Significant Run-Up In Per Capita Spending Expected To Slow

Attendance at rated U.S. regional theme parks continues to lag 2019 levels. The highly seasonal industry is exposed to weather-related event risk during the highly important summer, which occurred with higher frequency during peak periods in 2023. The industry is also exposed to winter storms as operators attempt to diversify their calendars, although cash flow during the offseason remains comparably modest.

The recent attendance trend is also due in part to strategic changes for some operators. For example, Six Flags Entertainment Corp. (before merging with Cedar Fair L.P.) reported 2023 attendance that was about 32% below 2019. Cedar Fair's and United Parks & Resorts Inc.'s (which includes SeaWorld branded parks) attendance was about 5% lower for the same period. Six Flags' attendance recovery has lagged peers as it focused on a "premiumization strategy" by attempting to significantly increase per capita spending through increased admission prices and premium food and beverages at the expense of attendance. As a result, 2023 revenue and EBITDA still remained below those of 2019.

In addition, attendance across regional theme parks remains lower in part due to significantly decreased group and international ticket purchases compared to 2019. In its fourth-quarter earnings call, United reported that this segment was down 30%, or 1.3 million attendees, in 2023 compared to 2019.

S&P Global Ratings believes group attendance will increase across the industry in 2024.   Some operators have reported solid early-season group ticket sales, though international visitation may take longer to recover. We expect regional theme park attendance growth in the 1%-2% range in 2024 and 2025 (even though overall attendance is likely to remain below pre-pandemic levels), driven by increased group visitation, higher season pass sales, and the opening of new park attractions.

Despite lagging attendance, rated regional theme parks have reported strong growth in per capita spending as parks reopened, behind pent-up demand and stimulus spending padding the wallets of consumers. As a result, significantly increased prices contributed to reported 2023 growth in per capita spending for Cedar Fair (26%), Six Flags (34%), and United Parks & Resorts (29%) versus 2019.

At the same time, operators made significant strides with cost controls, focusing on menu optimization, mobile ordering at concessions, and labor force optimization to offset the impact of seasonal labor wage increases. Accordingly, rated theme park operators enjoyed significant EBITDA growth and deleveraging on lower attendance.

Chart 1

Chart 2

We believe per capita spending will increase more in line with consumer spending through 2025.   Income growth has significantly lagged spending growth since the middle of 2023, with American consumers increasingly relying on credit and savings. Excess savings are likely depleted for all but the highest income households, and delinquency rates on credit cards and auto loans now exceed pre-pandemic rates. Higher interest rates have led to soaring interest payments as a share of personal income.

We think consumers will likely rein in spending, including on leisure activity. We expect per capita spending to increase by 1%-2%, in line with our expectations for consumer spending. As attendance recovers and per capita spending at theme parks remains elevated versus 2019, we expect U.S. regional operators will continue to generate moderate EBITDA and free cash flow growth, which should support modest deleveraging.

Ratings Recover On Modest Expected Revenue Growth Through 2025

Rating actions have been positive across rated regional theme parks since closures due to the pandemic and our two-notch downgrades for Six Flags, Cedar Fair, and SeaWorld Parks & Entertainment Inc. in March 2020. We upgraded all three multiple times the past two years, as well as Herschend Entertainment Co. LLC. Overall credit metrics have recovered following park reopenings despite lower attendance levels as companies have focused on higher guest per capita spending and operating efficiencies to drive EBITDA growth and leverage reduction.

Our recent upgrade of United Parks & Resorts (formerly SeaWorld Parks & Entertainment) reflects our expectation that the company will sustain leverage below 3.75x, including potential leveraging acquisitions, development spending, or shareholder returns. We also raised our rating on Six Flags following its merger with Cedar Fair, largely due to the significant increase in scale and potential synergies.

Chart 3

Operators Face A Steeper Climb Toward Additional Upgrades

Further upgrades are unlikely in the near term. We believe rated theme park operators have limited scale and diversity of operations, which makes them more susceptible to macroeconomic headwinds than larger and geographically diversified peers.

Limited geographical diversity makes U.S. regional theme park companies operationally less flexible because they rely on a handful of parks for cash flow generation and debt service, exposing them to event risks. Weather-related disruptions across various regions of the U.S. in 2023 broadly reduced attendance year over year.

Additionally, financial policy decisions, including development spending, potential leveraging acquisitions, and shareholder returns, probably limit further ratings upside, at least over the next few years. The sector benefits from high barriers to entry due to significant capital requirements and limited land available to build new parks. Demand for regional theme parks competes with other forms of entertainment for consumer wallet share, including live events and leisure travel.

Therefore, operators must continuously reinvest in their parks to improve the guest experience and increase visitation. We expect significant growth capital expenditure to add new rides, attractions, lodging, and other amenities. To the extent that they fund new growth initiatives with debt financing, we expect leverage will likely remain above our upgrade thresholds through the development period.

While sizable acquisition opportunities are limited in the sector, we believe international expansion presents a long-term greenfield opportunity to add scale and enter new markets.   Most recently, United Parks & Resorts opened its first SeaWorld branded park outside the U.S.: SeaWorld Abu Dhabi on Yas Island in the United Arab Emirates in May 2023 through international licensing agreements.

To the extent theme park operators commit to publicly articulated leverage targets, we believe they would increase leverage toward the higher end of the policy range given suitable greenfield expansions, acquisition opportunities, or shareholder returns, which would be above leverage tolerances at a higher rating.

Table 1

Related Criteria

• Criteria | Corporates | General: Corporate Methodology, Jan. 7, 2024
• Criteria | Corporates | General: Methodology: Management And Governance Credit Factors For Corporate Entities, Jan. 7, 2024
• General Criteria: Environmental, Social, And Governance Principles In Credit Ratings, Oct. 10, 2021
• General Criteria: Group Rating Methodology, July 1, 2019
• Criteria | Corporates | General: Corporate Methodology: Ratios And Adjustments, April 1, 2019
• Criteria | Corporates | General: Recovery Rating Criteria For Speculative-Grade Corporate Issuers, Dec. 7, 2016
• Criteria | Corporates | General: Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Dec. 16, 2014
• Criteria | Corporates | Industrials: Key Credit Factors For The Leisure And Sports Industry, March 5, 2014
• General Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013
• General Criteria: Methodology: Industry Risk, Nov. 19, 2013
• General Criteria: Principles Of Credit Ratings, Feb. 16, 2011

Related Research

• Industry Credit Outlook 2024: Key Themes, Jan. 31, 2024