Are we in an economic recession right now, or a depression?
For the travel industry, that question really doesn't matter at the moment... because it's worse than that. For all practical purposes, the travel industry no longer exists. Flights are grounded. Hotels are closed. Attractions are empty. For travel businesses, a "depression" - at this point - would be an upgrade.
Even when travel returns, theme parks likely will face a substantial downturn in their business. The question is - for how long?
Theme parks already have lost at least three months of income with parks closed due to stay-at-home orders. And those losses will continue for parks in states such as California that have yet to clear parks to return. Even in locations where parks have reopened, capacities are limited, and it's likely no park will get back to full-sized crowds by the end of 2020. Not while international borders are closed, and the majority of the public remains concerned about catching or spreading the virus.
I've written before that I expect some parks to delay opening their new attractions for this year until 2021, as Cedar Point has announced. It's smart strategy. New attractions are designed to boost attendance, and while parks would love to see a surge that helps dilute the red ink from the first half of the year, social distancing rules and public reticence to be in large groups will make those gains tough, if not impossible.
Furthermore, 2020's financial losses will mean that park owners won't have money in the bank for new attractions in 2021. All major chains have announced deep cuts in the capital spending for this year and beyond. So why not save the new attraction you already paid for until 2021, when you wouldn't otherwise have anything to lure reporters and influencers into the park for new-attraction-media-day coverage?
But that's just 2021. What happens in 2022, and beyond? It's unlikely that 2021 will set any attendance and revenue records, especially if we suffer a second wave of infections, as history suggests we might. Don't count on a vaccine coming to our rescue, either. The current record for vaccine development is four years, for mumps. And there's never been a successful vaccine for a coronavirus.
Aggressive, mandatory testing - backed up with contact tracing and isolation for those infected or exposed - can help eradicate the virus in a community without blanket stay-at-home orders, but it's going to take a massive change in leadership before that happens in the United States. Assuming that comes by the beginning of next year, it would still take months of testing and isolations before the travel business could return to anything approaching 2019 levels. So even a best-case scenario would bring us to at least 2022 before theme parks could even think about returning capital spending to pre-corona levels. That would mean 2023 or later before we'd see major new coasters or other attractions at theme parks again.
History teaches that theme parks are a capital intensive business. And that creates the "chicken or the egg" dilemma for those planning the industry's future. If parks don't spend money on new attractions, it's tough to earn the money they need to build new attractions. That capital barrier to entry is why we don't see new parks popping up around the United States anymore. It's also why this pandemic creates the very real risk of a death spiral for theme park industry.
If some parks or chains can't invest in new attractions for 2022, their attendance might continue to slide even as the rest of the travel industry begins to recover. That could leave them to skip anything new for 2023 as well, starting the spiral.
As park of multi-billion dollar corporations with multiple sources of cash flow, Disney and Universal probably are best positions to avoid this spiral. They likely will find a way to bring back their capital spending to boost attendance as soon as the market is ready to travel again.
What about Six Flags, Cedar Fair, SeaWorld and independent theme parks? Many of those businesses are borrowing money just to stay alive right now. But every disruption in the business world creates an opportunity.
The theme parks that win the post-corona era will be the ones that find ways to create innovative new attractions that bring in the crowds without having to spend tens of millions of dollars up front. Parks that create these new attractions will then enjoy the benefit of having these new crowd-pleasing rides, shows, or experiences... as well as the increase in income that then allows them to supplement those new attractions with expensive, pre-corona-style new attractions as well.
So what will these innovative new attractions look like? I don't know. No one does... yet. And it's possible that no one will crack the code on post-corona innovation in the theme park industry, and we will be looking at many years of sluggish "recovery" before the industry returns to 2019 levels.
But I don't want to believe that. As Epcot's Horizons told us, "if we can dream it, we can do it." I want to believe that somewhere, right now, a theme park design professional - or aspiring designer - is working on the idea that will have people like me raving in 2022, "you've got to come out and experience this!"
Because the future of this industry might depend upon it.Tweet
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