Mueller explains purpose, direction of “right sizing” for CBMR

“We’re going to be real…”

 (Ed note: “Right Size the Resort.” What exactly does that mean? Crested Butte Mountain Resort vice president and general manager Ethan Mueller has used the term several times over the last month or so and we felt it appropriate to ask what exactly that entails.)

Like many ski resorts, Crested Butte Mountain Resort is having a tough year, given the lean snow conditions of the 2011-2012 season. But CBMR is also dealing with an air service quandary as flights diminish but the cost to bring in those flights goes up. The national economy hasn’t helped, nor has CBMR’s central Colorado location, which is somewhat less accessible to the masses than a lot of other ski communities.

CBMR management has laid off some longtime employees, many of them full-time, year-round workers. The company is also mandating a two-week unpaid leave for every employee at the end of this ski season. CBMR executives say these actions come in an effort to face the current economic realities and “right size” the company to its real situation.
“We are in a tough position,” explained Mueller. “We don’t want to or like having to take these steps but we are looking at the overall situation with the company and really the overall situation with the community. Right now, we are budgeting to lose a lot of money this season. There is nothing good about that. So we are having to right size the company to the current reality.”
Mueller said “right sizing” has both a financial and structural component. “Financially, if our revenues are $10 million, then our expenses should have to be less than $10 million,” he said. “From a structural standpoint, we need to staff to what the volume is. For example, if we sell 100 hamburgers a day and it takes two people to sell those hamburgers, we can’t employ three people to do that job. That is what we are trying to do right now. It’s not easy and it personally impacts people but we are having to look at the overall, big picture.”
The resort started this winter season with about 970 employees, compared to about 1,100 people who were hired by CBMR at the start of the 2010-11 season, and even more in seasons before that.
Mueller emphasized that “right sizing” doesn’t mean cutting the level of service to the customers or degrading the product. “We want to maintain a quality product,” he said. “You can look at our snow maintenance as an example. We still have great grooming and snow conditions, even with cuts. We need to fit our operating footprint into our business reality, and business reality is based on skier days and the volume of spending those skiers do.
“These are hard, personal decisions that no one wants to make but we have to,” Mueller continued. “We can’t just wave a magic wand and fill up the bank account to pay people. We are doing what we can to try to not lay people off or cut their pay. And when we do, we try to look for other places for them within the company or try to support them if they seek another job. But we are looking at the whole and that’s not just one employee—it’s the whole community. We understand that we have a big role in the community. And the community won’t always agree with the decisions we make. But we are trying to make decisions based on what’s best for us as a company and for the community in general. We believe that having a good, stable business is good for everyone. I think we are getting to that point.”
CBMR has laid off longtime employees over the course of several years since the national economy started its downward spiral in 2008. Mueller said the resort was hoping for a quick economic turnaround but that didn’t happen. “Frankly, one problem is that we took too long in making the hard decisions. We tried not to do it and then we ended up doing a little bit at a time. It was sort of like taking off a Band-Aid a little bit at a time instead of pulling it off quickly. We didn’t take the pain quickly when we probably should have. Now, we are right sizing to our reality and moving forward. That’s hard and unfortunately we probably aren’t done.”
Mueller wanted to emphasize that contrary to rumors, the resort isn’t closing. “We aren’t going down despite what you might hear on the street,” he said. “But we are going to be real. Believe it or not, we are starting to see signs that we are heading in the right direction. We see positive trends in the overall numbers but the numbers are still negative. Next year, my goal is to see a zero at the bottom of the profit-and-loss sheet. That hasn’t happened here, ever.”
Part of that balance sheet according to Mueller, contains expected painful cost increases in things like energy to power the high-speed quads, major insurance premium increases and a huge hit if changes aren’t made to the upcoming national health care program. “All of these have huge impacts on seasonal businesses like ours,” he said.
As far as “right sizing” terrain, Mueller says the company doesn’t want to go there. He said cutting back on lifts, like the resort did this season by running the Teocalli and Twister lifts less frequently, is a more likely scenario. “That’s another example of making cuts but not cutting quality to the guest. That terrain can be accessed without those lifts. Now, again, our preference is to run those lifts but we are looking for balance.”
As for the Extremes, the same theory applies. Mueller said the goal is to open all of the Extreme Limits terrain. But this year, with such strange and dangerous snow, much of it never opened. “It was a dramatic year as far as snowpack and that impacted our steep terrain. That’s the reason we didn’t get it open. The goal is not to look at terrain. We know the importance of that terrain to our guests.”
When asked if Crested Butte was heading toward a Monarch-type ski experience in a right sizing scenario, Mueller emphatically said ‘no.’ “We have the hotels and conference centers, the great town and ski experience to be an attractive destination resort,” he said. “Monarch is more of a day ski experience. We are and always will be a destination resort. Now honestly, we’re a little bit of every kind of resort. You’ll see the next couple weeks that it feels like a busy destination resort. You get that same type of experience in December. January feels like more of a local or regional experience. We get a little bit of everything.”
As far as fitting the operating footprint into business reality, Mueller said skier days essentially determine the reality. “Skier days are king. That number drives what we can do. That’s why the air program quandary is so important to figure out.”
Mueller used the Houston-based flight as an example. “The decision was made to cut the number of seats considerably this year from Houston to drive a higher load factor, which it has. I believe it’s currently 8 percent ahead of last year, which should get the RTA below its Minimum Revenue Guarantee (MRG) cap of $420,000. That is a good thing; however, it has also cut the visits from that marketplace considerably. From last year to this year we have seen about a 65 percent decrease in visits from Houston. CBMR directly is figuring that’s about 385 fewer people staying in our lodging. With an average spend per flying guest of $1,300, this was a substantial loss to the community.”
CBMR’s skier days were up about 6 percent at the end of last season compared to the previous year. That was with a great snow year. Mueller is expecting this year to see about a 10 percent decrease in skier days over last year. “Skiers are passionate and they monitor where the snow is,” he said. “Add to that the convenience of the airlines and it all comes into play. I am very positive we’ll have a better season next year.”
In the long term, Mueller is hoping to see the resort grow to be a 550,000 to 600,000 a season skier day resort. “If we get near that number, the community will be killing it,” he said. “That would be the ideal.”
How far of a climb would that be? The rough expectation is that the resort will record about 330,000 skier days this season. The most the resort ever had was about 550,000 skier days during the boom seasons of the early 1990s and the Free Ski promotion (which accounted for about 100,000 of those skier day numbers).
Mueller noted many resorts are experiencing similar financial hardships and having to make tough decisions. “We are doing the same things a lot of places are because of the circumstances,” he said. “It’s not just us.”
But Mueller remains positive for the long term and hopes right sizing can work both ways.
“If we can get into the 450,000 to 500,000 skier day range in the next five years or so, that would be great,” said Mueller. “I really believe we can do that. I see the numbers starting to go the right way and I believe we will be a successful resort and that leads to a successful community. We can do so much more when we get our numbers to the right level. Whether it is putting two more lifts back in the Teocalli drainage or increasing our charitable donations, it all comes with the right numbers. Right now we are trying to live within the means we are realistically experiencing. We want to be stable. As we grow, we’ll increase and right size that way as well. And I’m confident we can get there.”