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Another look at the Baqueira case study
During the Refresher Programme talk ''A finance class with no exam'' on June 27th, the ESADE professor of economics, finance and accounting, Joan Massons (BBA&MBA 66 / PhD 07), took another look at the famous Baqueira case study that he used to analyse with the students in his classes.
The ESADEFORUM auditorium in Barcelona was full of alumni keen to recall their ESADE days and relive the classes and jokes given by their finance professor about a case study that Massons started using in 1985 and continued until 2016. ''I picked several crucial years in the history of this Aranese ski resort and then added more recent years that reveal the fallout of the 2008 crisis in general and the economic impact of the huge changes that the resort has undergone,'' he explained.
Joan Massons reminded the audience that Baqueira Beret is the second largest ski resort in the Pyrenees after Grandvalira in Andorra which has 210 km of marked ski slopes and 66 ski lifts, against Baqueira Beret’s 156 km and 35 lifts. “The ski resorts in the Pyrenees are small compared to those in the Alps, some of which have 600 km, and those in Austria, for example, with 2,000 km of ski slopes. Professor Massons, a keen mountaineer, read out the questions he used to ask students about the case study in class and answered them himself. He then compared the answers with the resort’s current figures.
''During the first period analysed (between 1985 and 2008), the ROE varied considerably but it can be concluded that the returns were low and subject to the high inflation of that period,'' he said. However, Baqueira also suffered substantial losses on account of several droughts, for example in 1991. ''It’s important to interpret the figures calmly and cautiously. Looking at the case study year on year, we can see how returns were affected by factors such as lower interest rates, the sale of land and the weather,'' pointed out Massons.
Passion for skiing
One matter that has always caught the professor’s eye is the conservative approach of the Baqueira Beret partners who, being acutely aware of the risks involved with snow, have always refused to entertain borrowing.
The project has always been underpinned by a handful of unconditional skiers and the financial backing of Grupo Catalana Occidente. Massons explained that although the shareholder structure has changed over the years (the insurance group currently has a stake of 11.73%, whilst Jesús Serra Farré, the resort manager, holds more than 50% of all shares), the approach has always been very conservative, with partners showing an enormous passion for the ski project and the Aran region.
He went on to say that the overheads of the ski resort are essentially staff wages and depreciation, and that, although no cost-cutting is possible in the staff area on account of safety considerations, amortisation did feature a drop in value in the early years which affected the ROE (but things gradually fell into line with the 15-year period stipulated in Europe for the amortisation of a ski resort.
On the other hand, the return on this asset is low because the resort is closed so many months a year, ''although efforts could be made to increase the number of visitors on week days and during the summer'', said the speaker.
During his analysis, Massons also emphasized the importance of taking other operating income into account (such as ski lift fares, which sometimes prevent Baqueira from slipping into the red) and the economic boost that the resort gives the Aran Valley – for years the area of Catalonia with the highest income per capita. ''Skiing must be safeguarded because it generates wealth in the region and operating income is inherent: ski resorts that have not made an effort in this respect have not done well,'' he said.
Baqueira Beret has also diversified into other ski-related activities though subsidiaries including Hovasa (hotels), Viatges Baqueira Beret, Hotels Nevados S.A., Sorpe Bonaigua S.A., etc.
From 2008 to 2016, there was no drop in the numbers of skiers visiting the resort despite the crisis. The resort’s returns at the end of the crisis are higher than before with returns of 12.39% recorded in 2016 indicating a very good season.
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