Ever dream of owning a theme park? While it may not be realistic for everyone to have his or her own theme park, investors can fulfill this dream by becoming a shareholder of Six Flags Entertainment Corp (NYSE:SIX). Six Flags Entertainment Corp (NYSE:SIX) owns and operates 19 parks, 17 of which are located in the United States, plus one in Mexico and one in Canada. Six Flags Entertainment Corp (NYSE:SIX) has grown remarkably after emerging from Chapter 11 bankruptcy a few years ago. Its improvements can be seen from several fronts, including more efficient management, a more focused strategy, and stronger innovation.
As stated by Jim Reid-Anderson, Chairman, President & CEO of Six Flags Entertainment Corp (NYSE:SIX), at the Goldman Sachs Lodging, Gaming, Restaurant and Leisure Conference, the theme park industry is actually more stable than many investors thought and generates steady cash flows with high recurring revenue. The business also has a high barrier to entry as a new company needs to secure $300 to $500 million and obtain a number of government and local authority approvals before establishing its presence. Players in the theme park industry do not compete head-to-head directly, as most of the parks are located in different regions and have unique themes.
Fundamental improvements
After emerging from its bankruptcy, the Six Flags Entertainment Corp (NYSE:SIX)’s management has significantly improvement its efficiency and created a strong alignment between employees and shareholders, as almost 2,000 of its employees are shareholders. The management is now highly focused and deploys only one simple strategy – to become the leader in regional theme parks. Six Flags continues to innovate by following strict investment principles. The company has spent 60% of its capital on innovation in new products, with the total spending equaling 9% of revenue (roughly $100 million). The company has also lowered its overall cost from 75% of sales to 61%. Management believes that more techniques can be leveraged to drive down costs and continuously to expand margins.
Strategically, Six Flags Entertainment Corp (NYSE:SIX) has shifted its marketing focus from national to local with most guests coming from within 100 to 150 miles of the park. The current “Go Big!” campaign is targeting local residents via the channels of local TV, local radio, cinema, and Internet advertising. Instead of discounting, Six Flags now focuses on values and has initiated very strict pricing disciplines. The company continues to work on price improvement by increasing its value offerings.
Season passes as the main growth driver
Management is also working on improving its season pass penetration, which it views as “the weapon for the future,” as it gives the company a pricing opportunity. Every season pass holder will generate higher revenue and higher profitability with each visit. The company is also seeing solid in-park revenue growth with new offerings and innovations, including all-season dining passes. By boosting the parks’ repeating traffic via higher season pass penetration and increasing the per capita spending of visitors through new offerings, Six Flags continues to achieve solid growth for its revenue.
