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"Fun" Versus "Stuff": Peak Fun was Last Year for Most, but Affluent Consumers Continue Unabated

Thomas Paulson
May 3, 2024
"Fun" Versus "Stuff": Peak Fun was Last Year for Most, but Affluent Consumers Continue Unabated

One of our major themes for 2024 is that the balance between increased consumer spending on goods (“stuff”) and services (“fun”) will be more balanced after fun won by a large margin in 2022 and 2023. Should that come to pass, it will be a significant benefit to manufacturers and retailers, following a disappointing 2023. Thus far, this trend has played out as we showed in last week's report on personal consumption expenditures (PCE). To provide an affirmation of that macro view, we looked at a large number of earnings reports over the past two weeks from “fun-providers.” Below, we have clustered the "fun" by segment:

Online Travel

The table below is an update on our previous analysis to demonstrate the intensity of increased spending during last year’s peak travel season, which is likely to be much more subdued in 2024. For Expedia, spending on lodging by Expedia customers increased by +$3.3B year-over-year in Q1 2023, or $13B annualized (Added to that $13B would be airfare, car rental, restaurants, etc.). This past quarter, the increase was only +$850M, or roughly a quarter. And so, while consumers will still be having “more fun” in 2024, the step-up on a year-over-year basis will be far less than last year’s, leaving more dollars in wallets to spend on more stuff this year than last year’s increase. As to this summer outlook, competitor Booking Holdings expects underlying Q2 nights booked to be up 4%-6% on a global basis, with the U.S. expected to grow at low-single-digits (consistent with Q1 2024).  


Theme Parks and Cruise Lines

Universal's theme park business reported softer-than-expected results this past week, including organic revenue growth of only +4%. The company cited Orlando for the shortfall. Parent company Comcast CEO Mike Cavanagh said, “We started to feel some pressure on attendance levels late in the first quarter, which tends to occur in tandem with the ebbs and flows of new attractions in the market. Right now, we happen to be lapping the multiyear surge in attendance from our opening of new attractions in prior periods, but we remain confident about our longer-term growth opportunities, especially as we look ahead to next year with the opening of Epic Universe. With three new hotels and five immersive worlds featuring more than 50 attractions, entertainment, dining and shopping experiences, it will be the most technologically advanced park in the world.”

Comcast CFO Jason Armstrong noted, “[We saw] some increased competition from other entertainment venues, notably cruises.” Over the last year, SeaWorld added its Pipeline stand-up roller coaster (opened last May) and Disney refreshed Epcot. Anchor readers will recall our extensive coverage of the mounting spending on new theme parks and attractions; Disney plans to spend $60B over the next ten years, SeaWorld is expanding, and Six Flags is merging with Cedar Fair to compete on top of the Epic opening next year. As shown in the table below, Disney and SeaWorld won visitor market share in Q1 2024. Of note, visitors for all three parks were down only -1%, which is a notable improvement from last year’s decline, which cycled large increases in 2021 and 2022.

While the cruise industry matched passenger days in 2023 versus 2019, it is also adding capacity and refreshing its lineup of attractions. For reference, +4% more berths were added each of the last two years, and +6.2% are expected for the next two (per Cruise Industry News). However, the cruise industry has yet to recover in nominal dollar terms to 2019 because pricing/yield has not matched the increases in theme parks or overall nominal personal consumption expenditures (PCE). Cruise ship “yield” (ticket plus onboard spend) is only about 10% above 2019’s level. The table below shows how prices/costs have changed indexed to 2019. (We use Disney here vs Universal because of their better disclosures.) Cruise was a bargain before the pandemic, and with the price/cost increases for all since 2019, cruises have become a demonstrable bargain on a relative basis compared to alternatives. As we noted three weeks ago vis-a-vis Amazon CEO Andy Jassy, consumers are still spending, they are just hyper-focused on finding bargains and ways to save money. We are seeing that search-for-savings extending across consumer expenditures, including restaurants, nightlife (spirits), autos, and more--in other words, it’s a large and broadening trend.


Back to cruises, it’s not just theme parks that are refreshing; the cruise industry used the pandemic to retire older ships to bring new ones online, which creates a lot of excitement and attraction. Private island stops were also added (including Celebration Key and Hideaway Beach). These new ships also use less fuel and have stronger operating efficiencies, and some of those savings have been reinvested into consumer-facing enhancements, which create a revenue lift (both for the room and services.)

The Orlando domestic tourism industry is much more penetrated than the cruise industry, with 18% of the U.S. population visiting Orlando on an annual basis versus only about 5% for cruise lines. The cruise operators also used the pandemic downtime to upgrade their IT and revenue management systems to optimize for yield and consumer engagement/affinity/apps. Modernizing the offering and digitizing the engagement are ways to win over younger consumers and drive penetration higher. On its earnings call, Royal Caribbean CEO Jason Liberty said, “Our addressable market is expanding and new-to-cruise continues to grow, increasing +16% year-over-year. These guests are discovering our differentiated vacation experiences and are increasingly returning to us, as we see repeat rates over 30% higher compared to 2019. Our brands also continue to attract new and younger customers. Millennials and younger generations have gained 11 percentage points share compared to 2019. And today, almost 1 in 2 guests are millennials or younger.”

On consumer demand, Liberty noted, “Bookings consistently outpaced last year throughout the entire first quarter and through April...Booking strength has been prevalent on both our existing hardware as well as on our industry-leading new ships. We see strong demand across all products and markets. North America continues to be extremely robust where approximately 80% of this year's guests are sourced...We are increasing full-year yield growth expectations by 50% compared to our initial guidance in early February.” Domestic revenue for Royal and industry leader Carnival for the year will likely be 40% higher than pre-pandemic versus 20% last year. The takeaway, cruise is taking market share of “fun” consumer expenditure.


