Disney’s Q1 FY21 Earnings Results Webcast - February 11, 2021

[Stitch826]

It will be interesting to see what happens with the park reservations system as capacity is slowly adjusted back up to pre-pandemic levels. Assuming we are close to reaching that point by September or October, what happens with the reservations system? Is it here to stay or is it scrapped entirely? It seems ridiculous to have to choose which parks you will visit on which days months ahead of your trip. Obviously capacity will be gradually increased over the coming months and additional reservations will open up, but getting into Hollywood Studios could still be a challenge if the system is left in place, especially during busier weeks.

 

[matt9112]

Parks and Cruise have been getting $4B in capex per year for several years. That's why all these new park entrances and resort renovations and E-Ticket rides are coming from. Last year, they reduce park/cruise capex by about a billion I think. So this year, it will be the same reduced, but still pretty high number. It's not like they're in a position to start building new lands.

The capex amount will be reevaluated in October. If the parks are back to business thanks to vaccines, it could lead to bringing park/cruise capex back up.

I think they will play it safe and keep capx lower even when things turn the corner. (Recoupe from 2020 2021)

 

[Stitch826]

I don’t know when this will happen, but my prediction is that Disney will no longer require masks once everyone has had access to a vaccine and the cases have dropped way down. I don’t think lower cases or vaccine rollout alone get it done, it’s a combination of both. The one wrinkle in that is children. If young children aren’t eligible to be vaccinated but everyone 12+ has access to the vaccine and cases drop way, way down then I could see masks being optional or maybe only indoor when in a crowd. As far as predicting timing it’s anyone’s guess. My gut says they won’t require masks anymore in December, but that’s just a guess.

On DDP, that’s an even bigger mystery. In theory once they eliminate capacity limits on restaurants that would open the door to bring DDP back. They also like to use that as one of the primary discounting mechanisms to bring crowds in to the resorts. The other wildcard is all of the buffets. They tend to be extremely popular, especially for people on the dining plan, but right now they aren’t doing buffets. Can those restaurants be repurposed to serve family style or regular menu food? It’s starting already. I think Disney would like to have DDP back along with crowds but it’s all a matter of when that can be done safely and then if the crowds return.

Regarding buffets, I don’t know why they can’t just change them from self-serve to cafeteria-style where the employees plate up the food for guests as they move through line. A couple buffets near where I live have been doing just that since the pandemic began.

 

[GoofGoof]

It will be interesting to see what happens with the park reservations system as capacity is slowly adjusted back up to pre-pandemic levels. Assuming we are close to reaching that point by September or October, what happens with the reservations system? Is it here to stay or is it scrapped entirely? It seems ridiculous to have to choose which parks you will visit on which days months ahead of your trip. Obviously capacity will be gradually increased over the coming months and additional reservations will open up, but getting into Hollywood Studios could still be a challenge if the system is left in place, especially during busier weeks.

In theory once capacity hits a certain point you really don’t need it. They always had a mechanism for phased closings during extreme crowd times (basically July 4th and Christmas weeks) but I don’t think we will see those crowd levels for a year or more still. I do think Disney likes the idea of guests locking in what park they are going to on a specific day. Helps with staffing and planning needs. I could see them maybe keep it around but we will rarely see a day where capacity sells out.

Regarding buffets, I don’t know why they can’t just change them from self-serve to cafeteria-style where the employees plate up the food for guests as they move through line. A couple buffets near where I live have been doing just that since the pandemic began.

That‘s another way to do it. Especially once CMs are vaccinated that’s the easiest thing. Some of those buffets would need physical adjustments to allow room for the servers and there is also an added cost of labor that would likely be passed on to us through a combination of higher prices and lower cost items. In current times they have done some of the classic buffets as family style but that does limit the variety. I think adding servers is a better long term solution since it accomplishes the goal of churning through people with less wait staff and giving guests the most variety.

 

[the.dreamfinder]

FY ‘21 will be another lost year for the parks.
Take a look at this graph from the New York Times on their vaccination dashboard.

