Niles: Six Flags buys time to improve, but at what cost? ...Middle East

In business, sometimes a bad decision is the best choice.

Six Flags Entertainment Corporation made two bad decisions last week. But those may have been the best choices that the company’s new management team had available. First, Six Flags declined an option to purchase full ownership of its original theme park, Six Flags Over Texas.

The Dallas-area park might be the one that gave the company its name, but it does not rank among the Six Flags’ most-attended parks, falling even further down that list after the merger with Cedar Fair. Yet former Six Flags managers chose to invest in the park, green-lighting the new Tormenta: Rampaging Run, a Bolliger & Mabillard dive coaster that will become the world’s tallest, fastest and longest of that model when it opens this year.

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That management team also negotiated a buy-out plan that would give Six Flags full ownership of the park. After the merger, the company went ahead and exercised a similar option to buy full ownership of Six Flags Over Georgia, which was the second Six Flags park. But Six Flags today simply does not have the cash to buy out its partners in Six Flags Over Texas. Management said that it remains committed to the park, but the price to buy it likely will rise in the years to come.

Next, Six Flags announced that would make a private offering of $1 billion in senior notes. The company will use the money raised by that offering to pay off notes that were due next year. Translated to consumer terms, Six Flags is taking out a new credit card to pay off an old one.

That can be a smart move if you get a lower interest rate. But the new note will carry an interest rate about three points higher than the current notes. And companies such as Six Flags don’t earn rewards points when they do stuff like this, either.

So why did Six Flags, under new CEO John Reilly, make these decisions? Because these decisions bought Six Flags what might be the most valuable asset in running a business — time.

Reilly and his management team need time to develop a new capital and operations strategy that will help Six Flags close the gap to competitors such as Disney, Universal and United Parks. If Six Flags keeps operating the way that it and its predecessors had, it can expect only to keep falling further behind.

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As one Theme Park Insider reader commented, “when two struggling companies merge and say they are going to do better by lowering costs through economies of scale, it usually doesn’t work.”

Six Flags’ core marketing strategy has been to undercut its competitors on price, especially with cheap annual passes. But theme park visits are discretionary purchases. No one needs to visit a theme park. If a park does not deliver amazing rides and outstanding customer service, guests will not come back, no matter how low the price.

Six Flags has bought time to fix its problems. But the price of that time just adds to the financial pressure on the company.

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