Agriculture has

the right to terminate any Term Special Use Permit upon 180-days notice if, in planning

for the uses of the national forest, the public interest requires termination.

The operations at the resorts require numerous permits and approvals from federal, state

and local authorities, including permits relating to land use, ski lifts and the sale of

alcoholic beverages. Operations are heavily dependent on its continued ability, under

applicable laws, regulations, policies, permits, licenses or contractual arrangements, to

have access to adequate supplies of water with which to make snow and service the other

needs of its facilities, and otherwise to conduct its operations.65 The permits originally

granted by the Forest Service were (1) Term Special Use Permits granted for 30-year

terms, but which may be terminated upon 30 days written notice by the Forest Service if

it determines that the public interest requires such termination and (2) Special Use

Permits that are terminable at will by the Forest Service. In November 1986, a new law

was enacted providing that Term Special Use Permits and Special Use Permits may be

combined into a unified single Term Special Use Permit that can be issued for up to 40

years.66

Major expansions could require, among other things, the filing of an environmental

impact statement or other documentation with the Forest Service and state or local

governments under National Environmental Protection Act (NEPA) and certain state or

64 Booth Creek 10k, www.boothcreek.com/65 http://www.boothcreek.com66 http://www.boothcreek.com

41

local NEPA counterparts if it is determined that the expansion may have a significant

impact upon the environment. Although the company has no reason to believe that it will

not be successful in implementing its operations and development plans, no assurance

can be given that necessary permits and approvals will be obtained or renewed.

The ski resort industry is undergoing a serious consolidation trend. In 1983, there were

735 independent ski areas, and in 2001, there are only around 490 ski areas. “Ownership

of the smaller regional ski resorts remains highly fragmented.”67 However, the advancing

technology and high cost in infrastructure overhaul will lead the smaller resorts to be

acquired by larger resorts with more capital and better management capabilities. Despite

this consolidation, the industry remains highly fragmented, as no other single resort

operator accounted for more than 10% of the United States' 54.4 million skier visits

during the 2001/02 seasons.68

Threat of Entry was ranked 1 because of the potential of high start-up costs as well as the

difficulty in obtaining regulations and permits prior to operations. The costs can be

allocated and funding found somewhere, however there is no guarantee that permits will

be granted. Therefore threat of entry was ranked low as a 1.

III. Substitutes (4)

67 http://www.boothcreek.com68 http://www.boothcreek.com

42

The days where compromises have to be made for different generations vacationing

together are gone. These changes have caused an increase in substitutes for the ski resort

industry. Substitute products are goods or services from outside a given industry that

perform similar or the same functions as a product that the industry produces69. Cruises

and vacation trips outside of the United States are two main substitutes to the type of

vacation package that Intrawest and direct competitors offer. Cruises and resort

destinations now cater to the young and old without compromising either’s enjoyment.

Bookings have shown that families are traveling further than ever, a phenomenon that

challenges the conventional trade wisdom that the number of hours flown should not

exceed the age of the youngest child in years70. This is a threat for the more traditional

“family ski trip” by giving more power to ski resort substitutes.

Notwithstanding the poor environment faced by the travel leisure industry during 2001

due to a recession and the attacks of Sept. 11, the North American cruise industry

maintained its strong growth and expanded its economic impact. The cruise industry

increased its global passenger carryings by five percent to 8.4 million passengers

worldwide and increased direct spending by the cruise lines and their passengers by six

percent to $11 billion71. The estimated 2001 gross industry revenue was $13.8 billion

with an operating income of $2.2 billion72. The industry quickly moved ships to new

ports of call “closer to home” and implemented tighter security measures, enabling them

to recover than the other travel sector industries73. They also established formal

69 Hitt, Ireland, Hoskisson, Strategic Management Fifth Edition, Thomson Learning Copyright 2003 pg.6070 Staff, Five-Star Trek: The Next Generation, Weekend Financial Times, March 2003 pgs. 18-2071 International Council of Cruise Lines, http://www.prnewswire.com, Oct. 11, 200272 Ibid.73 Ibid.

43

agreements to share security information with several governmental agencies such as

the DOD, DOJ, DOS, FBI, INS and U.S. Customs in order to give their passengers a

greater feeling of security.

The idea of the all-inclusive vacation is a major selling point for cruises. Cabaret shows

and dancing, spas, and casinos (among others) are available to adults while kids can have

access to video arcades, scavenger huts, tours, sports, movies, and arts and crafts. This is

also another major selling point for cruises, parents can feel at ease and do their own

activities while knowing their children are safe under the supervision of the staff.

However, environmental concerns remain at the top of the industry’s list. According to

Royal Caribbean's 1998 environmental report, a typical cruise ship generates about

25,000 gallons of oily bilge water on a one-week trip74. Further estimates show that,

during one week, a typical ship generates 141 gallons of photo chemicals, seven gallons

of dry cleaning waste, 13 gallons of used paints, five pounds of batteries, 10 pounds of

fluorescent lights, three pounds of medical waste and 108 pounds of expired chemicals75.

Some of this ends up in the ocean. During a one-week voyage, a ship will also generate

about 210,000 gallons of sewage76.

There has been increased Federal focus on cruise ships because of the industry's rapid

growth and its unique threat. Unlike a typical freighter, which might carry a dozen

crewmembers, a large cruise ship typically carries at least 2,000 passengers and 1,000

74 International Council of Cruise Lines, http://www.prnewswire.com, Oct. 11, 200275Ibid.76 International Council of Cruise Lines, http://www.prnewswire.com, Oct. 11, 2002

44

crewmembers, generating as much waste as a small city77. By avoiding proper disposal,

the cruise lines saved hundreds of thousands -- possibly even millions -- of dollars a

year78. Several cruise lines have already been charged with illegal dumping and fined

millions of dollars (Norwegian Cruise for $1 million, Royal Caribbean Cruise for $ 27

million and Carnival Corp. for $ 18 million). Some cruise lines have to refit their ships

with new tamper-proof technology (to prevent dumping in the oceans), and some just

need to be refitted. The high costs of replacing or repairing ships is high and so are the

federal penalties imposed. Cruise prices would be affected by any penalties imposed.

This could be a boom for the ski industry when skiing becomes cheaper than cruises.

Another substitute for the traditional winter ski getaway are resort destinations inside and

outside of the United States. From Hawaiian luaus to African safaris, from Caribbean

getaways to romantic European forays, there are many resort destinations for families

seeking a comprehensive vacation experience. The improvements in technology in the

travel industry and the Internet have made it easier for people to book a flight to any

place in the world no matter what the season. While regional ski market skiers tend to

focus primarily on lift ticket price and round-trip travel time, destination travelers tend to

be heavily influenced by the number of amenities and activities offered as well as the

perceived overall quality of the vacation experience79. These resorts offer services that

rival those of even the best ski resorts. Safaris offer visitors the opportunity to see

animals and their habitats many have only seen in television shows. Caribbean beaches

offer a delightful getaway from bustling cities. (Appendix L)

77 Ibid.78 Ibid.79 Booth Creek 10k www.boothcreek.com

45

Yet with the advent of 9/11, many tourists, especially Americans, have shortened the

distance traveled in favor of more security.80 According to the TIA of America, the total

number of overnight trips at least 50 miles in the U.S. increased 2% in 2001 to 1.018

billion over 2000.81 This could provide a threat to resorts outside the United States and

Canada especially in terms of American visitors. This would be an opportunity for

domestic ski resorts to take advantage of new fears.

The Power of Substitutes is ranked 4 because of the increasing fear of consumers of

traveling longer distances and the possible increase in prices due to legal and

environmental issues. The incurred costs of the cruise lines will affect the price to the

consumers. Airlines are dropping prices however to compete with one another for

passengers. However, as stated, many individuals wish to stay closer to home to avoid

long flights to international and even some domestic destinations.

