Six Flags second quarter down on attendance and revenue, per cap spending up

I still think they're on the right track for the long term. I understand why the analysts see a lot of risk, but analysts think too short term.

What gets me is that Shapiro is claiming that the new Six Flags strategy, of hiring more cleaning staff, having more costumed characters roam the parks and adding a daily parade, is paying off because per cap spending is up. Any monkey can figure out that the only strategy that is causing higher per cap spending is the strategy of substantially raising prices inside the park to a captive audience. People are still going to play games, buy food, park cars, etc., they are just paying out the nose for it now.

Six Flags has suffered through a number of years of declining attendance, with this year having what I think is the largest percentage drop in attendance. I have to think that, since that parks have not gotten worse, that a good portion of the attendance slide is caused by Six Flags pricing people out of the parks.

Shapiro's strategy has reduced revenue in the second quarter this year by 50 million dollars compared to last year. Maybe I'm thinking too short term, but I don't see that as a sign that they are on the right track. They have high costs in some of the new things, and I feel they have little to no effect in driving attendance up. While characters and parades may make a child's day in the park nicer, overall it has little drawing power to bring people in.

You have to give Shapiro high marks for trying some things that may look good on paper. But, I think Six Flags would have been better off spending some money to clean up the parks, and then running a tight, efficient ship with cost controls in place. Don't alienate your core market of thrill seekers, just make the parks cleaner and nicer to attract a few more families. Then cut out the inefficiencies that don't harm your guest experience. And don't price your customers out of the market, rather keep prices in line and provide more perceived value by having a cleaner park with better operations.

Well, it's that refinement in the definition of their customer that we've talked about before. Per cap spending is up, and largely on the part of people that can afford it I'm sure. I still think they've alienated so many of the "good" customers that they're just not coming to the park yet.

Pete, I agree with you 100%.

You have to take into account they closed all these parks.Of course they will not look good on paper this year. The less parks tha tyou have the less money you make.
*** This post was edited by majortom1981 8/3/2006 11:17:12 AM ***

While that may be true the les parks you have means the less expenditures you have to make in terms of maintenance,staffing construction etc.

Simply raising admission,parking & merchandise prices alone aren't going to do it as the guests simply refuse to pay the insane amounts SF is charging these days...the whole notion of premium parking for example has got to go because it gives the perception that the guests who cannot or will not fork over the higher fee are already being treated as lower class even before they get in the gate I mean what's next?Shapiro's gonna start charging a fee to ride on a park's individual signature ride?

He's trying to run SF like he does Fedex field & that strategy simply isn't going to work.

So which are the 3 parks they are going to dispose of??

I guess they're just going on the strategy of milking the rich. Who cares if that family of 6 can afford to get in and spend X amount of $, as long as theres those 2 rich people that come in and spend the same ammount of money who can make up for it, and the lines will be less, that's all that matters.
*** This post was edited by P18 8/3/2006 12:52:03 PM ***

Let me import my comment about Cedar Fair from r.r-c into this discussion...

Over on rec.roller-coaster on Tuesday afternoon, I wrote...

---

I think this is interesting...
: nicely. Over this same period, average in-park guest per capita
: spending at our twelve properties remained unchanged from 2005.
How did they manage to do that?
They LOWERED the gate price.
They LOWERED the food prices.
The parking price remained UNCHANGED.
They brought back the senior discount.
They are selling cotton candy for a quarter.
Add to that the reduction in the amount of pocket money the typical
customer has to spend in the park (gotta pay for the ga$, plus the
economic conditions in Cedar Point's ADI are pretty grim).  Should that
not have resulted in LOWER per-cap spending?
Cedar Fair has either left alone or REDUCED the sell price on just about
everything from the parking lot entrance to the exit gate, their
customers have less money to spend, and yet their per-cap spending
remains unchanged.
There has got to be a lesson in there someplace.
I'm going to guess that Six Flags' across the board price hikes are going
to result in LOWER per-caps.  We'll see what happens...

---

Indeed. Six Flags raised admission and parking, raised the food prices, raised the game prices, and raised the souvenir prices. So they saw some per-cap increase from that, but they ended up losing money because attendance is down. My guess is that the onlly reason they saw a per-cap increase was because the in-park discretionary spending (that is, other than admission and parking) was already bottoming out. So instead of a drop in per-caps they see a drop in attendance.

Could it be that Six Flags no longer offers a reasonable return on investment to their customers? Is it reasonable to assume that just because I thought the $15 I paid to visit Six Flags Magic Mountain was a lot more than that place was worth for all the broken-down attractions, perhaps the "more desirable customers" might also think that $75 to spend on admission and parking is more than the place is worth?

Does Six Flags even know what business it is in? I know that Cedar Fair does, but I'm more convinced every day that Six Flags is absolutely clueless.

--Dave Althoff, Jr.

(edit: added signature, then had to fix the formatting. Jeff, the news editor is broken. :) )
*** This post was edited by RideMan 8/3/2006 1:01:29 PM ***

Peabody: They excluded results from Six Flags New Orleans, Frontier City, and Wyandot Lake. SFNO because it is "Six Flags Not Operating", Frontier City because they are planning to dispose of it, and Wyandot Lake because they have already agreed to dispose of it.

Notice that for the disappointing results at SFNO, they blamed the weather... :)
(somebody had to say it!)

--Dave Althoff, Jr.
*** This post was edited by RideMan 8/3/2006 1:04:52 PM ***

Thanks, Dave...couldn't find that :) Makes a lot of sense.

