The world’s largest leisure travel company is doubling down on the Skagway tourism market by adding the White Pass and Yukon Route railroad to its existing cruise operations in Alaska. Current owner TWC Enterprises is selling out effective July 31 to cruise giant Carnival and its subsidiary Holland America for a total of US$290 million, or between US$210-220 million after accounting for the railroad’s debt, income taxes and other liabilities.
Thus ends one of the more unusual conglomerates on the Toronto stock market. TWC was simultaneously both an Alaska tourist railroad company and Canada’s largest owner and operator of golf clubs. TWC had 41 golf locations in Ontario, Quebec and Florida.
You won’t learn about the golf-railroad combo business model in many MBA courses.
However, the combination had a logic. Golf courses are cash hungry beasts, and White Pass is a cash cow. In 2017, TWC financial statements show that White Pass generated $56 million in revenue and $30 million in net operating income. That’s a remarkable net operating margin of 55 per cent.
The comparable margin for TWC’s Canadian golf division was 23 per cent, and four per cent for its US golf unit.
Even after $4 million of capital updates and $5 million of expansion investment in White Pass, that left a sizeable cash flow going from Skagway to TWC headquarters in King City, Ontario.
This raises the question of why you would sell such a cash-rich business. The short answer seems to be that Eastern Canadians are playing less golf.
TWC announced a “strategic review” of its White Pass investment a year ago, but did not release much detail at the time. There are some clues in its 2017 annual report, however. In 2017, TWC’s core Canadian golf unit lost $9 million before interest and taxes, primarily as a result of a write-down or “impairment” in the value of its assets. “The main reason for the impairment is the trend of decreased collection of membership fees and the expected challenges in the future to reverse this trend.”
TWC is not the only golf company struggling. The number of courses in the U.S., for example, has been trending down for a decade according to the National Golf Foundation. In 2017, fifteen new full courses opened but about 200 closed.
Whatever the reason for TWC’s retreat from Alaska, its original investment in White Pass back in 1997 has probably turned out to be a very savvy business decision.
White Pass has been doing extremely well in recent years. In addition to the railroad, the company also operates docks and retail. Cruise ship dockings, port passenger, and rail passenger numbers were all up in 2017. Operating revenue grew a solid seven per cent and its operating margin improved slightly.
About 845,000 passengers visited Skagway in 2017 and more than half chose the train as one of their outings. And 12,504 tourists, or about 1.5 per cent of total passengers, rode the railroad’s “Bennett-Carcross product.”
If you’ve ever wondered about White Pass’s gift store in Skagway, the company’s “gift shop and other” category garnered US$2.4 million in revenue last year, up about five per cent.
The big question is what the new owners will do with White Pass. One presumes the price they paid TWC took into account White Pass’s current healthy performance and growth prospects. It is possible they plan new investments to boost revenue and profit further. With a market capitalization of US$44 billion, the cruise line has deep pockets.
In an interesting juxtaposition with White Pass’s 1898 train technology, advanced digital services may be part of the vision. Carnival notes that it won an award in 2017 for being one of the “’Top 10 Most Innovative Companies’ in both the design and travel categories.” It has developed a digital wearable device called Ocean Medallion that “enables the world’s first interactive guest experience platform capable of transforming vacation travel into a highly personalized and elevated level of customized service.”
Picture a smart-looking blue medallion the size of a quarter that you can wear as a necklace, wristband or just put in your pocket. It opens your cabin door on the ship, allows you to use wifi and Facebook Messenger or China-based WeChat, and play electronic games such as “Queen’s Sea Poker” and “Tipsy Tentacles Slots” with a virtual currency.
With Ocean Medallion’s digital concierge service, cruising tourists will find it easier than ever to sign up for their high-margin White Pass excursion.
It seems unlikely the company will be keen on having its customers roll away offgrid on vintage railcars for several hours, cut off from wifi, advanced customer analytics and the opportunity to plug more virtual quarters into “Tipsy Tentacles Slots.” So I expect that those iconic brown White Pass passenger cars named after Yukon lakes will soon have better wifi than my house.
The sale highlights the somewhat improbable staying power of White Pass. The London capitalists from Close Brothers who originally financed the railroad in 1898, against the advice of their lawyers according to a company history, made their US$7 million investment back within 15 years. They would be undoubtedly be pleased to see it still minting cash 120 years later.
Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He is a Ma Murray award-winner for best columnist.