IV. Power of Suppliers (4)

80 http://online.plunkettresearch.com/trends/81 http://online.plunkettresearch.com/trends/

46

The strength of suppliers within an industry is determined by:82

How critical the supplier goods are to a firm

Whether or not satisfactory products are available

If switching costs are high within the industry

The size and concentration of the suppliers

Whether or not firms are significant customers for the supplier group

The main suppliers of the ski resort industry include companies that specialize in

snowmaking machines, ski and snowboard equipment and ski lifts. A few of the

snowmaking companies include Seymour Snow Company, Backyard Blizzard,

Turbocristal, Snow Machines Incorporated (SMI) and Lenko. Backyard Blizzard supplies

ski resorts around the world with snowmaking capabilities. (Appendix M) Turbocristal is

a Canadian company that began in 1985. This company strives to have the latest

technology and has sold over 1500 snow making machines that can be found in over 15

countries.83 SMI was founded in 1974 and has grown to be a leader in snowmaking

because of its excellent products and availability worldwide.84 Lenko was established in

1955 and delivers more snowmaking machines than any other manufacturer. Since 1983,

Lenko has sold more than 5000 snow guns and is located worldwide.85 There are quite a

few snowmaking machine companies, so these suppliers have more power over the

buyer.

82 Hitt, Ireland, Hoskisson, Strategic Management Fifth Edition, Thomson Learning Copyright 2003 pg.5983 http://www.turbocristal.com/presentationan.html84 http://www.snowmakers.com/index.html85 http://www.lenkosnow.com/

47

The ski equipment suppliers can be broken down into many different facets. These

suppliers include companies such as K2, Atomic, and Leki. Also, snowboarding

companies include Heelside Snowboard Company, Allian Snowboards Inc, and Bond

Snowboards. The bindings are also an important part of ski equipment and some of the

major suppliers include Skyhoy and Linken Bindings.86 Heelside Snowboard Company is

the last core manufacturer who has not been bought out, or subsidized by a non-

snowboarding brand. The manufacture snowboards, bindings, boots, shoes and other

snowboarding goods.

K2 is an American company that has been around for over 40 years. They started in 1962

with the invention of the first fiberglass ski. The company focuses on technology and

innovation and has been successful and well known throughout the ski industry. Heelside

is located in Hood River, Oregon. Allian Snowboards, Inc. is also located in Oregon, and

manufactures snowboards. Bond Snowboard is a multinational company based in the

USA and Canada. Bond prides itself on using the most advanced technology while still

allowing for affordable and reliable end products.87 The binding company Skyhoy is

collaboration between Fritschi Swiss Bindings and Back diamond Equipment in step-in

releasable binding. Linken Binding is a Norwegian manufacturer of a step-in plate

telemark snow ski binding.

Ski resorts are also dependent on ski lift companies to transport their skiers to

mountaintops. Ski lifts and gondolas used to transport skiers and snowboarders to the top

86 http://www.outdoors-411.com/mfg/87 http://www.outdoors-411/com/mfg/

48

of mountains are crucial for the ski resort industry. These lifts shorten the time it takes to

climb up the mountain and allows visitors to ski down multiple times. There are

alternatives to ski lifts and gondolas such as rope pulls and helicopters. However, rope

pulls, which use a conveyer/escalator approach to drag skiers and snowboarders, cannot

go as far up the mountain, nor are they viable solutions for more vertical slopes.

Helicopters are the up and coming method to get skiers to mountaintops that even lifts

and gondolas haven’t reached. Helicopters give the customers the opportunity to go

where not many have gone before and disregard long lines and huge crowds. However,

helicopters are subject to weather conditions as well as high fuel and maintenance costs.

Another problem the ski industry in the U.S. and Canada face are the limited number of

suppliers for ski/chair lifts and gondolas. There are a little more than a dozen companies

making lifts and gondolas in the world (Appendix N). However, many are merging like

such as Poma/Leitner and Doppelmayr/Ctec (has 30% of market share in the United

States).88 Others, such as PHB/Hall are already subsidiaries of the Doppelmayr Group,

making choices even fewer. Doppelmayr is one of two ski lift/gondola manufacturers in

the United States and Canada89.

The power of suppliers is ranked a 4. This is due to the small amount of industry

suppliers. The gondola/ski lift industry is condensing with mergers and acquisitions and

the amount of snow making manufacturers are also under five. Suppliers would have the

ability to charge higher prices for lower quality products since suppliers have dominance

88 http://www.doppelmayrtec.com89 Ibid.

49

over the firm. Since there really is not a cost effective substitute to gondolas/ski lifts the

ski resort industry is required to purchase these items to satisfy the buyer. With the

decrease in precipitation the ski industry is also reliant on the technology of snow making

machines.

V. Power of Buyers (5)

The ski resort industry and other service industries are dependent upon customers;

therefore the power of buyers is ranked a 5. Substitutes of the ski resort industry are

great, including, day ski destinations, golf, cruises and overseas accommodations. The

uncontrollable factor of weather will also be a determining factor in the buyer’s decision

to frequent these places. The overall service industry lives and breathes upon the ever-

important customers decision to use their services. The fluxes in the economy and world

situation greatly fluctuate consumer spending on leisure activities. The travel industry

was slowing down even before the attacks of September 11th, but after September 11th,

travel bookings decreased 60% equal to the level of the Gulf War in 1991.90 To

individuals traveling there is no price that will match their need of a sense of security.

The industry has continuous price wars and competitors are always trying to create a

more unique environment to attract individuals.

The intense competition in the ski industry increases the power of buyers because of the

increased competition for similar markets. A similar product with similar customers will

only gain the advantage by a unique customer service or special amenities that other

90 http://www.hoovers.com/industry/snapshot/profile/

50

competitors do not offer. The intra-strategic group of Intrawest, Vail Resorts, American

Ski Company and Booth Creek, Inc. is highly competitive. With the current economic

situation, the power of buyers is extremely high. The competition in prices among

competitors allows buyers to wait to the last minute to purchase and also look for the best

deal over the Internet. Latest statistics show that 4 in 10 travelers (41%) book their

reservations online.91 With this increasing dependence on Internet reservations

individuals are waiting to the last minute to make reservations because they anticipate

price drops.

Switching costs are low. There is no penalty or loss in “frequent flyer” miles by choosing

one ski resort over another. This makes it easier for skiers to choose their destination

without having to consider costs. This is mostly affected by the price wars and last

minute Internet bookings that are on the rise across the U.S. If individuals have their own

skiing equipment it will also save them the costs of renting equipment making the only

concern the cost of the ski lift passes and lodging.

The power of buyers is ranked a 5. The overwhelming dependence on consumer spending

puts the hospitality industry success or failure in the hands of the consumer. The

traveler’s sense of security was affected by the attacks of September 11th. This event hurt

the airline and travel industry overall. The increased uses of online purchases have also

given the consumer an easier avenue to search competitor options and prices.

91 http://online.plunkettresearch.com/trends/

51

Summary of Five Forces

The direct competitors are ranked a 3. The strength and size of the four top competitors in

the industry is varied in terms of the financial stability and profitability of each company.

Therefore, the competitors are only ranked a 3, though they are all in competition for a

similar market, there is currently one who is the most sound and successful.

The threat of entry is ranked 1. This is due to the high start-up and operating costs as well

as the regulations and permits that need to be acquired to establish operations. Though

money can be raised through different sources there is no guarantee that permits will be

approved. Government regulations dealing with the environment can adversely affect any

reconstructions or expansions made by the firms.

The power of substitutes is ranked a 3. Substitutes to the ski resort industry include

cruises and overseas travel. With increased security concerns many individuals are

staying closer to home so overseas travel is not as significant a threat as it used to be.

Also, the cost of overseas travel is higher than traveling to a resort within the same state.

The other major substitute to the ski resort industry is cruise line operations. Cruises have

been increasing over the years because of the numerous amenities and family type

packages available.

