We've previously noted that the theme park industry is undergoing a business model transition marked by higher spending cycle as park operators accelerate the number of new attractions, builds new parks, and elevates the food & beverage. (See our recent write-ups here and here.) Moreover, most parks are also trying to balance experience (i.e., not so crowded and shorter queues) with admissions growth and affordability. As part of this, Six Flags is aspiring to acquire Cedar Fair (our analysis can be found here) and SeaWorld Entertainment has rebranded itself United Parks & Resorts.
Near-term, the industry has yet to recover its international and group travel vs. 2019. We expect 2024 to be big on these two, which will help the hospitality and retail trade areas that support destination theme parks. Additionally, the domestic visitor remains healthy and highly engaged. Moreover, 2023 was also a year of weather disruption, leaving 2024 with an easy compare to grow off from (assuming a more normalized year). With last week’s earnings results from United and Six Flags, their managements were quite constructive on 2024; at an investor conference, Disney CEO Bob Iger noted that they expect a very strong 1H as well.
As the figures below show (and contrary to some popular opinions), the industry has not priced out less-affluent households. In 2023, the median trade area household income for Universal Studios, SeaWorld Orlando, and Disneyland was below the 2018 level based upon Census 2017 data. (Remember this is domestic only visitors. Pre-pandemic, international visitor mix was around 19% for Disneyland, Universal and SeaWorld were slightly less.)
For Universal, the decline in the median is due to a very large increase in visitors from trade areas with household incomes below $100K. The increase in domestic visitors reflects successful new attractions like Super Nintendo World, successful seasonal events like Halloween Horror Night, and the deficit of international visitors (where domestic attendees took their place). In terms of visitor mix, we see a similar dynamic for SeaWorld Orlando, but not a significant increase in visitation. The changes at Disneyland are more muted, as the increase in visitation is more consistent across income buckets. Again, the gain in domestic visitors is offsetting declines in international visitors (vs. the basis of 2018). To conclude, the theme park industry is broadening its appeal to more households, not less or cutting off.
As we have written about over the past year, new attractions are key to driving consumer engagement and visits to a park. SeaWorld/United unveiled a long list of coming attractions (which can be found in its most recent earnings release). For perspective, United is expected to spend $880M on park-related capital expenditures over the next five years. By contrast, Universal is expected to spend $12-$15B and Disney $30B. Some of this investment will be spent on overseas parks and ships, but the vast majority will be allocated to U.S. parks and expected to generate high returns in the form of incremental market share of consumer expenditure on fun and stuff.
These figures are large, and the stakes to play in the industry are rising, which is one of the instigators for the proposed Six Flags and Cedar Fair tie-up. Six Flags also wants to reach up into higher-income households where they have potential. The merger allows them to offer a more compelling season pass (more parks to visit, for more family members from teens to grandparents) and enhance its ability to "premiumize" its food & beverage and upgrade its digital/mobile/ERP/CRM capabilities. Disney is spending far ahead of the others to secure its spot as a premium experience.
For the big three park operators, we suspect that the $44.5B in spending is for more attendance capacity (existing and new parks) so that the experience can remain somewhat affordable versus cranking up rate to drive revenue and profitability. As such, it's part of the balance and broadening access to more consumers.
