Importance of early snowfall for Swedish ski resorts : evidence based on monthly data

TThe major ski markets of the world are reaching a point of stagnation or decline. After a long period of increased demand and expansions, this also holds true for the Swedish ski resorts. Although the apparent stagnation, the main factors influencing the demand for skiing in Sweden are not fully disentangled. One hypothetical explanation is the cost of skiing. Another explanation is that skiing is no longer a growth activity with lift ticket sales rising less than proportionally with economic growth. The increasing occurrence of snow poor winters, particularly in the early season, may contribute to the stagnation of lift ticket sales. In this study we examine the relationship between the inter-annual variation of lift ticket sales and snow depth using monthly data. The model is estimated using the seemingly unrelated regression model (SUR) applied to a first difference specification. This approach makes it possible to account for the correlation of the error terms across the different winter months. In the empirical model the change in lift ticket sales relative to the same month in the previous winter season is related to the corresponding changes in snow conditions, real GDP, relative prices and control variables. An important feature of the model is that the economic factors are restricted to be identical across the winter months while the snow conditions and calendar effects are allowed to differ. Using seemingly unrelated regression models estimated for five months we find, as expected, that lift ticket sales depend significantly negatively on lift ticket prices and significantly positively on real GDP. Both income and price elasticities are quite low in absolute terms. A new empirical result is that a decline in snow depth in the early season has a strong negative impact on lift ticket sales. The effect is also much more pronounced than the impact of economic factors. In particular a reduction in snow depth by one standard deviation leads to a drop in growth of lift ticket sales by nine and five percent, respectively. However, there is a strong decline in lift ticket sales from the season 2010/2011 onwards when controlled for relative prices, real income and snow depth. When the entire winter season is considered the results indicate that the underlying key cause of the stagnation of lift ticket sales is the low income elasticity, exogenous shift in leisure activities from the season 2010/11 onwards and the significant price sensitivity of skiing demand. The future prospects for Swedish ski lift operators are poor given moderate growth in real domestic income and further price increases in lift tickets following huge investments in snow making and new lifts, and the expected increase in green early winter seasons following global warming.