The power of suppliers is ranked a 4 because of the relatively small amount of choices a

firm has for critical products. The chair lift/gondola manufacturing companies are

52

decreasing in number because of acquisitions and mergers. Ski equipment and snow

making machines are also numbered with less than 10 main snow making machine

manufacturers and ski equipment companies. There are also limited suppliers of ski

bindings that are essential to skis and snowboards. This allows suppliers to dictate the

price of a product no matter what the quality.

The power of buyers is ranked a 5. Since ski resorts are for a leisure activity it is not

something that all individuals need to or are able to participate in the buyer has more

power. The fluxes in the economy greatly affect the amount of money people are willing

to spend and the places people are willing to go. The average overall numerical ranking

for the five forces is a 3.4. As discussed above, the power of buyers is the most intense

with a numerical ranking of 5.

The industry average was a little bit different to calculate since the ski resort industry

didn’t have a specific “industry” through SIC or NAICS codes. Based off of the annual

findings for the intra-strategic group of Intrawest, Vail Resorts, Inc., American Ski

Company and Booth Creek Holdings, Inc. (Appendix O) the industry average return on

investment (ROI), the return on equity (ROE) and the industry growth rate for the past 3

years was computed. The estimated industry averages in 2002 include: ROI at 2.42%,

ROE at –20.98%, Profitability at 2.40% and the 3-year growth rate at 8.46%. (Appendix

P) These numbers, namely the negative return on equity (ROE) and the low return on

investment (ROI) would conclude that the industry is unattractive.

53

Driving Forces

Driving forces are elements in the macro or industry environments that are creating a

permanent, structural industry change. For the ski resort industry we have found three

key driving forces. These are the seasonality of the industry, online booking and global

warming.

A driving force in ski resorts is caused by the seasonality of the industry. Many ski

slopes make all their money in three or four months of every year. In order to maintain a

steady income stream, many resorts have built villages at the base of the slopes that cater

to a visitor’s every need. This has led to the increase in family package vacations. The

mountain is becoming not a one-day trip destination for the frequent skier, but a weekend

or weeklong excursion by families and individuals with more disposable income.

A second driving force is the increased usage of online booking. This is allowing for

consumers to wait to later times to purchase vacations, which usually means a lower price

offered by competitors as well as one’s own company. The increase in Internet booking

could mean a slight decrease in money generated for those waiting for last minute deals

to book their family vacation trips.

A third driving force is global warming. The ski resort industry is dependent on snow to

create the atmosphere for guests to enjoy. With the threat of global warming and decrease

in precipitation, the ski resort industry is becoming more dependent on snowmaking

54

machines. Though these machines are helpful when snow is scarce, it will be a huge

operating cost for the industry to continuously operate these machines if Mother Nature

does not cooperate.

Key Success Factors

The key success factors in this industry include outsourcing, geographically diverse

locations and the integration of resort development and resort operation. These three

aspects are what set Intrawest apart from its competitors and makes it the industry leader.

The unique symbiotic relationship that Intrawest has formed between resort development

and resort operations allows them the distinct advantage of capital allocation. Also the

integration between supplier, company and buyer would also help to decrease overhead

costs throughout the industry. By acquiring manufacturers and distributors, expenses

could be lowered while expertise is retained.

By having various resorts in geographically diverse locations companies in the ski resort

industry will be able to reach a larger market. Being located within driving distance of

large metropolitan areas is another draw to a larger market. As illustrated above, there has

been an increase in domestic expenditures while at the same time a decrease in flights.

This indicates that people are traveling via automobiles and being within a driving

distance will increase the probability of visitors.

55

Summary of Industry Analysis

Based on the information obtained through the Five Forces Analysis the ski resort

industry is moderately unattractive. The dominance of the suppliers allows them to

charge high prices for important products. This in turn lowers revenues for companies

because firms cannot raise prices too much or risk alienating customers. Buyers have

great power in this industry because there is many substitutes to skiing like going on a

cruise, golfing, or sightseeing in foreign countries. Barriers to entry do keep out potential

competitors due to the high start-up costs, the difficulty in obtaining permits for use of

federal land, and the dwindling availability of unprotected land for developing resorts.

Analysis of the financial data for the industry averages reaffirms that the industry is

unattractive in general due to high overhead costs and too many variable costs. The

negative ROE, low ROI and small profitability of the four major competitors within the

ski resort industry illustrate the financial unattractiveness of the ski resort industry.

(Appendix P)

56

Firm Analysis

An important tool of a firm analysis is the value chain. The value chain is analyzed to

recognize which parts of the firm are creating value and contributing to the sustainable

competitive advantage. Understanding this issue is important because the firm earns

above-average returns only when the value it creates is greater than the costs incurred to

create that value92. A key action a firm must do is to add as much value to the product or

service while making it as cheap as possible to produce. The value chain is grouped into

two segments: primary activities and support activities. Primary activities deal with the

creation of the product, its sale and distribution and the after-sale service. Support

activities deal with helping the company to provide the primary activities such as Human

Resource Management, Technological Development, Procurement, and the Infrastructure

of the firm93.

Ski and resort operations are highly seasonal. In Fiscal 2002, approximately 67% of the

Company's ski and resort operations revenue was generated during the period from

December to March. Furthermore, during this period a significant portion of ski and

resort operations revenue is generated on certain holidays, particularly Christmas/New

Year, Presidents' Day, school spring breaks, and on weekends. Problems during these

peak periods, such as adverse weather conditions, access route closures and equipment

failures, could have a material adverse effect on the Company's operating results. The

Company's real estate operations tend to be somewhat seasonal as well, with construction

92 Hitt, Michael A., R. Duane Ireland, and Robert E. Hoskisson. “Strategic Management: Competitiveness and Globalization, 5th Edition”. United States: 2003. p. 92-95.93 Ibid.

57

primarily taking place during the summer and the majority of sales being closed in the

December to June period.

Intrawest operates in a capital-intensive industry and has made significant capital

expenditures to establish its competitive position. They spent $107.1 million in fiscal

2002 on acquisitions, resort operations capital improvements and other investments.

Intrawest expects to incur approximately $20 million to $25 million per year in ongoing

maintenance expenditures at its resorts. There can be no assurance that they will have

adequate funds, from internal or external sources, to make all planned or required capital

expenditures. A lack of available funds for such capital expenditures could have a

material adverse effect on their ability to implement operating and growth strategies.

Primary Activities

Primary activities are the “product’s physical creation, its sale and distribution to buyers

and its service after sale”.94 The primary activities include service, marketing and sales,

outbound logistics, operations and inbound logistics. Each activity will be compared to

competitors’ abilities and will be ranked as superior, equivalent or inferior. This

comparison will show how Intrawest is the superior company in the Ski Resort Industry

based on the different activities within its value chain.

94 Hitt, Michael A., R. Duane Ireland, and Robert E. Hoskisson. “Strategic Management: Competitiveness and Globalization, 5th Edition”. United States: 2003. p. 92-95.

58

Inbound Logistics

Inbound logistics includes activities such as materials handling, warehousing, and

inventory control that is used to receive, store and disseminate inputs to a product.95 As

noted on Intrawest financials for the past three years, inventories were at 0% for two of

the three years. In 2001, inventories were only at 1.40% of total assets (Appendix Q). The

intense outsourcing that Intrawest practices decreases the need for warehousing,

inventory and material handling. This trimming of unnecessary costs allows Intrawest to

offer customers the highest quality of goods without manufacturing themselves.

The bulk of Intrawest’s future production-phase development business has been

positioned into two independent partnerships with projects commencing April 2003. The

production-phase development business includes all the activities, which commence with

groundbreaking and conclude with the delivery and sale of the final units. This new

partnership will significantly reduce the capital requirements needed to support 95 Hitt, Michael A., R. Duane Ireland, and Robert E. Hoskisson. “Strategic Management: Competitiveness and Globalization, 5th Edition”. United States: 2003. p. 92-95.

59

Intrawest’s Real Estate business. Intrawest is achieving several objectives with these

partnerships by significantly reducing the capital requirements of its real estate business;

significantly reducing debt levels; and implementing separate and appropriate capital

structures for Intrawest’s resort business and real estate business.

