The opening-day line on May 24 took four hours to get through, as it weaved past the dolphin theater and looped twice around the seal habitat. The draw was Antarctica: Empire of the Penguin, the newest attraction at SeaWorld Entertainment’s (SEAS) Orlando theme park. The promise of 6,000 pounds of faux snow falling daily and up-close encounters with 230 penguins persuaded thousands to queue up in the Florida heat.
America’s passion for amusement parks is white-hot these days, driven by elaborate new attractions, sophisticated pricing schemes, and a desire to get out of the house—but not too far from home. “You would think that a business whose proposition is selling entertainment that requires disposable income would not do well” just now, says SeaWorld Chief Executive Officer Jim Atchison. “The reality is consumers have found great value in these kinds of experiences.”
The theme park business has recovered from the recession much faster than other leisure pursuits. Revenue in the $37 billion-a-year casino industry has yet to return to its 2007 peak. And the national average price of a hotel room, at $107 a night last summer, was still below its mark four years earlier, according to Smith Travel Research. Yet theme park sales, which fell 5.5 percent, to $11.6 billion, in 2009, have come roaring back. Revenue for U.S. parks is expected to break another record at $13.4 billion this year, a 2.8 percent increase from 2012, according to market researcher IBISWorld, and climb an additional 2.4 percent annually through 2017. That compares with 1.8 percent growth from 2007 to 2012.
Attribute that in part to the Harry Potter effect. Attendance at Universal’s Islands of Adventure park in Orlando jumped 66 percent between 2009 and 2011, to 7.7 million annual visitors, after it opened the Wizarding World of Harry Potter attraction. Providing guests entree to a world based on one of the planet’s most popular book and film franchises proved a potent draw, even during a sluggish economy. Parks are now the highest-margin business at Universal’s parent, Comcast (CMCSA), generating $953 million in operating cash flow on sales of $2.1 billion last year. Explains Tom Williams, CEO of Universal Parks and Resorts: “They buy their capes and wands and mementos of the experience. It’s a way to get away.”
Walt Disney (DIS), the world’s largest theme park operator, is following a similar path. Disney tripled its investment in its resorts business between 2008 and 2012, spending a total of $9.2 billion to, among other things, refresh Fantasyland at its Magic Kingdom park in Orlando and build attractions such as Cars Land at its Disney California Adventure Park in Anaheim. The big investment on attractions featuring the popular Pixar characters turned the latter property around, with California Adventure now rivaling neighboring Disneyland in attendance. Visitors to Disney’s domestic parks climbed 8 percent in the company’s second quarter, and bookings are up 7 percent so far in the current one.
The increasing demand has allowed operators to raise prices. Disney hiked the cost of its premium annual pass to Disneyland and California Adventure by 30 percent last year, to $649. (Daily Disneyland admission is $87 vs. $41 in 2000.) SeaWorld, eyeing the bump it would get from the Antarctica attraction, raised its Orlando annual pass price 24 percent, to $149, in January.
Even on vacation some travelers remain cost-conscious. Visitors to Orlando hit a record 56.8 million last year. But air travel to the theme park capital of the country was down. One explanation: Families are opting to save money by driving rather than flying, a recesssion-born habit that may linger, according to Matt Ouimet, CEO of Cedar Fair Entertainment (FUN), operator of 11 parks including Kings Island near Cincinnati and Dorney Park in Allentown, Pa. Two-thirds of Cedar Fair’s guests live within 100 miles of its parks, which logged record revenue in each of the past three years. “I think what people have learned is road trips are fun,” Ouimet says. “When the economy gets better, you’re not going to be anxious to get back on the airplane. You’re still going to do the staycation thing.”
Managers such as Ouimet are crafting prices to lure more customers. Cedar Fair’s Knott’s Berry Farm, operating in the shadow of Disneyland just six miles away, offers a discount of as much as 38 percent off the $60 single-day ticket to people who buy three days in advance online. Annual passes at Knott’s, which cost $72 each, are payable in six monthly installments of $12, making them affordable to folks like Aney Salas, a mother of four who took her family to the park for the first time in years in April. “A payment plan really helps,” she said as she unloaded her brood in the parking lot.
Wall Street loves the growing demand and parks’ increased pricing power. Cedar Fair’s shares have quadrupled over the past four years. So have those of Six Flags Entertainment (SIX), which operates 18 parks in North America. SeaWorld, purchased in 2009 by private equity firm Blackstone Group (BX), sold stock to the public in April at $27 a share. The shares are up 33 percent since then.
John Cryan, partner and co-founder at Fortuna Advisors in New York, says stocks like SeaWorld, trading at 13 times last year’s earnings before interest, taxes, depreciation, and amortization, have too much hope built into their valuation. “Based on our analysis, SeaWorld needs to deliver about 10 percent revenue growth per year for the next five years to justify its current share price,” Cryan says. “Impossible? No. Difficult? Yes.”
Disney, whose stock has also been hitting highs, will this year begin rolling out its Web-based MyMagic+, a way for guests to book rides, restaurants, and events before they leave home for the Florida resort. Besides helping with crowd control, MyMagic+ will reduce time spent in lines, meaning guests will have more time to shop or eat at Disney. It will also allow Disney to create targeted promotions or offer access to special events such as character meet-and-greets. “The more that their visit can seem personalized, the better,” Thomas Staggs, chairman of Walt Disney Parks & Resorts, said at a conference on May 29. That personal touch could ensure that visitors will spend more time with Mickey—and less with the penguins.