The main problem with Six Flags

I found this article from back in 2002....when Six Flags was still doing halfway decent in park attendance. In my opinion, this article details exactly why Six Flags is going down its current track. This statement from the article clearly says what I mean: "But this strategy won't work for the theme park fan who's longing for something new exciting.......They should, and will, to continue to look elsewhere to spend their hard-earned vacation time and money."

Well, that explains why Six Flags is having the financial problems they're having. You stop offering the public attractions, they stop spending the high prices to visit your theme parks.

Here's the complete article from back in 2002 when they made this switch in their spending philosophy:

"Six Flags Looks to Scale Back Expansion

By Robert Niles
June 30, 2002

Don't expect to see many new innovative rides at a Six Flags park near you during the next few years.

Over the past couple weeks, I've been talking to several sources in the financial industry. And they all tell the same story: Six Flags is looking to cut back on its capital investments over the next few years, as it slows its expansion and conserves cash to pay off corporate debt.

Six Flags' Chief Financial Officer told one investment professional (who also happens to be a member of Theme Park Insider) that the company plans to scale back its annual capital expenditure (the money it spends on new buildings and equipment, including rides) from $340 million last year to $125 million a year.

That amount would buy you just over one Spider-Man ride, and six Xcelerators. Given that Six Flags has more than two dozen theme parks around the world, plus several other water parks, that's not much money per park.

Why would Six Flags do this?

Remember that Six Flags plays to two audiences: Theme park and thrill ride fans, like the folks on this site, and investors. Winning acclaim from roller coaster clubs and theme park Web sites won't keep the company in business if investors don't see a lot of black ink on the bottom line.

Six Flags is a profitable company, according to its annual report. But it is facing substantial debt payments, starting next year. Six Flagts took on several million dollars in debt to finance its purchase and renovation of more than a dozen amusement parks around the world over the past four years. Now, Six Flags must show investors that it will be able to make those debt payments, while still delivering them a profit.

Can Six Flags do it? Maybe. It's projecting $100 million in profit this year, for a 9 percent return. Demographics play into its favor--the Baby Boomlet generation is now in its teens and early 20s, a better fit for Six Flags than the more family-oriented Disney and Universal parks. And analysts believe Six Flags can increase its cash flow by three or four percent a year--if the company keeps its capital expenditures down.

And that's the problem. For theme parks fans, and, ultimately, the company.

"Your revenue's not going to grow unless your capital expenditure is sufficient," our analyst said. "What is sufficient is the question. So you are probably going to have to say $175 to 200 million, in which case you have okay, but not fantastic (income)."

Simply put, Six Flags isn't going to be able to increase its attendance if it doesn't offer any new rides. The company simply doesn't have a line-up of "evergreen" rides, like Disney's Pirates of the Caribbean or Haunted Mansion, that folks will visit loyally year after year after year. Six Flags' young visitors want thrill rides--and the newer and more unusual, the better.

Without a fresh supply of those innovative rides each year, a Six Flags park will not rise to be a "must-see" destination for even casual amusement park fans. It will be, at best, a fall-back for a day's entertainment, competing with movies, the mall and the PlayStation.

A generation ago, Six Flags wasn't the ubquitous amusement park chain it is today. It operated a handful of parks around the country, including the flagship original Six Flags Over Texas, that were well respected and, by some, even thought of as superior to Walt Disney World.

The chain grew over the years, by buying established theme parks such as Magic Mountain in Valencia, Calif. and Great America in Gurnee, Ill. But the explosive growth started in 1998, when a little-known amusement park chain from Oklahoma, Premier Parks, bought the Six Flags chain and its name.

That's how Premier's chain of lightly regarded parks, including Elitch Gardens in Denver and Kentucky Kingdom outside Louisville, came to bear the Six Flags label.

Premier has upgraded some of the sorrier parks in the chain, to its credit. And that's part of the reason why the company's capital expenditures have swelled in recent years. But with its business plan for the upcoming years, now can see what Premier's long-term vision for Six Flags is.

It is not to continue investing and returning Six Flags to its glory years--where it rivaled even Disney for quality and value. It appears more likely that Premier intends for its Six Flags to become the McDonald's of the theme park industry: Simple, basic, everywhere and pretty much the same from location to location. Now that the brand is established in most major markets--it is time to milk it.

Perhaps Six Flags can make this strategy work for itself, and its investors. And maybe those thrill ride fans who don't expect much more than a few stomach-churing coasters. But this strategy won't work for the theme park fan who's longing for something new exciting now that's Disney's fallen asleep. They should, and will, to continue to look elsewhere to spend their hard-earned vacation time and money."