Theme Park, Amusement Park and Attractions Industry News

‘It’s all about discounting and earnings‘

by Dennis Speigel

As I look at our industry and large corporations that now dominate ownership, one thing comes clearly through: “It’s all about earnings.”  That is not a bad thing, but make no mistake, this is the driving force that charts the course for public companies.

As I write this, Walt Disney World has just raised its prices to US$82 per park. For first time the $80 barrier has been broken. Every time Disney increases, the other major Florida attractions follow within two weeks, and sure enough Universal Orlando now has.

In these difficult recessionary times why would parks increase prices? Simple, to increase revenues and earnings. Admission prices are the one area where attractions can dictate internal income. There is a risk associated with price increases and that is that people pull back and don’t visit. Remember all pricing packages increase when the “rack rate” single day admission price increases. So the visitor pays the price, whatever ticket they buy. Yes they do! With 2010 attendance flat, or up a little at best, and in-park spending flat or down, parks have to increase prices where they can, and that is at the front gate. They have to increase earnings.

In the not too distant future we will see a $100 front gate admission at a theme park. Most likely it will be Disney that sets that milestone admission. It is inevitable. It will happen.

As basic admission prices rise, I believe parks must look for “price value” related alternatives and options to provide stimulation to the visitors – daytime, nighttime, weekday and weekend options that create value and impulse to visit.

The season pass concept has been good and bad for our industry. It has greatly eroded a la carte tickets, all but eradicating those that pay full price. Two generations ago Six Flags management was seriously negligent with its deep discounting. A flawed business plan attempted to “roll up” the industry by buying smaller independent parks, but resulted in the ultimate bankruptcy of this once iconic regional operator of theme parks. To try to dig itself out of a hole, management discounted in a way that seriously affected revenues and the overall product. Unfortunately a lot of other operators adopted this same flawed approach and fell into the same trap – loss of revenue.

If you look at two of the largest regional operators in the United States, Six Flags and Cedar Fair, you see one company emerging from bankruptcy and the other restructuring its debt and balance sheet. Why? Six Flags is digging out from that flawed business plan, where it overpaid for the parks it purchased. Cedar Fair encountered the same problem by paying 11.3 times EBITDA for Paramount Parks. The group received parks in better markets and in better condition than Six Flags during its rollup period, but nevertheless it overpaid and this seriously affected Cedar Fair’s balance sheet.

In the United States we operate in a mature industry cycle, market penetration has reached the maximum level. That makes it more difficult to grow attendance at existing parks. It puts pressure on retaining attendance. That too creates more discounting, extended discounting and deeper discounting.

Discounting is a serious issue that the entire industry is going to have to address in the near future. Discounting is cancerous and contagious. Once you “get on the junk” it is hard to get off. We are finding that the consumer waits and looks for the discounts. Many times visitors will call parks inquiring as to when certain discounts will be offered. As cancerous as it is, discounting is here to stay in some form. Hopefully it can be better managed by parks in the future as they choose “price values” options rather than monetary discounts.

Over 340 million people visited attractions in 2009. That number will increase in 2010. But will earnings?

Dennis Speigel is president of International Theme Park Services (ITPS), based in Cincinnati, Ohio. ITPS is the industry’s leading, independent management/consulting firm, offering services including feasibility analysis, design/masterplanning, pre-opening operational planning, on-site management, sponsorship & marketing, executive search and business audits.

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