This graph is kind of a worst case scenario for the US vaccine rollout for percentage of the population receiving their first shot. We are looking at 90+% of the population getting their second shot at some point in early/mid December (I’m aware the J&J vaccine does NOT require a second shot). Since that trajectory is mapped out by the current rolling average, we are likely going to see a much higher average once vaccination really ramps up. My unscientific guess is that we’ll hit the 90% receiving their first shot in late September/early October. I wouldn’t expect much more than what has already reopened until FY ‘22 starts.

To bring this back to the earnings call and the parks. I think DLR will reopen when we hit 70% of the population having been fully vaccinated. In addition, WDW will prioritize profitability over an agressive expansion of capacity until probably spring ‘22. Remember, we are in a recession and are still underwater from pre-pandemic employment levels.

What I am curious to see is when WDW will transition to having guests prove they have been fully vaccinated as a condition of entry when it’s time to ramp the capacity up and go maskless. Any guest who intends to travel by plane will likely require verified credentials at a certain point this year. Disney will hardly be alone in the entertainment realm with concert venues and sports arenas planning to require proof going forward.

Vaccination rates and economic recovery from the recession are ultimately what we need to be watching for because it’s what Disney and the financial community are looking at.

 

[Touchdown]

FY ‘21 will be another lost year for the parks.
Take a look at this graph from the New York Times on their vaccination dashboard.
View attachment 532284
This graph is kind of a worst case scenario for the US vaccine rollout for percentage of the population receiving their first shot. We are looking at 90+% of the population getting their second shot at some point in early/mid December (I’m aware the J&J vaccine does NOT require a second shot). Since that trajectory is mapped out by the current rolling average, we are likely going to see a much higher average once vaccination really ramps up. My unscientific guess is that we’ll hit the 90% receiving their first shot in late September/early October. I wouldn’t expect much more than what has already reopened until FY ‘22 starts.

To bring this back to the earnings call and the parks. I think DLR will reopen when we hit 70% of the population having been fully vaccinated. In addition, WDW will prioritize profitability over an agressive expansion of capacity until probably spring ‘22. Remember, we are in a recession and are still underwater from pre-pandemic employment levels.

What I am curious to see is when WDW will transition to having guests prove they have been fully vaccinated as a condition of entry when it’s time to ramp the capacity up and go maskless. Any guest who intends to travel by plane will likely require verified credentials at a certain point this year. Disney will hardly be alone in the entertainment realm with concert venues and sports arenas planning to require proof going forward.

Vaccination rates and economic recovery from the recession are ultimately what we need to be watching for because it’s what Disney and the financial community are looking at.

If this graph is correct then:
-Pfizer and Moderna will not meet their orders on time
-J&J vaccine won’t get approved
-Novavax won’t get approved

That is because this graph assumes vaccine distribution does not increase, and all of the (incredibly likely) things I mentioned above would have to not come true.

 

[the.dreamfinder]

If this graph is correct then:
-Pfizer and Moderna will not meet their orders on time
-J&J vaccine won’t get approved
-Novavax won’t get approved

That is because this graph assumes vaccine distribution does not increase, and all of the (incredibly likely) things I mentioned above would have to not come true.

I said that it’s a worst case scenario because it is based on a current distribution average from the past seven days.

 

[havoc315]

Again, nobody expects 100% capacity will be available or needed by September. The reopening will be gradual and will continue through the Spring and Summer months depending on cases and vaccine rollout. Even if they removed all Covid restrictions June 1 that doesn’t mean 100% return to normal crowds this summer anyway. We are at 35% park capacity now and most days aren’t hitting that. There’s a lot of room between that and fully open. They are reopening almost 4,000 hotel rooms between now and early summer so while not everything that’s still a pretty large number of rooms.

I don’t think it takes 4-5 months to reopen a show. It is taking a while with that particular show due to changes needed to keep performers safe. If the performers are all vaccinated by end of June or sooner then no need to modify some other things for the summer. The unions have been very active with Disney ensuring their members are kept safe. A lot of concerns go away once the CMs are vaccinated. I’m sure with a little pressure on the FL gov‘t the mouse can secure vaccine for all its CMs as part of the essential worker group who will be up soon. There’s no reason every Disney CM isn’t vaccinated by June at the latest and likely much sooner. Then issues with show performers distancing during performances and rehearsals goes away.

