Barrons -- Cruises Are Beating Theme Parks. It’s All About Prices ..................................
Barrons
Aug 08, 2024
Cruises Are Beating Theme Parks. It’s All About Prices.
By Jack Hough
Royal Caribbean's Utopia of the Seas dwarfs the older cruise ship Vision of the Seas, seen docked at Perfect Day at CocoCay, the cruise line's resort in the Bahama.
Put off by high theme park prices? Try a floating one. J.P. Morgan reckons that cruises are 20% cheaper now than land-based alternatives, versus 10% to 15% cheaper in 2019. It predicts a market share shift in favor of cruising, which is part of why it just launched coverage of Six Flags Entertainment at Underweight, while adding Overweight-rated Royal Caribbean Group to its Analyst Focus List.
Your reporter noticed sharply higher prices for admission, hotels, and restaurants at Walt Disney World in Florida as the pandemic eased. Discounts grew skimpy. Perks that were previously free -- airport bus service, parking for hotel guests, a handful of daily chances to shorten ride waits -- took on big surcharges. Walt Disney was taking advantage of ravenous demand for so-called revenge travel, while covering for steep losses from its streaming services.
Disney World prices remain high, but more recently, discounts have grown larger, and there has been some surcharge backtracking -- parking is once again free for hotel guests, for example. It’s now clear why. This past week, Disney’s results for its fiscal third quarter showed meager growth in its Experiences division, which includes parks. Management foresees flat revenue and a small decline in operating profit there during the fourth quarter. Comcast reported weak results for its theme parks, too.
With theme park prices broadly up 37% since 2019, according to J.P. Morgan, there will be limited opportunity for companies to juice results by charging more. The silver lining for Disney in particular is that its streaming operations have now reached modest profitability, and its studios are riding a record-setting summer box-office haul from Inside Out 2, an animated film featuring personified emotions. Also, its Experiences division includes its small but fast-growing cruise operations.
The outlook for cruising is brighter than that for theme parks. There are new ships, but not too many; capacity will increase 5.6% this year but only 2.3% next year. Demand is strong, with passengers booking trips further out and paying up for them. Royal Caribbean in particular looks likely to beat Wall Street growth forecasts, says JPM. Its price target is $210 a share; the stock recently went for around $154, or 13.4 times this year’s earnings consensus.
The problem for Six Flags is that its own experiment with sharply higher prices produced a disastrous drop in attendance. Market share will now be difficult to win back without aggressive discounting. A recent merger with rival Cedar Fair could yield cost cuts. But Six Flags is also years behind on capital spending on its rides. Catching up there amid minimal ticket price growth won’t be fun, or flattering for free cash flow.
Write to Jack Hough at jack.hough@barrons.com.
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