Why Theme Parks Are Proving Recession-Proof
After two years, it’s about time the theme parks rose from the ashes.
The business is booming, and some attribute the recent bounceback to pent-up demand following COVID. While there’s certainly an element of that, operational execution at the major theme-park owners deserve some credit, too.
The biggest theme-park businesses performed well in the second quarter, with both attendance and revenue back to 2019 levels.
But the real winning strategy for theme parks has been getting attendees to spend more per visit than ever before. Park operators refer to guest spending as per capita spending. It quantifies the amount of money a guest spends at the theme park, including food, merchandise, line-skipping passes and park-provided photos. Some companies include admission and parking fees in their reported figures.
Disney was able to deliver record profits within its parks business last quarter even as the company continued to limit capacity. According to Disney CFO Christine McCarthy, per capita spend at the company’s domestic parks in fiscal Q3 rose 10% from the same period last year and 40% from 2019.
Disney’s current CEO, Bob Chapek, was not only previously the company’s parks chief, but he also took over just as the COVID pandemic ripped through the U.S. With admission revenue basically halted for months and then severely limited for even longer, Chapek quickly shifted to focusing on growing overall spend at the parks when they reopened, and attendance was limited.
Chapek introduced Genie+ and Lightning Lane options in domestic parks in late 2021. He took the previously free line-skipping passes and slapped a $20+ price tag on the option. The move may have ruffled a few guests’ feathers initially, but Disney proved it had strong pricing power. Despite some groans, guests paid for the option, and as a result the company was able to drive up per capita spending at its domestic venues.
It was a similar narrative for other park operators as well. Universal parent Comcast revealed in its Q2 earnings press release last month that both attendance and guest spending exceeded 2019 levels. Orlando had its highest level of EBITDA ever, and Hollywood saw its second-highest EBITDA on record.
Cedar Fair reported record in-park per capita spend in Q2. Six Flags guest spending per capita jumped more than 50% in Q2 compared to pre-pandemic levels. “And we have been able to offset the highest levels of inflations we have seen in decades,” Six Flags CEO Selim Bassoul said on the company’s earnings call Aug. 11.
SeaWorld didn’t quite break records in Q2, but guests continued spending near record levels. “Our pricing power and consumer spending remained strong with total revenue per capita up significantly versus 2019 and up nicely versus a record 2021,” SeaWorld CEO Marc Swanson said Aug. 4 in the company’s earnings release.
Although inflation has decreased over the past couple months, increased price and wage pressures are still a concern for parks’ margins. Higher per capita spending is even more crucial for the parks during this time of heightened economic uncertainty, as it offers a buffer against inflationary pressures.
For companies like Disney and Comcast, theme parks are the biggest free cash flow generator, and strength in that segment helps offset any temporary declines in other business segments. Maintaining a solid war chest is the only way to stay somewhat shielded from the external macro pressures building.
The economy is still on unstable footing, and some still argue that a recession could hit in the future. Nevertheless, if a recession were to come, the consensus is the impact wouldn’t be nearly as detrimental as previous recessions.
So far, strength in the in-real-life businesses is reflecting strong consumer spending. According to a weekly survey by decision intelligence company Morning Consult, the share of U.S. adults who have said they feel comfortable going to theme parks is at its highest level since the peak of the pandemic. As long as theme parks can continue capitalizing on the strong demand for experiences, they should be able to weather the economic storm that could lie ahead.
This analysis is the latest in a series for Variety Intelligence Platform subscribers that dives deep to break down the impact of an economic downturn on the media industry, including an exclusive survey on how consumption habits are changing amid elevated inflation and recession concerns. As multiple major media and tech companies announce layoffs, VIP+ studied the ways the job market was affected during previous recessions. We also looked at the earliest indicator of a slowing economy in the media sector — advertising spending pullback.
