Big Cruise doubles down on the Skagway cruise market

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.

Yukonomist

Just Posted

Willow Brewster, a paramedic helping in the COVID-19 drive-thru testing centre, holds a swab used for the COVID-19 test moments before using it on Nov. 24. The Yukon government is reopening the drive-thru option on June 18. (Crystal Schick/Yukon News)
Drive-up COVID-19 testing opening June 18 in Whitehorse

The drive-up testing will be open from 6:30 p.m. to 9:30 p.m. everyday and increase testing capacity by 33 spots

A draft plan has been released by the Dawson Regional Use Planning commission on June 15. Julien Gignac/Yukon News
Draft plan released by the Dawson Regional Land Use Planning Commission

Dawson Regional Land Use Commission releases draft plan, Government of Yukon withdraws additional lands from mineral staking in the planning region

Yukonomist Keith Halliday
Yukonomist: Let them live in trailers

“I found Rome a city of bricks and left it a city… Continue reading

X
WYATT’S WORLD

Wyatt’s World for June 18, 2021.… Continue reading

Chief Medical Officer of Health Dr. Brendan Hanley. (Yukon News file)
Yukon logs nine new COVID-19 cases, 54 active cases

More CEMA enforcement officers have been recruited, officials say

Whitehorse City Hall (Yukon News file)
City news, briefly

A look at decisions made by Whitehorse city council at its June 14 meeting

Murray Arsenault sits in the drivers seat of his 1975 Bricklin SV1 in Whitehorse on June 16. (Stephanie Waddell/Yukon News)
Bringing the 1975 Bricklin north

Murray Arsenault remembers his dad’s Bricklin, while now driving his own

A presumptive COVID case was found at Seabridge Gold’s 3 Aces project. (file photo)
Presumptive COVID-19 case reported at mine in southeast Yukon

A rapid antigen rest found a presumptive COVID case on an incoming individual arriving at the 3Aces project

Jonathan Antoine/Cabin Radio
Flooding in Fort Simpson on May 8.
Fort Simpson asked for military help. Two people showed up.

FORT SIMPSON—Residents of a flooded Northwest Territories village expected a helping hand… Continue reading

A woman was rescued from the Pioneer Ridge Trail in Alaska on June 16. (Photo courtesy/AllTrails)
Alaska hiker chased off trail by bears flags down help

ANCHORAGE (AP)—An Alaska hiker who reported needing help following bear encounters on… Continue reading

Two participants cross the finish line at the City of Whitehorse Kids Triathlon on June 12 with Mayor Dan Curtis on hand to present medals. (Stephanie Waddell/Yukon News)
2021 Kids’ Triathlon draws 76 young athletes

Youth ages five to 14 swim, run and bike their way to finish line

NDP MP Mumilaaq Qaqqaq rises in the House of Commons, in Ottawa on May 13, 2021. THE CANADIAN PRESS/Adrian Wyld
‘Unacceptable’ that Inuk MP felt unsafe in House of Commons, Miller says

OTTAWA—It’s a “sad reflection” on Canada that an Inuk MP feels she’s… Continue reading

Lily Witten performs her Canadian Nationals beam routine on June 14. John Tonin/Yukon News
Three Yukon gymnasts break 20-year Nationals absence

Bianca Berko-Malvasio, Maude Molgat and Lily Witten competed at the Canadian Nationals – the first time in 20 years the Yukon’s been represented at the meet

Most Read