: ‘Theme parks are built for density’: Disneyland finally reopens, but it’s now make or break for the industry

As was the case with Disney’s Florida theme parks, its California attractions lagged their nearby competitors, including Universal Studios Hollywood
CMCSA,
-0.71%,
Knott’s Berry Farm
FUN,
+1.01%
and Six Flags Magic Mountain
SIX,
-2.60%,
in reopening.

Fans have eagerly awaited the return of theme parks. Reservations to visit Disneyland Resort sold out on the first day they opened up to the public, with wannabe visitors waiting hours on online queues to score their spot.

But even as people race back to ride carousels and eat turkey legs, the industry faces a bumpy road to recovery.

“2020 was the most challenging year on record for theme-park operators,” said Carissa Baker, an assistant professor at University of Central Florida’s Rosen College of Hospitality Management.

Reopening theme parks has not been a straightforward affair. In Europe and Asia, amusement parks were allowed to welcome visitors at points, only to see rising COVID-19 cases force the venues to close once again.

“Even in places like Florida where the parks have not closed again, they are missing attendance and revenue they would have had in previous years, and had to cancel several high revenue-generating seasonal events,” Baker said.

Here’s what you need to know about the industry’s comeback:

Financial challenges remain — but discounts could follow

While all theme parks have seen reduced visitation and profits as a result of the pandemic, the effect varies widely from company to company. And larger operators have arguably had an easier go of it than smaller theme parks.

“When you’ve got a conglomerate, like Disney or Universal, thankfully for them they’ve got many legs to stand on in this situation,” said John Gerner, managing director of industry consulting firm Leisure Business Advisors. Disney is a prime example: Although it’s taken a major revenue hit from its theme parks business, the pandemic helped fuel subscriptions to its streaming service, Disney+.

At the same time the most-visited theme parks, like Walt Disney World or Universal Studios Orlando, rely heavily on tourists. Now that vaccinations are rolling out steadily across the country, Americans are ready to hop on planes to Florida and California again. But for a long time, that wasn’t the case, to the detriment of these attractions.

“I can imagine that some would predict that more regional operators like Six Flags or Cedar Fair would be in a worse position because their portfolios are less diverse than giants like Disney and Comcast,” Baker said. “However, they are in a good position because what we’ve seen is that visitation is returning to local and regional parks first. When visitors wanted to go back to parks, they tended to choose closer offerings.”

At the same time, many of local and regional parks operate on a seasonal business, welcoming visitors in the spring and summer before winding operations down as the weather turns colder in the fall and winter. Some of these theme parks were unable to resume full operations whatsoever last year due to restrictions imposed by their state governments.

Evidence shows that these parks could see demand well in excess of their limited capacities. But the attractions industry has warned that meeting that demand could prove challenging.

“We have encountered difficulty fully staffing our parks upon reopening with a shortage of labor availability due to many factors,” Six Flags CEO and President Mike Spanos said during the company’s quarterly earnings call this week.

Among the factors impeding Six Flags’ ability to expand its workforce are the unusual school schedules caused by COVID-19 and restrictions on immigration for foreign workers.

Demand may seem high given the reduced capacity, but when parks are allowed to open at full capacity once again, it’s not clear whether massive crowds will follow. And if the past is precedent, that could lead to heavy discounting.

Popular promotions, such as the free-dining offer at Walt Disney World, came about in the wake of other downturns in park attendance, including after the September 11 terrorist attacks and the Great Recession.

The post-COVID era may not be much different.

“We’re going to see unprecedented discounting in our industry during the next two years simply to lure back the people that we’ve lost,” said Dennis Speigel, CEO and founder of International Theme Park Services, an industry consulting firm.

Special safety measures aren’t going away

As parks have reopened, the experience has changed considerably to keep visitors safe as long as COVID remains a threat. To start, capacity is limited by most state governments, and theme parks have generally reopened at an even lower capacity to start out of an abundance of caution. Masks are required at most times in theme parks, and guests typically must submit to temperature checks prior to entrance.

The pandemic has altered the theme-park experience in other notable ways. At Disney parks, Plexiglas dividers were installed in the queues for rides and even on ride vehicles themselves to reduce airflow among guests. Character meet-and-greets are suspended during the pandemic, though visitors can see Mickey and Minnie from a distance.

Certain attractions are also unavailable, including parades and firework shows, given concerns about the crowds that form to view them.