---

So they saw some per-cap increase from that, but they ended up losing money because attendance is down.

---

See, I read it as "they lost money because of increased spending."

"The increased costs were driven largely by anticipated and strategic
increases in salaries, wages and other expenses primarily associated
with additional staffing and services in order to improve the guest
experience through greater character presence, increased cleanliness,
employee training and other initiatives ($29.6 million), stock- based
compensation ($1.5 million), Management Change Costs ($1.0 million), and offset by a reduction in loss on fixed assets ($5.5 million)."

If you run the numbers (minus SFNO) you'll see a 12% decrease in attendance (which I suspect is all about losing guests on previous experiences and has much less to do with pricing), but a 14% increase in per cap spending and in the end it works out to bringing in slight *more* money from guests than last year.

We'll use nice round numbers for clarity for the sake of those playing along at home:

For every 100 guests in 2005 the park received an average of $3,098 (based on last year's per cap of $30.98)

In 2006 those 100 people only equaled 88 but they recieved an average of $3,116 (based on this years per cap of $35.41)

Seems to me that even with attendance down, per cap made up for it.

Looks like a good first step to me. Now just get costs under control and start winning people back.

It took SF at least five years of sliding to get to this point and two quarters under Red Zone is not going to change much. (see Geauga Lake)

What's interesting is that SF has resorted back to advertising only the coasters of MM. In massive lettering "17 Coasters" flies across the screen, and then the usual suspects..X, Deja, Goliath, and Tatsu. I can only imagine the dissapointment when people show up and see that a big chunk of the 17 "world class coasters", is a figment of marketng. It doesn't serve the park to completely mislead the public, reinforces the image of the park as only coasters, and targets the demographic Shapiro doesn't want. The family audience they are chasing is ignored completely in their advertising campaign here in so cal.

It's been good to see some of the changes at SFMM, but they need to do a better job of targeting the family customer, and it's rare to see them advertise HH - even during the heat wave.

Also, I think there is too much focus placed on quarterly results. When the new "family" attractions go in, are properly supported by marketing, and the roster of parks stabilize, then it would be a good time to evaluate the direction of the chain.

I said this in my second SFoG trip report of the year: the real problem with Six Flags - no, not the immature image or lack of family stuff, which at SFoG at least is NOT a problem at all - is that EVERYTHING seems like a massive ripoff from the $15 parking onwards, aside from the gate. The gate is fine, realistically admission is $35-40 with either the online discount or CocaCola/Wendys promotions that are always running. It just seems like there's very little return on your investment when you pay $35-50 to get into the park and have to go to five different places just to get complimentary icewater because "we don't have the complimentary (and tiny) ice water cups" when you can see big stacks of Coke cups. That sorta thing doesn't inspire you to spend more in the park, it just pisses you off. I've been to more than SF parks, so I know the difference between well run parks (Busch, Paramount) and their bs. I LIKE SFoG as a park, it has a great selection of coasters, but I personally refuse to spend one hot nickel (aside from doing the skycoaster) in the park once I'm in. It's just not worth it. Alot of that is Shapiro's doing.Personally, I think he's a fool and I hope his reign is short.
*** This post was edited by Vincent Greene 8/3/2006 2:37:22 PM ***

---

When the new "family" attractions go in, are properly supported by marketing, and the roster of parks stabilize, then it would be a good time to evaluate the direction of the chain.

---

Exactly!

Or in other words, "When the rest of the steps are taken" :)

I'll agree that the price hikes are out of control in some respects, especially since the only place they really needed to raise prices was in season pass sales. That said, it's easier to go down from the giant jump, I suppose.

Again, it's the spending that appears to be hurting them the most. To make matters worse, they want to show the value of their park experience and charge more for it at the same time, which will undoubtedly not be good for business.

I think it's too early to say they don't know what they're doing.

I don't know about that, Jeff...

I'm just thinking back to what I have seen in their parks this season. The most obvious is their decision to blindly cut hours at the end of every operating day to cut costs. That's real smart: cut the hours of your waterparks in the middle of a *national* heat wave. They ought to be doing massive "come in and cool off" promotions for the standalone water parks and promoting the hell out of the ones included with park admission. But I am also thinking about Magic Mountain, and how two of their coasters had signs on them indicating that they were down for seasonal maintenance during what should be the busiest weeks of the year, and how four of their coasters were not even running.

They are in business because the amusement business is one in which they should be able to earn metric assloads of cold, hard cash. But just because that is *possible* (see Cedar Fair, L.P., for instance) doesn't mean it happens automatically. Six Flags is in the business of giving entertainment, most particularly, amusement rides. That is their product. They are selling their ride operations, and everything else comes from that. They have chosen to neglect their product, to the point where the product they are selling is worth far less than the asking price. They have 'burned the lot' with far too many people, and now they are expecting the few people who haven't written them off yet to spend even more money to get an even more inferior product.

That's not a good business model. Not by a long shot. They have to start by fixing the product, then by figuring out how to earn back the customers.

They should start by having someone camp out at Geauga Lake and see what's become of the place since they sold it. They could learn a lot from their own failure.

--Dave Althoff, Jr.

Rideman said: "....metric assloads...."

(note to self: Add "metric assloads" to vocabulary)

Ride Man: I won't argue that Six Flags has been neglecting their product. However, Snyder came in during the middle of the pre-season, without a lot time to change much in the park. Combine that with the neglect "momentum" and I think this may take a little while to change. As we said with Geauga Lake, see what happens when the new management has a full off-season.

*** This post was edited by 0g 8/3/2006 7:19:08 PM ***