This new project is a dramatic step forward in evolution from a capital-intensive business

to a business model where reputation, expertise and customers are the basis for growth.

This new model will generate significant free cash flow to support growth and create a

more conservative risk profile. Leisura purchases land parcels for projects just prior to

commencement of construction. Intrawest retains control; and the value appreciates on

the rest of the land and its resorts. By placing the production-phase real estate business in

separate and independent companies, Intrawest’s risk and debt is limited.

Procurement includes activities that purchase the items required to produce a firm’s

products. These include raw materials, supplies and fixed assets (machinery, laboratory

equipment, office equipment and buildings).96

Procurement is narrow for Intrawest. Per the financial statements of Intrawest and it’s

three main competitors, there were no R & D expenditures for the past three years

(Appendix Q). This means all production is outsourced to other companies that specialize

in their fields. For instance, the ski equipment from skis to chair lifts are all manufactured

by specializing companies. This is an advantage to Intrawest because it keeps production

96 Hitt, Michael A., R. Duane Ireland, and Robert E. Hoskisson. “Strategic Management: Competitiveness and Globalization, 5th Edition”. United States: 2003. p. 92-95.

60

costs low, however this increases the power of supplier, which makes price fluctuation a

possibility. This dependence on outside companies makes partnerships and relationships

key to the continued success of Intrawest and the ski resort industry.

This inbound logistics strategy has allowed for Intrawest to achieve a superior ranking

because of the below industry percentage for the past three years. Intrawest has less

inventory and costs related to that inventory than any of its three main competitors.

Operations

Operations include the activities necessary to convert inputs provided by inbound

logistics into a final product form.97 As stated above, the majority of Intrawest’s various

operational activities are outsourced.

Intrawest is one of the few companies in the leisure/travel world that participates in all

facets of the vacation experience - travel booking, accommodation and the creation and

management of recreational experiences. The village-based resorts include shops,

restaurants and village activities. This in turn will increase revenue from retail sales,

sports equipment rentals and commercial rental income. Intrawest has a wide array of

stores and amenities including: 11 resorts (majority ownership), six four-season resort

villages, 19 golf courses, 16, 465 lodging units, 28,606 restaurant seats, 171 lifts (54-high

speed), a significant investment in Companie des Alpes, 45% interest in Alpine

97 Hitt, Michael A., R. Duane Ireland, and Robert E. Hoskisson. “Strategic Management: Competitiveness and Globalization, 5th Edition”. United States: 2003. p. 92-95.

61

Helicopters Ltd. and owns Canadian Mountain Holidays (largest helo-operator in the

world).98

Intrawest is also above the industry average when comparing the operating income

generated for the past three years. Both the industry and the Company have slightly

increased for the past three years. Intrawest however has over twice as much operating

revenue than as the industry.

Real estate assembles a network of unique geographically diversified resorts and

capitalizes on the advantages of this network. Intrawest is also partnering up with a real

estate development firm, Leisura, as well as other investors in order to outsource the

development of Intrawest land and development of properties/villages in the area

The gross margin of Intrawest is under the industry average. The industry estimated

average for 2002 was 23.40% whereas Intrawest’s gross profit margin was 19.90%

(Appendix Q). However, the two main competitors who had higher profit margins

operated at a net loss for the past three years. Intrawest’s closest competitor Vail Ski

98 http://www.intrawest.com

62

Resorts, Inc. was operating at comparable gross profit margins for the past three years. In

2002, Intrawest had the best profit margin of the four major competitors.

Based on the gross profit margin alone of Intrawest and its competitors, Intrawest would

be ranked inferior. However, because of the fact that the two competitors who had higher

gross profit margins also operated at net losses for the past three years Intrawest should

be ranked at least equivalent.

Outbound Logistics

Outbound logistics involves the collecting, storing, and physical distribution of the final

product to the customer. The majority of Intrawest’s operations are outsourced and since

it is more of a service industry there is not much storing necessary of the final product.

Therefore outbound logistics play a minimal role in Intrawest’s value chain and expenses

are kept lower because of a reduction in overhead costs.

63

Acquisitions are a large part of Intrawest’s outbound logistics. In 2002 alone, Intrawest

spent $107.1 million on acquisitions.99 These purchases have been to specifically

establish a competitive position through purchasing hills, resorts and increased shares in

companies. This acquisition strategy of Intrawest is the “collecting” characteristic of

outbound logistics.

Illustrated in the graph above are the current ratio, quick ratio, and debt to equity ratio

over a five-year trend. Comparable with the profitability, and the effectiveness and

efficiency of the company, financial strength has been relatively stable over the three and

five-year averages. There has been a decrease however in the quick ratio and an increase

in the debt to equity. This coincides with the fluctuations over the past year and the

expansion costs.

The capability of Intrawest to keep overhead costs low with little need for storing and

with in house distribution through online services such as RezRez, allows Intrawest to

achieve superior standards in outbound logistics.

99 http://www.intrawest.com

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Marketing and Sales

Market research is an important part of the Company’s developmental process. Projects

are modified to the needs of the customers by price range, type (residences), and location

(ski, golf course, woodlands). With this extensive service line, Intrawest is able to

respond to the changes in the market conditions and to maximize the value of each

product.

Intrawest employs its own sales personnel to sell its projects on a commission basis. The

resorts are supported by marketing and sales personnel at the head office and also by

external consultants. Marketing and sales costs for one project is about 4% to 7% of the

total project costs.100 Through real estate marketing, the resort is also exposed to potential

skiers and visitors. The resort concept for ski companies is causing a cycle of effects.

With the ski resort as a weekend destination instead of a day destination more people are

staying longer. Frequent trips to similar areas may entice individuals to move closer

which will make individuals purchase homes in the area. These more frequent trips and

close proximity of regular customers means more revenue for Intrawest. This increased

revenue elevates the ability to increase and improve amenities, which makes the resort

overall more appealing.

100 Intrawest, Annual Information Form. Dated September 9, 2002.

65

Intrawest Resort Ownership Corporation, a wholly owned subsidiary of Intrawest

Corporation101, manages Club Intrawest. With Club Intrawest's Resort Point system, a

customer can enjoy the ultimate flexibility of daily scheduling. He/she is never locked

into a specific week or length of stay at a specific resort. Club Intrawest Membership fits

their lifestyle. Club Intrawest operates Club locations in Vancouver, Whistler &

Panorama, BC; Tremblant, PQ; Palm Desert, California; Kauai, in the Hawaiian Islands;

and Sandestin, Florida; and is planning Club locations in Blue Mountain, Ontario and

Zihuatenejo, Mexico. Their mission is to provide an extraordinary vacation experience

and to ensure the highest level of customer satisfaction by delivering unparallel

accommodations, and flexibility to meet the member’s changing needs.

The marketing and sales aspect of primary activities is ranked superior. Intrawest is the

leader in the industry with its own online services for returning or potential customers to

utilize. With the increasing trend in online booking, the ability for customers to utilize

this through Intrawest gives them a competitive advantage.

101 http://www.clubintrawest.com/aboutus

66

The total expenses for Intrawest have increased over the past three years, however it has

been consistently below the industry average. Though Intrawest offers superior service,

has an outstanding marketing and sales department; the overhead costs are kept at a

minimum to maximize profits and shareholder wealth.

Service

Services are the activities designed to enhance or maintain a product’s value.102 The ski

resort industry is mainly a service to the customers; it gives them a location to ski plus

many different amenities. There are not specifically warranties on the visit, Intrawest

cannot guarantee that an individual will have a good time, however they can try to

provide the best service and capabilities to the upscale customer.

The strength of the service sector of Intrawest is that they are strategically located across

North America. They have resorts that are geographically diversified and accessible by

car or a short plane ride from major population centers. A weakness is that they produce a

limited amount of home production due to weather conditions.