How long these limitations remain in place is an open question. “Will there be some overlap until we know that we’ve hit herd immunity? Sure there will,” said Disney CEO Bob Chapek when asked about pandemic-related safety measures during a recent investors call. “But do we also believe that we’ll be in the same state of 6-foot social distancing and mask wearing in 2022? Absolutely not.”

Ultimately, the rules will come down to state and local lawmakers. This week, the mayor of Orange County, Fla., where multiple theme parks are located, said that the county’s mask mandate would be relaxed in phases as more people are vaccinated. Already at Walt Disney World, the rules were eased to allow guests to remove their face coverings briefly when posing for a photo.

New rides and attractions could be delayed

Theme parks rely heavily on new rides to attract visitors, industry experts say.

“Our industry lives on repeat visitation, and repeat visitation is driven by expansion,” Speigel said. “Continuing to present new product and ideas — that’s what people love.”

COVID not only delivered a hit to visitor counts and revenues, but also to many theme parks’ big plans. The pandemic caused the largest slowdown in spending on capital expenditures like expansion in 40 years, Speigel said. Disney executives, for instance, revised their outlook on capital spending downward earlier this year due to the COVID-related closures.

Many theme parks have been forced to forego the development of new features in order to service their debt. Unlike other industries, the theme-park business has not received targeted relief from the federal government. Because of the pandemic closures, many theme-park operators have taken on debt to keep operations afloat.

Some theme parks have gone a step further. Enchanted Forest, a family-owned theme park located in Oregon, turned to GoFundMe to recoup some of its losses. To date, the theme park has raised over $450,000 through the crowd-funding platform.

“That was just a tremendous amount of help to get through to starting the season, because that is money that does not have to be paid back,” said Susan Vaslev, co-manager of Enchanted Forest.

But Enchanted Forest also had to take out loans through the Paycheck Protection Program. The park was meant to reopen back in March, but an ice storm in February caused significant damage that has delayed its reopening even further.

In the meantime, Oregon has reintroduced many COVID-related restrictions as case counts rose, meaning the park’s revenue will be limited significantly even when it does resume operations.

Normally when they park takes out a loan, it does so “to build a big ride or build something new,” Vaslev said. “And then we would have that source of income coming in to pay that loan back.”

With the COVID loans, the money is merely keeping the business afloat. “It’s not an option to not do ride maintenance or pay your insurance,” Vaslev said.

Once the park does emerge from the pandemic, the first priority will be to replace its septic system before any additional rides or attractions are added. As a result, it will be a long time before visitors to Enchanted Forest will get to experience something new.

That’s not to say amusement parks have stopped the rollout of new themed areas, rides and attractions entirely. In some cases, new rides that were close to completion at the start of the pandemic had their openings delayed until this year to allow more guests to partake.

When Universal Studios Hollywood reopened this month, guests were able to go on new rides based on the “Secret Life of Pets” and “Jurassic World” film franchises. And over at Disney California Adventure, a new area based on the characters from the Marvel Cinematic Universe is set to open this summer.

And some of these expansion plans are even grander than one or two new rides. Universal Studios Orlando has resumed work on a third theme park, while Disney unveiled plans to expand its parks in California as part of a proposal to the city of Anaheim.

“The pandemic caused a delay, but many projects will eventually resume and construction on theme parks in emerging markets especially will continue,” Baker said, citing the opening of a Universal Studios theme park in Beijing, China this year.

Some theme parks may not survive

Ultimately, this summer will end up being a make-or-break situation for many of these attractions nationwide. Enchanted Forest remains optimistic about their ability to survive the pandemic, Vaslev said, but if they have another slow summer because of COVID it will be difficult to do so.

“I don’t know how many businesses can go two years without generating the funds they need,” she said.

Even if a theme park manages to reopen this year, its survival isn’t guaranteed. COVID restrictions, so long as they remain in place, will continue to affect these companies’ bottom lines.

“Theme parks are built for density,” Gerner said. Operating a ride like Peter Pan’s Flight at Walt Disney World essentially costs the same amount whether the park is a 35% or 100% capacity.

Theme parks can keep certain elements of their operations scaled down — many have reduced entertainment or limited how many restaurants are open — but many costs are unavoidable.

Parks also rely on people seeking out ways to spend their time, such as dodging into a gift shop to escape the heat or grabbing a bite to eat before waiting in line. With lower crowds, visitors can do more, but that might mean they actually spend less money.

Still, the industry remains upbeat about its prospects in the future. “Theme parks are a compelling form of entertainment,” Baker said. “Guests really enjoy the experiences they get at theme parks and will likely be more desirous of having these experiences once health and financial obstacles are removed.”