Summer Staycation

The economic slowdown couldn't have come at a worse time for America's theme parks. An afternoon spent riding roller coasters, driving bumper cars, stuffing your face with fried dough, and waiting in 40-minute lines for water slides is, by definition, a discretionary purchase. Compared with other summertime diversions—movies, sprinklers in the front lawn and public beaches—theme parks are pricey. So it's no surprise that publicly-held amusement park companies like Cedar Fair and Six Flags have been suffering in the past year. The macroeconomic climate has presented a particular challenge to Daniel Snyder, the wunderkind Washington Redskins owner who took over Six Flags in 2005 and is trying to engineer a turnaround.

When Snyder took over, Six Flags' core audience was teenagers and young adults drawn to extreme rides like roller coasters. Snyder planned to boost profits by remaking Six Flags in Disney's image as a wholesome, highly branded, family-friendly place—fewer dudes, more dads and toddlers. He recruited top executives from the Disney empire, including CEO Mark Shapiro  from ESPN and Chief Financial Officer Jeff Speed from EuroDisney. The new team has cleaned up the parks, added more rides and attractions for families and given those families more to do (and spend money on) inside the parks by bringing in brands like Cold Stone Creamery and Johnny Rockets. Like Disney, Six Flags has also pursued international business. (In March, it announced a deal to help build a theme park in Dubai.)

How's the strategy going so far? The stock has been a poor performer, in large measure because of Six Flags' significant debt load. "We've taken some hit on our attendance, but we're seeing traction," Speed said in an interview last Friday. In 2007, total attendance was 24.9 million, compared with 28.7 million in 2005. In the first quarter, per-capita guest spending was up 13 percent from the year before. Speed notes that in the past two years, per-person spending has risen by about 17 percent. (This presentation has excellent data on Six Flags' recent past and future strategy.)

But Six Flags' business and its short-term prospects are almost entirely dependent on the ability of middle-class American consumers to spend during the summer months. Six Flags counts on July and August for about 55 percent of total revenues. Eighteen of its 20 parks are in the United States, with one each in Canada and Mexico. Today's target audience: "mass-market blue-collar, with average income $50,000 per year, and probably split between teens and young adults on the one hand, and families on the other," said Speed. In this summer of rising inflation, soaring gas prices and economic slackness, it would seem that the economic stars are aligning against Six Flags, just as they are against other businesses that rely exclusively on middle-class discretionary spending (casual restaurants, casinos, apparel companies).

However, argues Speed with some plausibility, maybe not. There's no question the business is cyclical and tethered to the economy at large. But just as high-end competitors like Disney do better in exuberant times, companies that offer lower-cost options to middle-class consumers might be expected to be more resilient during a down cycle. Six Flags is hoping that in this pinched climate it will attract more "trading down" business. Not people trading down from Provence, France, or the Hamptons, N.Y., to Six Flags, but families trading from a three-day, four-figure trip to Disney to a one-day, three-figure trip to Six Flags. Call it a daycation or a staycation. "There's no doubt that when people at the lower end of the disposable income spectrum get to a point where they can't afford our product, we'll get impacted," said Speed. "The flip side of that is that people in the middle and upper ends of the spectrum aren't taking longer trips, and we can be a beneficiary of that."

A day at Six Flags for a family of four isn't necessarily cheap, but it's a bargain compared with Disney. A typical Six Flags visitor in 2007 spent $36 for the day, including parking, the price of a ticket and meals. So, the company says, a day at Six Flags for a family of four costs less than $175. For many families this year, that may still be an affordable luxury. And Six Flags has responded to the rough economic environment with promotional pricing on one-day passes, letting adults in for the price of kids.

Six Flags doesn't give out forecasts on attendance, because too many unpredictable variables (like weather) come into play. But Speed said he suspects "we're going to see more families and more higher-disposable-income families this summer." For the definitive answer, investors will have to wait until this fall, when Six Flags reports its earnings for the summer. In the meantime, the curious can do informal checks on other potential indicators of a higher-end family presence at what had been a low-end teen paradise, like Priuses in the parking lots or arugula salads at Johnny Rockets.