A great service that is an increasing trend in the United States population is online

booking. Online booking has allowed guests to design their own packages and see up

102 Hitt, Michael A., R. Duane Ireland, and Robert E. Hoskisson. “Strategic Management: Competitiveness and Globalization, 5th Edition”. United States: 2003. p. 92-95.

67

front the destination of their choice without leaving their homes. RezRez online (a

subsidiary) provides this service directly for Intrawest customers.

The service aspect of Intrawest would be ranked superior because of the strategic location

from coast to coast in Canada, the United States and also in some areas of France. The

overall revenue generated by Intrawest has been substantially higher than it’s closest

competitor, Vail Ski Resorts, Inc for the past three years by at least $300 million each

year. (Appendix P)

Support Activities

The support activities within Intrawest provide the necessary support for the primary

activities to occur. Support activities include firm infrastructure, human resource

management, and technological development.

Firm Infrastructure

The main activities under firm infrastructure include general management, planning,

finance, accounting, legal support and governmental relations required to support the

value chain. Through infrastructure, a firm strives to effectively and regularly identify

external threats and opportunities; resources and capabilities; and support core

competencies.103

103 Hitt, Michael A., R. Duane Ireland, and Robert E. Hoskisson. “Strategic Management: Competitiveness and Globalization, 5th Edition”. United States: 2003. p. 92-95.

68

Joe S. Houssian is the Chairman, President and Chief Executive Officer of Intrawest.

Houssian has a MBA from the University of British Columbia. Houssian is accredited for

developing Intrawest from a Vancouver-based real estate development company to a

successful urban realty estate company in the Pacific Northwest and Western Canada.

Daniel O. Jarvis is the Executive Vice President and the Chief Financial Officer of

Intrawest. Jarvis has a MBA from Harvard and a BA (Honours Economic) from Queen’s

University.104

The success of Intrawest depends in part on its senior management. The unanticipated

departure of any key member of the Company’s management team could have a material

adverse affect on the Company’s financial condition and result of overall operations.

The firm profitability has been successful over the long-term period for Intrawest.

For the past three years, Intrawest’s profitability rate has exceeded both the industry-

estimated averages as well as all competitors’ rates (Appendix R). This illustrates the

superior structure under which Intrawest is operating. As the graph illustrates above,

104 http://www.intrawest.com

69

Intrawest has been operating at relatively consistent net profit margin and gross profit

margin for the past 5 years. There has been a slight decrease over the past 12 months,

however that could be attributed to the unsteady economy and war with Iraq.

Human Resource Management

Human Resource Management consists of recruiting, training, developing and

compensating all personnel.105 During peak operating season, the number of company

employees totals about 20,000. The weakness of the labor force is that it is mostly

seasonal. There are only a few permanent employees, about 6000. The key change that

could affect Intrawest’s human resource management is the expansion to four season

resorts. This will increase the amount of full time personnel necessary to assist with daily

operations. A main objective of Intrawest is to establish an employee team, which thrives

in a positive working environment.

Employment expenses are kept low at Intrawest, the SG & A expenses for 2002

accounted for only 1.24% of total revenues (Appendix Q). By outsourcing major

operations to suppliers, Intrawest is able to keep employ as well as R & D expenses low.

This allows for Intrawest to focus on putting capital into improvements and maintenance.

105 Hitt, Michael A., R. Duane Ireland, and Robert E. Hoskisson. “Strategic Management: Competitiveness and Globalization, 5th Edition”. United States: 2003. p. 92-95.

70

As the graph above shows, for the past five years Intrawest has been pretty consistent

with the net income to employee ratio. However, the revenue to employee has been

decreasing substantially over the past 5 years. This could be due to the continuous

expansion that Intrawest is undergoing and the increased need for more employees. The

addition of more four-season resorts is increasing the need for permanent employees

versus seasonal employees, which is affecting the revenue to employee ratio.

Technological Development

Technological development includes activities that are geared to improve a firm’s

product and its manufacturing process. Technological developments can include process

equipment, basic research and product design and even servicing procedures.106 The

majority of Intrawests operations are outsourced which explains the lack of R & D

expenditures.

Over the past two years a new project has been underway with development commencing

April 2003. This future of Intrawest is a production-phase development with two 106 Hitt, Michael A., R. Duane Ireland, and Robert E. Hoskisson. “Strategic Management: Competitiveness and Globalization, 5th Edition”. United States: 2003. p. 92-95.

71

independent partnerships. The production-phase development includes all the activities

from groundbreaking to delivery and sale of the final units of the project. This type of

partnership would significantly reduce the capital requirements needed to support

Intrawest’s real estate business. While reducing debt, it would also limit Intrawest’s

exposure to the risks of the production-phase real estate business.107

Intrawest is the leading village-based resort company in the United States and Canada in

terms of revenue. The Company’s main strength is that lower cost and risk will improve

the products (homes) and services (resorts) with more capital. The weakness however, is

the power of the suppliers. Since there are limited suppliers, prices could be raised and

cause Intrawest to raise prices for customers and possibly reduce the Company’s overall

revenue generated.

Strategic Competitive Advantage

Resources, Capabilities and Core Competencies are characteristics that make up the

foundation of competitive advantage. The three characteristics are all interlinked.

Resources are the source of a firm’s capabilities, and capabilities in turn are the source of

a firm’s core competencies, which are the basis of a competitive advantage.108

Resources

107 Intrawest, Annual Information Form. Dated September 9, 2002.108 Hitt, Michael A., R. Duane Ireland, and Robert E. Hoskisson. “Strategic Management: Competitiveness and Globalization, 5th Edition”. United States: 2003. p. 81.

72

Resources are inputs into the production process, such as capital equipment, employee

skills, finances and talented managers. There are two main types of resources, tangible

and intangible. The tangible resources are financial, organizational, physical and

technological. The intangible resources include human resources, innovation resources

and reputational resources.

A key tangible resource for Intrawest is cash. Intrawest is in a capital-intensive industry,

so it is important for Intrawest to continue to grow and have capital to last through the

“off season”. The amount of cash reported in the 2002 financial statement for Intrawest

was 76.7 million dollars.109 This amount is above the industry average by about 40

million dollars (Appendix Q). This vast difference illustrates the Company’s financial

strength.

As discussed above in operations, the majority of services that Intrawest provides are

outsourced to other companies. These companies utilize their industries skills to make

Intrawest number one in the ski resort industry. Intrawest is broken into two main

segments, resort development and resort operations. Due to the outsourcing there are

many partnerships and various companies involved to get a mountain up and running.

The physical aspects of Intrawest include the sophistication and location of the firm.

Intrawest offers top of the line lifts and even a more extreme and rare accommodation of

helicopter lifts to untaken paths. Located from coast to coast in the United States and

Canada, the majority of Intrawest resorts are within driving distance of metropolitan

109 Http://www.hooversonline.com

73

areas. The location across most of North America allows for easier access to necessary

raw materials for resort development. The key aspect to Intrawest is that they own the

mountain and the surrounding area so it can be utilized and transformed to meet the needs

of the resorts.

The technological aspect of tangible resources is also a part of the outsourced

partnerships. The technology would be a part of the ski lift companies, the ski equipment

manufacturers, the snow making machines, and the constructors of the resort. Intrawest

itself does not own trademarks or patents for these aspects of the resorts.

Intangible resources include human resources, which encompasses knowledge, trust,

managerial capabilities and reputation. Because of the diversity of Intrawest into resort

development as well as operation, there is vast company knowledge in real estate

business. The Company has extensive experience in the integration of development and

operations.

Intrawest has formed a good reputation with customers through built trust. The good

reputation with customers is due to the high quality that Intrawest provides. There are no

chain stores or restaurants at an Intrawest resort; they are usually trendy and privately

owned.

Though not all current or potential visitors know the name Intrawest, they know

Mammoth and Tremblant. Another key aspect to the success of the company is the

74

continued relationship with suppliers. The relationship between supplier and the

Company is a mutually beneficial interaction and relationship, which both sides focus on

maintaining a healthy relationship.