I agree, it will be gradual. You just seem to think it will occur much faster than I do. I see 40-50% by September.

You’re suggesting socially distanced performers won’t be necessary by summer. I originally thought that as well. But take a hint that Disney is modifying FOTLK even though it’s not coming back until the summer. Means Disney is convinced that social distancing will be required through the summer and even later.
If they had your attitude of “oh, we can stop social distancing around summer time,” then they wouldn’t be re-designing FOTLK. I’m presuming WDW has a better concept of their plans than you or me.

 

[havoc315]

If this graph is correct then:
-Pfizer and Moderna will not meet their orders on time
-J&J vaccine won’t get approved
-Novavax won’t get approved

That is because this graph assumes vaccine distribution does not increase, and all of the (incredibly likely) things I mentioned above would have to not come true.

Agree that it’s an EXTREMELY pessimistic graph. Unlikely things will be that negative.

Though it’s important to realize wrenches can and will be thrown into the works. Pfizer and Moderna did miss their early targets.
A month ago, I would have assumed AstraZeneca was coming. It’s looking more likely that AZ will never get approved. (That has been the vaccine the US had purchased the most of, until recently).

While I doubt things will be as bad as that graph, we also shouldn’t discount the possibility.

 

[MisterPenguin]

You’re suggesting socially distanced performers won’t be necessary by summer. I originally thought that as well. But take a hint that Disney is modifying FOTLK even though it’s not coming back until the summer. Means Disney is convinced that social distancing will be required through the summer and even later.

Those plans were made before we knew we'd have enough doses to vaccinate any adult who's willing to vaccinated by the end of April (even without AZ).

This is played out in Chapek's reaffirmation of the old plan when he said there'd be masks and distancing for the whole year, BUT... the vaccines may change things.

 

[GoofGoof]

I agree, it will be gradual. You just seem to think it will occur much faster than I do. I see 40-50% by September.

You’re suggesting socially distanced performers won’t be necessary by summer. I originally thought that as well. But take a hint that Disney is modifying FOTLK even though it’s not coming back until the summer. Means Disney is convinced that social distancing will be required through the summer and even later.
If they had your attitude of “oh, we can stop social distancing around summer time,” then they wouldn’t be re-designing FOTLK. I’m presuming WDW has a better concept of their plans than you or me.

FOTLK isn’t coming back until the summer because they can’t do the show today and keep the performers distanced, but it’s also not coming back because the park crowds are low and it’s expensive. Disney knows that crowds will be up this summer no matter where the vaccine rollout is and they want to bring the show back to absorb those crowds. The altered show will remove some elements that can’t be done with distancing for performers but those things can ultimately be brought back as well.

As far as capacity we are at least at 35% capacity in the parks today. If 70%+ of the population is vaccinated and cases are way down there is absolutely no reason Disney only increases capacity another 5 to 15% then where it is today by September. I‘ve been pretty middle of the road since the start of this, leaning towards conservative in re-opening timings but things have to improve over time. It would be terribly disappointing if we vaccinate the vast majority of the population and months later nothing has really changed. I am expecting much more progress than that.

 

[Jrb1979]

FOTLK isn’t coming back until the summer because they can’t do the show today and keep the performers distanced, but it’s also not coming back because the park crowds are low and it’s expensive. Disney knows that crowds will be up this summer no matter where the vaccine rollout is and they want to bring the show back to absorb those crowds. The altered show will remove some elements that can’t be done with distancing for performers but those things can ultimately be brought back as well.

As far as capacity we are at least at 35% capacity in the parks today. If 70%+ of the population is vaccinated and cases are way down there is absolutely no reason Disney only increases capacity another 5 to 15% then where it is today by September. I‘ve been pretty middle of the road since the start of this, leaning towards conservative in re-opening timings but things have to improve over time. It would be terribly disappointing if we vaccinate the vast majority of the population and months later nothing has really changed. I am expecting much more progress than that.

