Theme Parks Face Fresh Set of Challenges Amid Recovery

Theme Parks Face Fresh Set of Challenges Amid Recovery
Variety Intelligence Platform

Just when the theme parks business finally seemed to be turning the corner on the COVID era, growing macroeconomic pressures are threatening to derail the group’s resurgence.  

After the five largest theme park operators brought in combined sales of $10 billion in Q2 2019, the pandemic nearly wiped out their businesses in 2020, until the group regained its trajectory last year.  

Disney reported Feb. 9 that in fiscal Q1, theme parks revenue surged 101% year-over-year, and CEO Bob Chapek mentioned it was the second-best quarter of all time for the parks. On Jan. 27, Universal parent company Comcast revealed its theme parks had it most profitable Q4 on record, driven by both strong domestic attendance growth and spending per guest. 

Meanwhile, Knott’s Berry Farm operator Cedar Fair said Feb. 16 that 2021 attendance was 70% of 2019 levels and 2021 revenue of $1.34 billion was right below 2019’s $1.47 billion. The company also reported record in-park spending last year. 

Thursday, SeaWorld reported fourth-quarter attendance and revenue exceeded levels from the same period in 2019. Total revenue at SeaWorld was a record, 7.5% higher than 2019. In addition, in-park capita spending was up a whopping 22% compared with 2019. 

Much like Disney, Six Flags saw attendance still below 2019 levels, but the company reported per capita spending increase of 32% versus 2019. 

International guests haven’t been able to return to the U.S. theme parks, and that has been holding back some of the growth. For context, before the pandemic, international visitors at Disney’s U.S. parks represented roughly 20% of all guests. International guests typically spend more time and money at the parks than domestic visitors.  

But despite all this progress, rising inflation and more recent geopolitical tensions are posing very serious threats to recovering theme parks. The Bureau of Labor Statistics Consumer Price Index report, which measures how much consumers pay for goods and services, showed Feb. 10 that consumer prices rose a whopping 7.5% in January from a year earlier, hitting a 40-year high. This surge occurred as strong consumer demand was met with the ongoing supply-chain crisis. 

On top of that, Russia’s invasion of Ukraine will only worsen the outlook for inflation. The geopolitical conflict will mean higher prices for oil and food. For theme parks, that means higher prices for companies to absorb while not necessarily being able to pass those cost increases on to consumers. In effect, that will put pressure on the margins and profits.  

Among the handful of major theme park operators, Disney is in the best position to be able to withstand the margin pressures caused by macroeconomic factors. Though management didn’t speak to inflation much on the fiscal Q1 earnings call, CFO Christine McCarthy did address inflation on its fiscal Q4 call in November 2021, just as inflation was really beginning to become a concern. 

At the time, McCarthy said, “We can substitute products. We can cut portion size, which is probably good for some people's waistlines. We can look at pricing where necessary. But we aren't going to go just straight across and increase prices.” 

However, the other theme parks companies don’t quite have the same pricing power Disney does. In an attempt to strengthen its position in the industry, SeaWorld bid to buy out Cedar Fair for a reported $3.4 billion earlier this month. Unfortunately, Cedar Fair rejected the offer, saying that it wasn’t in the best interest of shareholders. Further consolidation among the regional theme park operators has been closely watched as smaller players look to grow their footprint. 

This year was supposed to be a much better environment for the theme parks biz, but external factors are damping the outlook significantly. So far in 2022, Disney and Comcast, who have much larger businesses outside of just theme parks, have underperformed the other theme park operators. Six Flags rose 5%, SeaWorld jumped 3% and Cedar Fair soared 11%. 

If international tensions and inflation pressures don’t ease within the coming months, the major theme park operators could be in for another rollercoaster year, and the stocks that have outperformed could very well reverse course.