Yellowstone National Park proposes big changes to concession contract

Story by Martin Kidston
The Billings Gazette
May 31, 2012
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MAMMOTH - The National Park Service is looking to create a new concession contract in Yellowstone National Park late next year, and it will ask the winning bidder to complete $134 million in improvements to visitor lodging and other services as part of the bargain.

Outlined in a draft of Yellowstone’s new business opportunities plan, the proposed changes also would see the park increase the franchise fees it receives from the concessionaire, while giving the company a firm 20-year contract to sweeten the deal.

Park spokesman Al Nash said this week that while a number of concessionaires operate in Yellowstone, the current plan affects only the park’s largest operator, Xanterra Parks and Resorts, whose contract is set to expire in November 2013.

"We’re looking to replace or update our existing visitor facilities," Nash said. "We looked at where we wanted some of these facilities to be in the future, and we worked to devise a contract that we thought would offer a competitive business opportunity while achieving our goals for serving the American public."

Xanterra officials didn’t return calls Tuesday. Gross revenues reported by the company in Yellowstone increased from roughly $79 million in 2008 to more than $86 million in 2010.

The company runs the park’s hotels, cabins and campgrounds, along with 27 revenue-producing food and beverage outlets and nine retail locations.

Like all concessionaires operating in Yellowstone, Xanterra pays the park franchise fees based upon its revenues. In 2010, those fees generated $2.1 million for the park, though that could increase substantially if the fee is raised from its current 2.5 percent to 6.8 percent, as proposed.

Nash said the park can’t use the funding to replace its base operating budget. With federal funding tight, he said, the park is looking for ways to tackle needed improvements while maintaining a friendly business atmosphere with concessionaires.

"It’s not just our operating budget, it’s the money available to do the major renovations and construction," Nash said. "We believe this is the most viable funding source to get some of this work done."

The Park Service believes that the plan and its suggested improvements would help increase the revenue potential for the park and the concessionaries operating with it.

The proposed improvements include upgrades to lodging and RV parks throughout Yellowstone, along with existing food and beverage services.

"We, the public, own all the facilities in Yellowstone," Nash said. "They get assigned to a concession operator to serve the public. The contract calls for certain maintenance every year, but to upgrade them, the money must come from somewhere."

Among the proposed improvements, the new concessionaire would be required to add lodging rooms at Mammoth Hot Springs Hotel by converting space now used for administrative functions and by renovating 14 cabins used by employees for visitor use.

At the Old Faithful Snow Lodge, the new concessionaire would be required to construct a 77-room employee dormitory and convert 67 cabins now used by workers to overnight accommodations for visitors.

Improvements would also be required at Lake Yellowstone Hotel, Canyon Lodge and Lake Lodge, where the winning concessionaire would be asked to rehabilitate 19 cabins, relocate 15 other cabins and demolish an employee dormitory before replacing it with a 60-room project.

Across the park, the projects are likely to cost around $134 million and must be completed between 2015 and 2018. Nash said the successful bidder will receive a 20-year contract to help create incentive and recoup costs.

"We’re going to require the successful bidder to put in a substantial amount of money in the early years of the contract to address the real needs," Nash said. "It’s money we’d be less likely to find through federal appropriations. We felt operating this long-term contract was a mechanism to encourage prospective bidders that there are good business opportunities here."

Roughly 30 percent of Yellowstone’s more than 4 million visitors annually stay overnight in the park, and 90 percent stay at concession-operated facilities, the Park Service said.

Xanterra has generated more than $85 million in revenue each of the past few years. Lodging accounts for 46 percent of that revenue, followed by food and beverages at 30 percent and retail at 14 percent.

With the park looking to raise the franchise fees from 2.5 to 6.8 percent while asking the winning concessionaire to invest $134 million in lodging and other improvements, some fear that the result could lead to parkwide price increases as the winning company tries to recover costs.

Some also say that the improvements could change the feel of Yellowstone, turning a rugged experience in the nation’s oldest national park into a more refined and upscale outing.

"One of the comments we hear back is a concern on how expensive it’s getting to stay in the park," said Mark Pearson, conservation director for the Greater Yellowstone Coalition, based in Bozeman, Mont.

"The thing that catches your attention in the plan is how they talk about the various improvements resulting in a higher average daily rate for lodging to make it more appealing for someone to bid on these contracts."

Nash said price increases are possible down the road as the cost of doing business goes up. He said it’s likely that such costs won’t be isolated to Yellowstone.

"The contract requires (the concessionaire) to apply to the Park Service for any rate changes," Nash said. "We have entire oversight over the charges that concessionaries operate, what services they offer and what products they offer for service, and we mange the rates.

"Will room costs go up over the life of this contract? Sure. But I expect over the next 20 years, we’ll see some inflation in prices everywhere."

 

Martin Kidston

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