Six Flags (SIX) is a work in progress right now, including a new CEO who is drastically changing the company's business model. It will take a few years to roll the entire plan out, but the amusement park owner will likely look fairly different in three years.

Investors should consider both the promise and potential risks of such a drastic overhaul. Here are some issues to consider.

Well, that's different

In November 2021, Six Flags hired a new CEO, Selim Bassoul. Prior to taking the helm, Bassoul had been on the company's board for around two years, one of which was spent as the non-executive chairman of the board. So he has a clear understanding of the business, even though his prior job was as the CEO of Middleby, a company that makes food-service equipment.

As one might expect, he took the first 100 days to get to know the company and the people that work there.

People at an amusement park partaking in fun activities.

Image source: Getty Images.

On Six Flags' fourth-quarter 2021 earnings conference call, however, he started his first public interaction with investors and analysts with a bang. He identified six things on which the company would focus, largely all centered around improving the customer experience. Some examples include better food, reduced ride wait times, better integration of technology, and a cleaner and more functional park environment. 

Much of what the new CEO described sounded similar to what's offered by amusement park giant Walt Disney. It is hard to argue with the direction on that score. And, in three years, the company should be well along the path to a much more desirable guest experience, which is something that company research had apparently been suggesting was needed for some time. In fact, based on Six Flags' customer surveys, guests have stated they would pay more for a better park experience. 

The big question marks

This is where things start to get interesting. Six Flags is going to start raising prices as it improves the park experience, expecting that attendance will fall. Management noted that it has historically focused on filling its parks, including using free passes, but the money guests spent while there wasn't as robust as hoped.

Third-quarter 2022 earnings show that the company is seeing the exact results it expects, with attendance down a huge 33% but guest spending per capita up nearly 50% compared to 2019, the year before the coronavirus pandemic effectively shut the company's parks for a material period of time.

The problem is that this trend left overall revenue lower by 21% year over year and net income per share down by 23%. On the one hand, this can be attributed to a transition period as the company works to position itself for long-term growth. On the other, it could suggest that Six Flags is taking on more risk than it realizes. 

For example, the company is spending heavily on upgrading the customer experience while charging customers more. But it is going to de-emphasize capital investments in new thrill rides, which have historically been a key factor in attracting customers to parks throughout the entire industry.

Facing higher costs, customers may end up reassessing the choice between a regional park and a trip to a destination park like Disney. And if the rides are the same trip after trip, a better park experience may not be enough to keep customers coming back. A "thrilling" experience isn't as fun if you've done it a few times already. There's also the risk that, given higher prices, customers simply forgo the amusement park altogether, opting for cheaper forms of family fun. 

In other words, there's a big risk here as Six Flags embarks on a new business direction. Roughly a year into the new CEO's plan, these moves are having an impact. But what that means for the company three years out isn't exactly certain yet.

A positive outcome would be lower attendance but higher revenue and earnings, which would likely lead to a higher stock price. A negative outcome would be lower attendance that isn't made up for by in-park spending and, thus, middling revenue and earnings. That's the impact so far, and if this trend continues, the stock will likely perform rather poorly. 

Caution is in order

Given the material change in Six Flags' business approach, most investors should probably view this as a turnaround situation -- and something that only more aggressive investors should be looking at right now. And by relying on a smaller number of customers who are each paying more to be in the parks, a business downturn (caused by a recession, for example) could turn into a much more painful experience. Most investors should probably watch this corporate revamp from the sidelines until there's more evidence of success.