Capabilities

Capabilities are the company’s ability to utilize resources that have been purposely used

to achieve a desired result. Functional capabilities include distribution and human

resources.

The distribution of Intrawest is through reservations and marketing via RezRez online.

Online booking is an increasing trend in the American culture positively affects the

overall revenues of hospitality services. Another source of distribution for Intrawest is

Club Intrawest. It is comparable to time share program which moves customers around

resorts that are located all over Canada and the United States.

The retention of employees varies due to the varied seasonal peaks in attendance.

However, a positive change in Intrawest resorts is the conversion to 4 season resorts,

which will make employment more stable and increase retention of seasonal employees.

The distribution ties into the marketing because of the combined marketing and sales

through RezRez and Club Intrawest. Both are offered online and offline for customer

ease and increased availability. The customer service offered at Intrawest can also act as

75

marketing to encourage repeat customers. Online help and reservation is available to

increase customer ease. Because Intrawest is an upscale resort and owns the entire

mountain everything that is needed can be found in the village or hotel. This allows the

customer to stay on the mountain and generates more revenue for the Company.

Management’s key responsibility would be to envision the future of the ski resort

industry and Intrawest. The idea of a village-based resort has set a new standard for the

ski industry overall. Also, the conversion to 4 season resorts will increase revenue flow

over an annual period versus just a quarterly peak season. This will allow more expansion

and increased amenities to customers.

Outsourcing to suppliers allows the Company to keep research and development costs

low. This allows for the suppliers to focus on their specialties and incorporate the best of

different things into one company without stretching that company too thin. This allows

for a rapid developmental transformation.

Core Competencies

Core competencies distinguish a company competitively and reflect its personality. These

core competencies are utilized to form a competitive advantage over a firm’s rivals.

Intrawest has defined its core competency by its ability to integrate resort development

and resort operation under one company. Even though they are planning to outsource to

76

reduce costs and liabilities, the knowledge acquired in this area allows them to have more

control over the building and development of the village and connected accommodations.

The widespread locations found throughout the United States and Canada has put

Intrawest at the top of the ski resort industry. The extensive capabilities in all facets of

hospitality have allowed Intrawest to keep tight control over the operations of the resorts.

Through RezRez and Club Intrawest, the Company has been able to centralize

reservations, travel and accommodations on a case-by-case basis.

Sustainable Competitive Advantage

Sustainable competitive advantages (SCA) are competitive advantages (CA) that are

strategic capabilities. SCA are CA that follows four criteria, valuable, rare, costly to

imitate and nonsubstitutable capabilities110. The three main sustainable competitive

advantages of Intrawest include:

1. Ability to integrate resort development and operations

2. Widespread resort locations for easier access

3. Capabilities in all facets of hospitality

Ability to Integrate Resort Development and Operations

110 Hitt, Michael A., R. Duane Ireland, and Robert E. Hoskisson. “Strategic Management: Competitiveness and Globalization, 5th Edition”. United States: 2003. p. 88.

77

The ability to integrate resort development and operations is a valuable advantage. This

allows the Company to be able to exploit their knowledge in order to have more control

of the building in the area. Therefore, there is no need for outside assistance. Outsourcing

however has become a part of operations, which will allow for cheaper costs. Most

outsourcing is done through partnerships so the Company will still be able to maintain a

high level of control.

Because of the Company’s vast knowledge on both development and operations this

competitive advantage is rare from other companies. Other competitor’s don’t have such

a background or are already outsourcing the development. Therefore there may be less

control on the site.

This type of experience and advantage would be costly to imitate. It takes time to get the

type of experience that Intrawest has. Competitors would have to purchase another

company or establish a partnership while still retaining control. The strategic equivalent

to this advantage would be to purchase another company or establish a partnership as

listed above. But also as discussed, this would be timely and costly for competing

companies to attain the level of Intrawest’s experience.

Widespread Resort Locations for easier access

This competitive advantage is also valuable for it allows Intrawest to have greater access

to current and potential customers. This is rare to Intrawest as well for it is the only

78

company that is located in all five regions, west, southwest, southeast, northeast and

international. Most other competitors are only located in the United States which limits

their clientele base as well as revenues.111

The widespread location of Intrawest is costly to imitate for competitors. It requires

purchasing the mountains or sites for resorts, which is a very capital-intensive task.

Development is also expensive in allotting funds for the various amenities that upscale

customers would like to enjoy in an all inclusive resort setting. Competing companies

could diversify into international markets as well as buy key mountain locations to

combat Intrawest’s strategy. However, a company would have to have a good financial

source to pay for such an extensive expansion to compete with Intrawest.

Capabilities in all Facets of Hospitality

Intrawest is capable of serve customers through online as well as offline service. RezRez

is an online reservation service that customers can utilize from the comfort of their own

homes. Club Intrawest assists customers in their travel by offering different locations to

visit. Onsite hospitality would be at the actual resort itself, with friendly customer

service.

This is a unique and valuable service that Intrawest provides its customer. This process

reduces the need for middlemen by allowing the customer to make the arrangements and

decisions for themselves via the Internet. The extensive options that Intrawest provides a

111 http://www.hooversonline.com

79

customer gives the feel of a “well-rounded” or “full-package” deal. Intrawest options

allow individuals to meet their needs at one location instead of many. This is a rare

commodity of Intrawest for no other ski resort competitor has the same amount of

resources as Intrawest does.

This type of operational set-up would be costly for competitors to compete. The initial

outsourcing will reduce revenues by the need to purchase companies. This purchase

would be capital and time intensive. The transition to integrate the new process to the

firm’s capabilities would be costly for competing companies. For each strategy there is a

substitutable capability but competing companies might not be able to take the risk. For

companies that are already established it may not be beneficial to change the strategy to

become like the leader in the industry. If a company changes it focus it may lose it’s

identity and have a worse situation than initially.

Firm Analysis Summary

Intrawest has proven through its financial superiority against its competitors that it is the

number one company in the Ski Resort Industry. The strength in cash, revenue, and net

profits for the past three years has allowed Intrawest to grow and surpass its competitors.

In most cases, Intrawest is superior of the industry averages that allow for Intrawest to be

the most profitable company within the industry.

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Intrawests strength is most pronounced in service, marketing and sales and operations.

The key core competencies of Intrawest include the village-based resorts, close proximity

to metropolitan areas, outsourcing and continuous innovation. These core competencies

have allowed Intrawest to become and maintain leadership in the ski resort industry.

The sustainable competitive advantage that has made Intrawest the industry leader

includes: the ability to integrate resort development and operations, widespread resort

locations for easier access, and capabilities in all facets of hospitality. These three things

have set Intrawest apart from its main competitors and have caused the Company to be

the leader in revenues, number of locations and positive financial strength.

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Corporate and Business-Level Strategy Analysis

According to Ronald Coase (Chicago), and Cynthia Montgomery (Harvard), corporate

strategy deals with the “boundaries of the firm” which has been conceptualizes as vertical

(up and down the system) and horizontal (into adjacent industries) change or growth.112

Intrawest is diversified into two main segments, resort development and resort operation.

Diversified companies have two levels of strategy: corporate (company wide) and

business (competitive). Each company must analyze which strategy will best suite them.

In corporate-level strategy there are two key questions that are asked; first what

businesses should the company be in and second how the corporate office should manage

the group of businesses.113 In the business-level strategy companies must focus on

competing in individual product markets.

Michael Porter emphasizes the importance of each company having a clear strategy on

both levels in order to attain a competitive advantage within the industry. Intrawest has

done this by outsourcing, constant innovation and a clear business-level strategy of

focused differentiation. This business-level strategy focuses on offering high quality

service and products to a unique and distinct niche. Intrawest is known for it’s great

service and geographically diverse locations. These village-based resorts are geared

toward upscale customers with disposable income. The adaptation to make resorts year

round and also the new additions of helicopter drops has allowed Intrawest to keep

112 http://www.coase.org113 Hitt, Michael A, R. Duane, Ireland, and Robert R. Hoskisson. “Strategic Management: Competitiveness and Globalization (Concepts) 5e”. United States: South-Western, 2003.