I don't expect much progress from Disney for awhile til they recoup the income. Judging by the delays in reopening resorts they aren't expecting big crowds any time soon.

As far as things changing, I thing once most are vaccinated all businesses will be open. I do expect some type of capacity in place. I don't think places that were used to shoulder to shoulder crowds will ever come back. IMO it will never go back to the days were we are standing on top of one another. Personally I don't mind that at all. We don't need to packed in like sardines anywhere.

 

[Notes from Neverland]

I'll believe the "every vaccine for someone who wants one by April" when I see it. Too many states, including the one I live in, are completely dropping the ball. Here they've postponed vaccinations because the state is distributing them poorly. They've given the same number to rural areas as urban areas. Summarized, I don't see certain states hitting the April goal based on current trends. That will certainly impact travel and tourism.

 

[GoofGoof]

FY ‘21 will be another lost year for the parks.
Take a look at this graph from the New York Times on their vaccination dashboard.
View attachment 532284
This graph is kind of a worst case scenario for the US vaccine rollout for percentage of the population receiving their first shot. We are looking at 90+% of the population getting their second shot at some point in early/mid December (I’m aware the J&J vaccine does NOT require a second shot). Since that trajectory is mapped out by the current rolling average, we are likely going to see a much higher average once vaccination really ramps up. My unscientific guess is that we’ll hit the 90% receiving their first shot in late September/early October. I wouldn’t expect much more than what has already reopened until FY ‘22 starts.

To bring this back to the earnings call and the parks. I think DLR will reopen when we hit 70% of the population having been fully vaccinated. In addition, WDW will prioritize profitability over an agressive expansion of capacity until probably spring ‘22. Remember, we are in a recession and are still underwater from pre-pandemic employment levels.

What I am curious to see is when WDW will transition to having guests prove they have been fully vaccinated as a condition of entry when it’s time to ramp the capacity up and go maskless. Any guest who intends to travel by plane will likely require verified credentials at a certain point this year. Disney will hardly be alone in the entertainment realm with concert venues and sports arenas planning to require proof going forward.

Vaccination rates and economic recovery from the recession are ultimately what we need to be watching for because it’s what Disney and the financial community are looking at.

Pfizer and Moderna have confirmed again this past week that they are on target to deliver 400M doses by the end of May. With 200M more coming by end of July. JnJ will be approved next week and they said they will meet their contract to deliver 100M doses by end of June and in interviews a board member said sooner. 70% of the population is 231M people. Based on that number of the manufacturers meet their targets we will have enough doses to fully vaccinate everyone who wants it by the end of May. That may mean that some people are still getting their second dose in June, but the point is if the targets are hit 70% of the population will be vaccinated by end of June unless we don’t have enough people who want the vaccine. So I know you said worst case scenario, but that would have to assume major manufacturing issues. IMHO the worst case scenario is we hit that point in July.

I don’t think the vaccine rollout is a light switch either, changes will be more like a dial. As a larger portion of the population gets vaccinated cases will start to drop. So even before we reach “herd immunity” we may see a pretty positive impact on cases. Even CA had set a case level which would be acceptable to re-open theme parks now. It’s possible CA hits that level before everyone is done being vaccinated.

I also think if you look at the economy there is a pent up demand for travel and vacations. A significant chunk of the economy was not impacted negatively by Covid. There are people who saved money by not eating out, traveling, driving to work, etc and some of those people also got stimulus checks they pocketed. I think there is a pent up demand building for Disney parks. Disney will want to capitalize on that this summer. It doesn’t mean anything close to normal crowd levels so I wouldn’t expect a full return of everything even if Covid protocols allowed it, but I agree Disney will look to maximize profits. At WDW that‘s clear in that the resorts without a re-opening date are primarily thousands of value and moderate rooms.

