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A Soft Summer For Theme Parks


Most, if not all, of the traditional scapegoats for soft results don't hold up to a closer look. What to do about the sluggish growth?


A recent report by the Themed Entertainment Association and Economics Research Associates showed modest growth in the theme park space last year, with a worldwide attendance increase of 2.2%.

Busch Entertainment Corp., a subsidiary of Anheuser-Busch Companies Inc. (BUD), operates Sea World, Discovery Cove, Busch Gardens, Adventure Island, Water Country USA and Sesame Place. Its quarterly earnings were up only 3.7%, year-over-year.

Attendance at Disney's (DIS) Walt Disney World increased just 4% in the third quarter of 2007, and attendance at Disneyland resort in California was flat, although revenue did increase 7.4%.

In June, Six Flags Inc. (SIX) said YTD revenue rose 5% from the same period last year. But attendance was flat with 5.9 mln visitors.

Attendance has dropped every year since 2004 at Universal's Islands of Adventure theme park, owned by Blackstone Group (BX) and General Electric's (GE) NBC Universal.

Conventional wisdom within the industry holds that weather, fuel prices, ticket prices, and capital reinvestment (new rides) are the primary factors when accounting for results.

But, a 2005 research project by Joy Hogley and Wenxuan Chen, MBA candidates at UCLA's Anderson School of Management, dispelled these myths.

To wit:

  • Ticket prices have been rising consistently faster than inflation, but people keep visiting theme parks with the same frequency.

  • It appears that many people in the theme park industry, including management, hold misunderstandings when it comes to attendance. No one we spoke to and nothing we read connected slow attendance growth to the equally slow growth of the population.

  • We heard that weather has a major impact, but the annual data indicates that it doesn't.

  • We also were led to expect that higher fuel prices would reduce attendance, but we found that the opposite may be true – high fuel prices may keep people closer to home, actually increasing theme park attendance.

  • Another important concern of the industry is the opening of new attractions, but it appears that even popular, expensive new attractions do not cause a lasting impact on attendance, although they do help to maintain attendance levels.

So, most, if not all, of the traditional scapegoats for soft results don't hold up to a closer look. What to do about the sluggish growth?

The collapsing U.S. dollar will help, for one.

According to a report from PricewaterhouseCoopers, spending at U.S. theme parks is expected to grow 4.3% this year, thanks in part to the weak dollar, which the industry hopes will spur visits by international tourists.

However, while American theme parks are treading water, Kimi Yoshino, of the Los Angeles Times, points out that Asia is the fastest-growing market, with theme park spending expected to reach $8.1 bln by 2011.

Hong Kong Disneyland opened in late 2005, and new parks in China and India are expected to further boost attendance and spending. Universal plans to open a Singapore theme park in 2010 and several other projects are under way.

Perhaps not quite as appealing to the average theme park might be Vietnam's Suoi Tien Cultural Theme Park, which aside from the requisite roller coasters, water slides, and Ferris wheels, features a "bat cave with innumerable bats" and "Mid-air cycling over crocodile farm with more than 1,500 crocodiles of all sizes which cause fearful feeling for tourist."

In short, if Asia's newest theme parks are half as popular as Tokyo Summerland, they're in for record profits:

What's Japanese for "I think you just stepped on my toe?"

No positions in stocks mentioned.
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