82

customers satisfied with the newest and best technologies. The continuous innovation and

adaptation allows for Intrawest to remain number one in the ski resort industry.

Corporate-Level Strategy

The corporate-level strategy focuses on actions that need to be taken by the firm to gain a

competitive advantage through selecting and managing a group of different businesses

competing in several industries and product markets. The corporate-level strategy for

Intrawest can be considered a moderate to high level of diversification. Intrawest could

further be considered a related constrained diversification because less than 70% of

revenues come from the dominant business and the two main businesses share product,

technological and distribution linkages.114 Currently Intrawest is divided into two main

segments, resort development and resort operation. These two segments both generate

near equal percentages of revenue for Intrawest. In 2002, revenues from ski/resort

operations accounted for 49.2% where revenues from the real estate division accounted

for 49.7%.115 The resort development and operation aspects of Intrawest are undeniably

interlinked.

The main segment that has been focused on in this analysis has been resort operations.

Under resort operations, Intrawest is involved in five major businesses. These include

Club Intrawest, Playground, Intrawest Golf, RezRez and Storied Places. Club Intrawest is

similar to time share in that it is a points-based vacation ownership concept. There are

114 Hitt, Michael A, R. Duane, Ireland, and Robert R. Hoskisson. “Strategic Management: Competitiveness and Globalization (Concepts) 5e”. United States: South-Western, 2003.115 http://www.intrawest.com

83

seven locations that offer five-star accommodations for over 12,000 members.

Playground is the marketing and selling resort real estate avenue for Intrawest and others.

The focus in Playground is on the expertise of the company to minimize the capital

investment while producing significant returns. Intrawest Golf is successfully leveraging

its branded business system to establish itself as a new leader in golf management.

Intrawest Golf has the advantage of accessing millions of customer relations established

over the past 15 years. Resort Reservations Network (RezRez) has envisioned becoming

the leading travel solution to the world’s top destinations. It is an integrated call center

that offers online travel planning and booking services with quality service. Storied

Places is a new Intrawest Company that was established to develop and operate private

communities around the world. These private communities will be high-end homes where

the benefits of private residence are combined with personalized five-star service.

Intrawest is also involved in multiple facets of the travel/leisure industry. Intrawest offers

travel booking, accommodation and the creation and management of recreational

experiences. Intrawest offers a wide array of amenities including resorts, four-season

resort villages, golf courses, lodging units, restaurants, lifts and a significant investment

in Alpine Helicopters Ltd.

Intrawest is currently horizontally, geographically diversified and vertically integrated.

The extensive link between Intrawest, its suppliers and the customer illustrates their

integration. The process begins with Intrawest purchasing the mountain; they then

84

develop and operate the resort. This process keeps Intrawest in control of the quality and

organizational structure of the final product.

Vertical integration is when a company produces its own inputs (backward integration) or

owns its own source of distribution of outputs (forward integration)116. This vertical

integration in Intrawest is as a real estate developer (backward integration) and also that

they offer the end product to its consumers through resort operation and RezRez online

services (forward integration). Though vertical integration can provide the Company

many benefits, it also has its limits. Vertical integration may be expensive, reduce

profitability relative to competitors, reduce the company’s flexibility and with fluctuating

demand there could be a capacity balance and coordination problem.

Horizontal diversification is partnering with companies that are in the same industry or

business that the Company is in. Intrawests investment in a French ski company,

Champaigne de Alpes (45%), as well as Alpine Helicopter Ltd.117 is an example of their

horizontal diversification. Intrawest has also continuously expanded through acquisitions

and mergers with other ski related companies. For example, in December of 2002

Intrawest struck a deal with the City and County of Denver to assume control of Winter

Park Resorts’ operations and take over the development of the Colorado resort.118 The

Company continuously seeks such opportunities to expand its business. A main hindrance

of horizontal diversification may be spreading capital too thin. With an increase in

116 Hitt, Michael A, R. Duane, Ireland, and Robert R. Hoskisson. “Strategic Management: Competitiveness and Globalization (Concepts) 5e”. United States: South-Western, 2003.117 http://www.intrawest.com118 http://www.intrawest.com

85

business types and practices, the focused strategy once practiced could become hazy and

cause the company to lose their competitive advantage.

International diversification is when companies diversify out of their home base.

Intrawest is a Canadian company that has expanded into the United States market as well

as the European market. Intrawest has diversified into the International market with a

cross-border merger with Champaigne de Alpes. This strategic international alliance

allows Intrawest to overcome entry barriers into the European market and acquire a

presence in the market. Europe is an ideal market to enter because of the extensive ski

market that offers opportunities to become further internationally diversified.

There are four main benefits that can be obtained from an international strategy which

include; increased market size; greater returns on major capital investments or on

investments in new products and processes; greater economies of scale, scope or

learning; and a competitive advantage through location.119 Some of the disadvantages of

international diversification include the pressure that may be received to respond to local,

national or regional customs. The major risks with an international strategy fall under two

categories, economic and political risks. Some specific examples include: local repair and

service capabilities; employment contracts and labor forces; and transportation costs may

differ and negatively affect the value chain.

119 Hitt, Michael A, R. Duane, Ireland, and Robert R. Hoskisson. “Strategic Management: Competitiveness and Globalization (Concepts) 5e”. United States: South-Western, 2003.

86

Over the past three years Intrawest has had above industry average return on investment

(ROI) returns (Appendix R). ROI dipped slightly in 2001 with the affects of September

11th felt during the busiest season of the year, Christmas time, however the drop was

only .2% in which it increased by .06% in 2002. Overall the change was minimal and

ROI has remained relatively constant over the past three years.

2002 2001 2000

Intrawest – ROI 7.56% 7.50% 7.70%

Industry – ROI 2.42% -6.56% 0.74%

Illustrated in the graph and table above are Intrawest’s superior ROI performance over

the industry average. In terms of industry statistics Intrawest leads the ski/resort industry

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in all aspects. Return on equity (ROE), return on investment (ROI), profitability, and

growth rate all surpass the industry average as well as the majority of its competitors.

(Appendix R).

Two other key financial factors that illustrate Intrawest’s success are the high revenues

and cash on hand in comparison to their competitors. (Appendix Q) Intrawest has proven

to be an industry leader with more geographically diversified locations, higher quality

and better overall financial performance.

Intrawest could expand its corporate strategy by further diversifying internationally. The

European ski resort market is an enormous profit generating opportunity. Through

acquisitions, mergers and strategic alliances, Intrawest could increase operations and

overall revenue.

Business-Level Strategy

Business-level strategy focuses on the business or product market and is tightly integrated

with functional strategies representing what the firm does within its value chain.

According to Michael Porter there are four main business-level strategies to achieve this

competitive advantage. First is cost leadership. Cost leadership focuses on providing low

costs to a broad market. Second, focused low cost provides low costs to a target market.

Third, differentiation focuses on a broad market, but offers a different product from

competitors. Fourth is focused differentiation. Focused differentiation provides high

88

quality and cost goods to a specific niche. Intrawest’s business-level strategy is focused

differentiation. The village-based resorts offer high quality facilities and service to

customers.

Some of the key issues Intrawest most focus on while utilizing a focused differentiation

strategy include: to create value that justifies a premium price, communicated

differentiation, be a moving target, focus on target segment and optimize the value chain,

find a segment with greater needs, and to stay focused. In order to sustain a competitive

advantage and earn above-average returns with a focus strategy, firms must be able to

complete carious primary and support activities in a competitively superior manner.

Intrawests business-level strategy has been successful because of three key elements in

recent years. These include; diversification and accessibility, competitive strength, and

customer brand loyalty and diversity.

