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Swiss Winter Sports Resorts and Mountain Railways Are Hoping for a Lot of Snow

Swiss winter sports resorts are struggling with the strong franc, climate change and the competition. Although the economic conditions are clearly brightening at the moment, long-term challenges remain.

While winter sports were once considered to be the pearl of Swiss tourism, today they are its problem child. The number of skier days – a measurement unit of the frequency of winter sports enthusiasts in the ski resorts – fell by 26% between the winter season of 2007/08 and that of 2016/17 (see illustration below). Although the downward trend was temporarily halted in the last season and revenues stagnated thanks to increased prices, in view of the dramatic long-term decline this stabilization was far from sufficient for bringing about a marked improvement in the financial health of the mountain railways.

Not even half the companies generated sufficient earnings in the last few winter seasons to be able to fund the infrastructure themselves over the long term. There have therefore been increased reports recently of mountain railway refurbishments that in most cases were partially financed by local businesses, the public sector or patrons. The courageous intervention of these players comes as little surprise as in most traditional ski resorts tourism is an indispensable economic factor. Without the railways, tourism would lack an important existential basis, and without tourism the valleys would die out.

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Alpine areas strongly dependent on tourism

Share of FTEs in the hotel, sports services and mountain railways sectors in overall employment of tourism municipalities in Alpine areas, 2015
Source: Swiss Federal Statistical Office, Credit Suisse, Geostat

Strong Swiss Franc Once Again the Main Culprit

One of the main culprits for this misery is the EUR/CHF exchange rate: In a market that is in any case stagnating internationally, the repeated franc appreciations of the past few years came at an extremely inopportune time. Between 2008 and 2017 the number of overnight stays by guests from European skier countries fell by around half at the tourist destinations of Graubünden, Valais and the Bernese Oberland.

While the number of overnight stays by Swiss guests remained stable, on closer inspection this does not reflect any track record to speak of, as the number of Swiss overnight stays over the same period in Tirol and Vorarlberg rose by 50%. Swiss winter sports resorts therefore clearly lost market shares also among native guests due to the strong franc.

strong-franc-is-affecting-mountain-railways

Strong franc hit the sector badly

Winter season overnight stays and exchange rates, skier days; index, winter season 2008/2009 = 100
Source: Swiss Cableways, Swiss Federal Statistical Office, SNB, Statistics Austria, Credit Suisse

Climate Change Taking Its Toll

On top of this there is the challenge posed by climate change. There has hardly been any natural snow lying in the ski resorts over Christmas in the last three years. Up to a certain degree this is due to bad luck with the weather. It is therefore quite possible that the coming winters will offer somewhat better weather conditions again. However, a recent simulation study by the Federal Institute for Snow and Avalanche Research (SLF) predicts that there will be a significant increase in years with little snow over the long term. Based on the scenarios from this study, we estimate that even by 2035 only a minority of ski resorts could still have a reliable supply of natural snow.

As the major ski resorts tend to be located at higher levels, the situation in terms of runway kilometers looks less dramatic in the medium term. However, over the long term many larger destinations are set also to lose snow reliability. While it is technically possible to guarantee some of the snow provision by artificial means, this entails significant investments and high operating costs that exert a further negative impact on the financial situation of mountain railways.

Because Swiss ski resorts are on average located at higher levels in particular than their Austrian competitors, their global competitive position could paradoxically undergo a potential improvement due to climate change. However, whether this will suffice to offset the altogether negative effects of global warming is questionable.

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Climate change poses a threat to snow reliability

Share of Swiss ski resorts by degree of snow reliability; reference point = mean of height above sea level of valley and mountain station
Source: Federal Institute for Snow and Avalanche Research (SLF), Bergfex, Credit Suisse

Winter Sports Resorts Benefit Too Little from Summer Tourism

While the transport revenues of the mountain railways and the number of overnight stays in the winter have fallen, mountain railway revenues in the summer have risen sharply. Above all, however, it is the internationally renowned excursion railways at the Jungfraujoch, Pilatus, Titlis and Rigi that have benefited from this. There is only a small number of such excursion destinations in Valais and Graubünden so that the summer share of transport revenues here remains a meager 20% and 8% respectively, while the number of overnight stays over the past decade has even declined in the summer.

Summer tourism has in most cases therefore not nearly sufficed to offset the decline in winter sports. The same applies with regard to the otherwise strongly growing Asian guest segment. The Bernese Oberland and Central Switzerland have replaced some of the lost European winter overnight stays even in the cold season with guests from Asia. However, Valais and Graubünden have not succeeded in doing this. This is primarily due to the fact that so far Asian guests in Switzerland almost exclusively make use of the excursion mountain railways but hardly touch the infrastructure of the ski resorts.

Nevertheless, traditional winter sports resorts will also be forced in future to develop more facilities for the summer and for guests from emerging markets. However, this will not suffice in many places in the foreseeable future to offset the loss of European winter sports enthusiasts.

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Summer and Asian guests failing to offset

Overnight stays; change contribution per segment (origin/season) in tourism municipalities of the respective regions; winter season: 2007/08 – 2016/17; summer season: 2008 – 2017; basis: no. of overnight stays in 2007/08 winter season
Source: Swiss Federal Statistical Office, Credit Suisse

Mountain Railways Must Regain Winter Sports Enthusiasts

In order to make good the collapse of the past decades, it is therefore imperative that European and Swiss winter sports enthusiasts are regained. This is currently being helped by the European economy finally picking up again. However, in the long term the European and Swiss market potential will for demographic reasons at best stagnate. Regaining lost market shares is therefore a mandatory requirement for a recovery. This requires making Swiss ski resorts more attractive either in price terms or in terms of what they offer.

The latter would entail significant investments in many places not just in railways but also in accommodation and alternative leisure facilities, which in view of the frequently difficult financial situation for many destinations is likely only to be achieved with difficulty. Alternatively, the price-related attractiveness must be improved again, which to some extent has already taken place: While, for instance, the prices at Austrian hotels have risen continuously in recent years, they have fallen slightly at Swiss hostelries.

There remains the hope regarding price competitiveness that the trend of recent months continues and the franc depreciates further against the euro. This lies very much within the realms of possibility. We anticipate a further slight depreciation of the franc for the coming year. However, it is very unlikely that the exchange rate will return to its level of the 2000s. Switzerland will also remain a generally expensive vacation destination in the future.

Euro-Franc Exchange Rate and Early Snow Give Hope

The economic upturn in Europe and a weaker franc – above all in combination with a potential improvement in snow conditions – will ensure that the 2017/18 winter season proves better than the previous years. However, the situation over the medium to long term remains challenging.

In other sectors a major structural transformation would set in after a massive ten-year drop in demand that would restructure capacities so that the surviving providers would ultimately emerge strengthened. However, as explained above, mountain railways are often “too big to fail” for winter sports resorts.

The public sector, local businesses, vacation homeowners and patrons will therefore continue to intervene in a supportive manner in the years to come. Unless the underlying conditions undergo a significant and sustainable improvement, this is likely also to be necessary in the future. While such interventions might temporarily rescue winter sports destinations and seem unavoidable from a local perspective, they impede a sustained recovery of the sector as a whole.