The newly merged theme park operator Six Flags (FUN +3%), which completed its merger with Cedar Fair yesterday, is continuing its upward momentum. First announced in early November, the ~$8 billion combination of these dominant theme park operators across the U.S., Mexico, and Canada has excited investors. Shares of FUN (formerly SIX) have soared by over 70% since the merger announcement.
Despite the strong buying interest over the past eight months, the newly combined company presents a compelling opportunity to unlock synergies. Six Flags anticipates around $120 million in cost savings and $80 million in incremental EBITDA, maintaining its current positive momentum.
- With all parks under one umbrella, FUN can boost traffic by offering season passes usable at all parks. Six Flags already saw strong pass sales through April, with 2024 pass sales ahead of 2023 by double digits and average prices also increasing year-over-year. Add-on sales of All Season Dining and All Season Flash passes have also been tracking ahead of last year. Offering customers more parks and add-ons could significantly boost the 2025 season.
- By removing a competitor, FUN immediately enhances its pricing power. While rivals like Walt Disney (DIS, Financial) and Universal Studios (CMCSA, Financial) still exist, Cedar Fair operated 13 parks across North America, giving it a formidable presence. The addition of Cedar Fair's parks diversifies FUN's revenue stream, reducing dependence on any one park or region and providing more stability.
- The complementary operations of the two companies should result in immediate cost savings. FUN aims to recapture attendance and aggressively seize cost savings opportunities to bolster its operating margins and return to pre-pandemic levels. With the combined pricing power and cost savings opportunities, FUN may return margins to the low 40% range quicker than expected.
While the future of a combined Six Flags and Cedar Fair looks promising, potential challenges remain. The macroeconomic landscape has been challenging. Outdoor lifestyle names like Vail Resorts (MTN, Financial), Thor Industries (THO, Financial), Winnebago (WGO, Financial), Pool (POOL, Financial), and Latham Group (SWIM, Financial) have faced headwinds from elevated inflation and interest rates. FUN's near-term demand could face similar pullbacks.
Still, over a longer timeframe, FUN is positioned for success. The resilience of the travel industry despite macroeconomic obstacles underscores a deep desire for experiences. With a fortified portfolio of parks across North America, FUN can capitalize on this trend while unlocking meaningful cost savings.