Intrawest core competencies have included deep knowledge of location and capital

allocation. The strategic locations that Intrawest has across the United States allows for

Intrawest to have an advantage over its competitors. (Appendix S) Intrawest has

assembled a network of unique geographically diversified resorts and capitalized on the

advantages of this network. Intrawest strategically choose resorts that were accessible by

car from major population centers. After September 11th this strategy become an even

greater asset with about 85% of visits coming to the resorts by car.120

120 Intrawest 2002 Annual Report, p. 3

89

A second competitive strength for Intrawest is their unique trademark of the village-

centered resort. Their main hope is to capitalize on their reputation and expertise to build

new business with limited capital investment. By outsourcing the production-phase real

estate business, Intrawest is achieving several objectives: significantly reducing the

capital requirements of its real estate business; reducing debt levels; and implementing

separate and appropriate capital structures for Intrawest’s resort and real estate business.

The expansion of villages at the resorts will drive both of the Company’s core businesses,

resort operations and real estate, in future years.

The third element of the business strategy is the loyalty and commitment to the guests. It

is common for customers of the mountain resort industry to demonstrate remarkable

brand loyalty and Intrawest has focused on this trend to ensure customer satisfaction

hence repeat customers. Intrawest has been trying to create an increasingly broad range of

activities and amenities to draw customers back. This loyalty strategy is not merely

confined to one demographic segment either; village-based resorts are as appealing to

singles and couples in the 20s, or with empty nesters in the 50s, as they are with families

and students. This appeal to all demographics allows Intrawest to fill their resorts

throughout the winter or summer seasons and not just on weekends and holidays.121 The

main advantage that Intrawest can have to sustain their competitive advantage is to not

fight the demographic waves, but to ride them. An example of this is the restructuring of

the village-based resorts to become four season resorts. This opens the amenities offered

to individuals in resort areas who wish to play golf. This repositioning and extension of

services offered allows individuals to meet the customer’s needs while considering the

121 Intrawest 2002 Annual Report, p. 4

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needs of business economics. Intrawest’s strategy to challenge the status quo is the very

structure in which they have achieved their competitive advantage.

Intrawest’s profitability for 2002, has decreased in comparison to the previous two years,

however with the shaky economy of 2001 many individuals were spending less money on

luxury items. Overall, Intrawest’s financial status is above and beyond the industry

average (Appendix R). Intrawest’s ROI and profitability remained relatively comparable

to the past two years, however the ROE decreased by nearly 2%. This jump is far more

substantial than the changes in the ROI and profitability. This difference could be due to

the nearly $2 million decrease in net income while the total equity increased by nearly

3% from 2001. (Appendix Q) The drop in net income is substantial, but overall the

company is sound. The net income has been at a pretty constant percent of about 6% for

the past three years while the amount of liabilities has been decreasing122. (Appendix Q)

This allows for the company to make about the same amount of money while owing less

money. This proves to be a sound business strategy because Intrawest is growing in the

market and retaining its position as number one in the market.

122 http://www.hooversonline.com

91

The only weakness that was found in the value chain was in operations. The gross profit

margin for Intrawest was below the industry average. Operations were the only portion of

the value chain that was ranked as equivalent, all other aspects were considered superior.

However, due to the profitability of Intrawest over its competitors we believe that the

value chain is at an optimal level for this company.

Corporate and Business-Level Strategy Recommendations

Corporate-Level Recommendations

The main corporate-level strategy recommendation for Intrawest is further international

diversification. Intrawest is already extensively vertically integrated with development

and operation of the mountain purchased. Also, the majority of outsourcing to suppliers is

covering Intrawest’s interests to offer customers the best product and service by choosing

the companies that are the best at what they do (i.e. the snowmaking machine companies,

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ski lifts, etc.). This superior knowledge and technological expertise allows Intrawest to

keep overhead costs low while offering superior service and products to customers.

By further diversifying internationally Intrawest will be able to expand their market share

and exposure to the potential market in foreign countries. Intrawest has already been

successful by expanding business from Canada to the United States and a small

expansion into Europe. Further expansion Internationally will expose the company to

new opportunities and possibly even new technologies.

Average Rates in U.S. DollarsOne Day Lift

Ticket Six Day PassSki Rental Per

WeekSki School One

day

Austria 32 150 60-80 46

France 34 157 93-201 36

Germany 32 120 60-114 30

Italy 30 137 80-120

Norway 20 81 50

Switzerland 30 170 120 40

Illustrated in the table above are the average prices of ski expenses in Europe. The prices

for skiing in Europe are far more competitive than in the U.S. Prices are said to be 50% -

60% lower to ski one day in the Alpes than one day in the Rockies.123 Considering these

prices are a reflection of the operating costs, Intrawest could make substantial profits by

expanding further into the European ski market.

123 http://www.bluebookski.com/bluebook8/Bluebook.htm

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Business-Level Recommendations

The main recommendation for the business-level strategy is continuous adaptation to the

market. With the increase in population over 65 years of age and the most physically

active segment of population between ages 18 and 55, there will be a decrease in the

target market for ski resorts. However, the increased consciousness of health conditions is

a trend that is increasing the utilization of the various amenities that Intrawest offers. The

locations around the United States and Canada is also allowing for Intrawest to reach a

large market. However, Intrawest is mostly located on the east and west coast and there

are other opportunities in between that could be explored. Some examples include cross

country trails and snow-mobiling parks in areas that are not as mountainous.

In a customer satisfaction geared industry, as the ski resort industry is, it is imperative to

focus on satisfying the customers’ needs. Intrawest has an advantage over its

competitor’s in that the majority of it’s production is outsourced and technology based

advances will be done from company to company. The outsourced advances with allow

Intrawest to maintain low to no R & D costs while still offering their customers the best

services and products.

The continued adaptation to the market through addition of helicopters and expansion to

four season resorts allows Intrawest to meet and exceed the customers’ needs in the ski

resort industry. This adaptation will allow Intrawest to remain the ski resort industry

leader.

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Intrawest in Review

After 15 years, Intrawest has grown from a Canadian real estate development firm to an

international ski resort leader. The company has become the industry leader based on its

superior performance within its value chain and it’s continuous innovation and adaptation

to changing demographics.

There are many threats and opportunities within each industry, and the ski resort industry

is no exception. The main opportunities include snowmaking machines, the increase in

physical activity throughout the United States, and the projected increase in GDP over the

next 5 years while the unemployment rate is expected to decrease simultaneously. Some

of the main threats include environmental regulations and policies, and possible increased

operating costs due to the dependence on snowmaking machines because of global

warming.

The firm analysis focused on the strengths and weaknesses throughout the value chain.

Based on the superior financial performance of Intrawest over its three main competitors

and the industry average, Intrawest was ranked superior in nearly all segments of the

value chain. The only segment that was ranked equivalent was operations based on the

discrepancies in the gross profit margin versus the industry. Though Intrawests gross

profit margin was below the industry average, operations was still ranked at least

equivalent because of the superior performance in net income for the past three years

over competitors.

95

Analyzing the corporate and business-level strategies brought about only a few

suggestions. Under the corporate-level strategy, with the extensive horizontal

diversification and vertical integration, the only suggestion was for further international

diversification. The main reason behind this was that the European ski market is a vast

market relatively unexplored by Intrawest. There is only one strategic alliance with

France that is merely a 45% share. By forming further strategic alliances, Intrawest can

avoid unnecessary risks while still increasing their market.

The business-level strategy suggestion was simply to continue riding the demographic

waves. With the increase in people over 65 years of age, there will be a decrease in the

number of skiers. By expanding resorts to incorporate four season amenities, there will be

activities for all to enjoy and take part in. Offering the customers the best service and

facilities available will create a unique experience that customers will return for.

Whether Intrawest diversifies further into the international market or not they are still

likely to remain the industry leader for the next 5 to 10 years. Intrawest is a financially

strong company with geographically diverse locations. These two things are allowing

Intrawest to continue expanding while keeping costs low and revenues above average. I

believe that Intrawest will continue to meet the needs of the customer and offer service

superior to competitors; hence, sustaining their competitive advantage.

96

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100