Travel: Steady Strength
We shared previous about Halloween breaking late for retailers and Mattel’s expectation for the same for Christmas as well. Well, it appears that the late trend is also true of cruise activity with Royal Caribbean’s noting in its Q3 2023 update, “Results were better than the company's guidance due to stronger close-in demand and further strength in onboard revenue.” Royal Caribbean’s Q3 revenue was +31% above 2019’s level due to a +15% increase in per-voyager spend, a 7% increase in berths/beds, and more sailings.
Regarding demand, Royal Caribbean CEO Jason Liberty shared, “We have more than 130,000 guests sailing on our ships every day and millions more who book or engage with us throughout our commercial platforms. What we continue to see across all markets, brands and products is an exceptionally engaged consumer that is looking to book their dream vacations with us...Our customers' sentiment is bolstered by strong labor markets, high wages, surplus savings and elevated wealth levels. Even better for us is the fact that overall spend on experiences continue to grow and is currently up 25% compared to 2019, with twice the amount spent on goods. Cruising remains an exceptional value proposition with strong demographics and secular tailwinds, allowing us to outperform the broader leisure travel industry... Our commercial apparatus is firing on all cylinders with visits to our websites in the third quarter, doubling that of 2019. Our travel partners are also delivering meaningfully more bookings than 2019 levels and even beating our elevated expectations.”
As it relates to on-ground travel, Hilton Worldwide's Q3 2023 U.S. results showed a 60-basis point gain in year-over-year occupancy (75.3%) and a +3% increase in revenue per available room (RevPAR) to $126.37. For comparison, these metrics were 79.4% and $118.37 in Q3 2019. Hilton doesn’t break out its brands’ stays by geography; however, Placer shows that the high-end outperformed.
On expansion and development, Hilton CEO Chris Nassetta noted, “We saw another quarter of robust signings with a near-record 35,500 rooms signed, increasing 80% year-over-year. Our pipeline now stands at the highest in our history, totaling 457,000 rooms, up 4% versus the second quarter and 10% year-over-year. Signings in the quarter spanned our portfolio, demonstrating the benefits of a diversified industry-leading family of brands. Conversions accounted for 35% of signings increasing sequentially versus the second quarter. Overall, we remain on track to deliver the highest annual signings in our company's history, surpassing 2019 record levels by double-digit percentage points. We also delivered another strong quarter of construction starts, with every major region exceeding our expectations, and the U.S. in particular, delivering its strongest quarter of start since Q1 2020, up 18% year-over-year. Roughly half of our pipeline is currently under construction, and we continue to have more rooms under construction than any other hotel company, accounting for more than 20% of industry share.”
Hilton CFO Kevin Jacobs added, “[T]o circle back to the U.S., I think you've heard the story about things are a little bit more stressed with financing costs. But I think the story around if you are financed and you're entitled and you're ready to go and you want to build a hotel, you're better off getting underway than leaving that asset as a nonperforming asset. And I think that you think about that being fueled also by the fundamental environment where people are optimistic about growth, capacity additions are going to be constrained. We continue to take share. And so I think it's a good story in the U.S.”
Regional Theme Parks: Ohio Retrenching, Rebounding Elsewhere
Last week, we previewed visitation trends to the destination theme parks in Q3 2023 and observed that trends overall were strong. We also observed that visits had improved in Florida after a soft Q2 2023, with Disney ahead. This week, we looked at the regional theme parks, Six Flags and Cedar Fair. Here too we see a sequential strengthening and no evidence, like with destination parks, that the consumer has curtailed spending on experiences or signs that the Taylor Swift/Beyonce concerts and Barbenheimer cut into theme park spending. We know that the domestic discount airline companies have signaled a softening in travel spending. That may be true, but the characterization isn’t applicable to regional or destination theme parks. Moreover, the regionals appear to be impacted by changes in vacation destinations versus a spending retrenchment. As such, softer results, for say Cedar Fair this quarter, doesn’t imply that there is anything wrong with their offering; the decline just reflects a segment of out-of-market visitors that came in 2021 and 2022, that have now chosen to visit Europe, New York, or San Francisco.
In Comcast’s 3Q 2023 earnings release on Universal Parks, the company notes “very strong results” for Orlando and record EBITDA for Hollywood. The release also noted that , “The world’s premier Halloween event celebrates its 32nd year with a record-breaking 48 nights of immersing guests into the eeriest of experiences.” These characterizations align well with our previous analysis on Halloween Horror Nights. Comcast CFO Jason Armstrong said, “In Hollywood, the positive consumer reaction to Super Nintendo World, which we opened earlier this year, drove strong attendance and per-cap growth, helping Hollywood to deliver its best quarterly EBITDA in its history.” That also aligns with our report on the attraction. Additionally, Armstrong shared, “In Orlando, our results were also strong with attendance relatively in line with 2019 pre-pandemic levels and revenue substantially ahead.” This was exactly what Placer shows--2.9M visitors for the quarter.
Six Flags looks to have increased attendance near +4% for Q3 2023. Additionally, the average period of stay also increased +4%. We believe that the increase in stay will translate into increased per capita spending. The big attendance increases came from parks in California and Texas, markets that were held back by weather in the first half of 2023. Inhibiting growth were the parks in the Northeast.
While Cedar Fair also looks to have increased its average period of stay by +4%, visitation went down -8% per our estimate. Looking at the 16 Cedar Fair parks, only one park in California and one in Texas are up. The parks in Ohio produced substantial declines. Using Spatial.ai PersonaLive we see that there were larger drops in Ultra Wealth Families and Young Professionals among Cedar Fair's trade area.
Our hypothesis for why these two groups have dropped is that they are either back in the office or off to vacation in other markets. (On its 3Q 2023 update, Visa’s CEO Ryan McInerney said, “People are traveling internationally at this new normal at a faster rate than they would have been, all else equal, before the pre-COVID level.”) To challenge our hypothesis, we looked at visitation by distance to visitors' homes. For example, 37.6% of visitors to Cedar Point came from a distance of greater than 100 miles. For Q3 2023 that declined to 34.0%. This was true for every park, save for King’s Island. And so, one of the reasons for the attendance decline at Cedar Fair Parks in Ohio is that fewer visitors are coming from afar. We suspect that this is due to last year’s visitors having instead chosen vacations to gateway cities in the U.S. and abroad. This may have also been the case for Six Flags' parks in the Northeast.