In another sign that last year was “peak fun”, Caesars Entertainment reported softer quarterly results with President andCOO Anthony Carano saying, “We faced several transitory issues during the quarter, including low table hold in our Las Vegas segment and inclement winter weather in our regional segment...Similar to prior quarters, outside of the negative weather impacts, we continue to face new competition in a few markets.” In terms of Vegas, slot handle was down -2% and table drop was down 7% (i.e., less betting). Caesars CEO Tom Reeg said, “[Vegas] volumes were great. People are still here. We just didn't hold. And if you think about running these properties at over 97% occupancy, you're fully staffed...If we look at forward, as we sit here today, I'm looking at April, May, June, each month is forecast at 98% occupancy in the market."

Said differently, Vegas is at peak and not taking substantially more fun dollars. As shown in the table below, Caesar’s Vegas revenue for Q1 2024 was down for all reporting lines; in addition to less betting, “casino revenue” declined as players did better than the casino (was that an inducement to drive demand?). Also notable is that Q1 2023 was the big driver of 2023’s revenue, meaning Q1 2024 faced a difficult comparison (i.e., “peak Vegas").


Placer also shows this for the Vegas Strip as a whole, with visits exceeding one hour and visitors down year-over-year for Q1 2024 (below). By month, January was down -6% (Super Bowl and adverse weather), Feb was flat (excluding the impact of Leap Year), and March was down -3%.

During its earnings call, MGM Resorts said that its high-end properties (including Bellagio, Aria, MGM) outperformed its more pedestrian properties (Luxor, Excalibur). CEO Bill Hornbuckle noted, “We did see some signs of fatigue at the lower end of the market.” Over the past year, we’ve been writing about Vegas’ next chapter, which we call "Vegas 5.0". On Vegas 5.0, Hornbuckle noted, “If you just take a moment and think about the positioning of us and all of these stadium/arenas between T-Mobile, Allegiant, and the new A’s stadium within a mile and really at the epicenter of our resorts, we have over 1 million seats a month that are accessible to some sport or entertainment activity and programming.” And in terms of new potential markets, which allow for more growth investment, Hornbuckle said, “We have an eye on Texas.”


Q1 2024 results from the major lodging groups also demonstrate a more moderate increase in hotel lodging. Hilton Worldwide (the parent company for Hilton, Waldorf, Conrad, Home2, Embassy Suites) reported only +2% growth in Revenue Per Average Room (RevPAR), driven by business conferences and international properties. This implies a decline in domestic leisure, with a +2% to +4% companywide rate expected for the remainder of the year, and the U.S. at the low-end of the range. From a customer and brand perspective, the lower-end of its portfolio are underperforming the aggregate, potentially because they generally don’t capture the rebound in conferences, business travel, and inbound international vacationers that higher-end brands are now enjoying. The lower-end softness also likely reflects the economic and budgetary pressures being felt by the less affluent.

Marriott reported similar results (+4% company-wide RevPAR growth) with CFO Leeny Oberg saying, “Leisure RevPAR was flat in the U.S...with more customers going abroad to find warmer weather...[For 2024] by customer segment, RevPAR growth is still anticipated to be driven by another year of strong growth in group revenue (i.e. conferences), continued improvement in business transient revenues and slower but still growing leisure revenues. RevPAR growth is expected to remain higher in our international markets than in the U.S...While our full-year global RevPAR guidance is not changing compared to our prior expectations, we now expect higher year-over-year RevPAR growth...[internationally] and lower RevPAR growth in the U.S...And leisure is still fine. But when you look at the change, which I would say kind of broadly speaking, maybe a point lower in the U.S. than we expected a quarter ago, maybe a little bit more than one point higher internationally kind of gets us to roughly the same place from a RevPAR picture globally...the leisure segment...was a bit lower.” The takeaway: U.S. tourist gateway cities and luxury spending suffered in 2022 and 2023 as the affluent were off to Europe, Latin America, and elsewhere; the strong dollar being a major incentive, see again “finding ways to save, while spending.” These dynamics suggest a repeat in 2024 as well.


The Q1 results and summer outlook from the world’s largest concert promoter/ producer Live Nation (and parent company of Ticketmaster) point to a “good” summer concert season, following a strong Coachella festival, which we touch on below. Domestic events are to be up mid-single-digits, but ticket sales up only low-single-digits as this summer/fall laps concert tours from Taylor Swift and Beyoncé. Last year’s Q2/Q3 was up +23%, i.e. peak “rock-on”, or whatever it is that they do at a Swiftie and Beyoncé event.

Coachella was a couple of weeks ago and we looked at the event from the perspective of the venues at the event. The Coachella Main Stage was the largest attraction with 148K visitors. In terms of audience type using PersonaLive visitor segmentation, Placer shows that Educated Urbanites were the largest segment, unsurprisingly. However, it’s interesting that this segment was higher all stages beyond the Main Stage. That Near-Urban Diverse Families is number two, suggests that a lot of sons and daughters, still living at home, are a large segment of the Coachella audience. That may explain how so many young adults can afford the event. For context, tickets start at $600 and VIP at $1,400 gets you viewing sections near each stage, VIP food vendors and bars, and air-conditioned restrooms. (We’re old enough to want that.)


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Thomas Paulson

Director of Research and Business Development,

Thomas Paulson spent 20 years as a Wall Street analyst and a member of asset management teams at AllianceBernstein and Cornerstone Capital, representing top-50 ownership positions including Target, Home Depot, Nike, Amazon, Google, and many more. He brings consumer related expertise and knowledge of enterprises in retail, CPG, financial services, telecom, and entertainment.

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