 

[GoofGoof]

I'll believe the "every vaccine for someone who wants one by April" when I see it. Too many states, including the one I live in, are completely dropping the ball. Here they've postponed vaccinations because the state is distributing them poorly. They've given the same number to rural areas as urban areas. Summarized, I don't see certain states hitting the April goal based on current trends. That will certainly impact travel and tourism.

April is too soon to be done. If the manufacturers hit their targets we will have enough doses delivered for everyone who wants one by the end of May. States have to ramp up injections but almost every state right now is blaming a lack of supply which won’t be the case come May. Even the bottom 10 states in percent used are still using 2/3 of the doses received so while it may take a few weeks or a month to catch up at the end it doesn’t appear that injection delays are a major problem right now.

 

[the.dreamfinder]

I also think if you look at the economy there is a pent up demand for travel and vacations. A significant chunk of the economy was not impacted negatively by Covid. There are people who saved money by not eating out, traveling, driving to work, etc and some of those people also got stimulus checks they pocketed. I think there is a pent up demand building for Disney parks.

This line gets thrown around a lot, but I have my doubts that Disney will be the beneficiary in the way people think they will be. Prior to the pandemic, their numbers were flattening and it is unlikely they will discount in the way the public thinks they will. A Disney vacation is a major investment and I see splurges closer to home, think sporting events, movies (which benefits Disney) and regional amusement parks being a more affordable proposition.

The other thing to keep in mind here is that while Americans will not be able to leave the US easily for travel this year, there are a lot of destinations within this country that are a lot more desperate for business than Disney and can offer a better value proposition.

 

[havoc315]

Those plans were made before we knew we'd have enough doses to vaccinate any adult who's willing to vaccinated by the end of April (even without AZ).

This is played out in Chapek's reaffirmation of the old plan when he said there'd be masks and distancing for the whole year, BUT... the vaccines may change things.

It was announced a month ago, nothing has dramatically changed in the last 4 weeks.
End of April is when there will likely be enough availability where general population can start signing up for appointments. It will still take months thereafter to deliver the doses.

 

[havoc315]

FOTLK isn’t coming back until the summer because they can’t do the show today and keep the performers distanced, but it’s also not coming back because the park crowds are low and it’s expensive. Disney knows that crowds will be up this summer no matter where the vaccine rollout is and they want to bring the show back to absorb those crowds. The altered show will remove some elements that can’t be done with distancing for performers but those things can ultimately be brought back as well.

As far as capacity we are at least at 35% capacity in the parks today. If 70%+ of the population is vaccinated and cases are way down there is absolutely no reason Disney only increases capacity another 5 to 15% then where it is today by September. I‘ve been pretty middle of the road since the start of this, leaning towards conservative in re-opening timings but things have to improve over time. It would be terribly disappointing if we vaccinate the vast majority of the population and months later nothing has really changed. I am expecting much more progress than that.

You’re ignoring a few key facts:

1. they are planning FOLTK WITH social distancing. If they anticipated phasing social distancing out over the summer, there would be no need to re-design the show.
2. On an average pre-Covid day, attendance was about 50-60% of capacity. 50-60% capacity requires nearly 100% operations. Thus, 50% capacity would be limiting the crowd to an average summer day attendance. Maybe just slightly lower than an average summer day.

Moving beyond 50% capacity would require nearly 100% operations... you think they will be at nearly 100% operations by spring/summer? Seems extremely unlikely.

 

[GoofGoof]

You’re ignoring a few key facts:

1. they are planning FOLTK WITH social distancing. If they anticipated phasing social distancing out over the summer, there would be no need to re-design the show.
2. On an average pre-Covid day, attendance was about 50-60% of capacity. 50-60% capacity requires nearly 100% operations. Thus, 50% capacity would be limiting the crowd to an average summer day attendance. Maybe just slightly lower than an average summer day.

Moving beyond 50% capacity would require nearly 100% operations... you think they will be at nearly 100% operations by spring/summer? Seems extremely unlikely.

They are planning FOtLk with social distancing now because they want to make sure it can be open this summer when they get a bump in summer travel. If we didn’t vaccinate another person from today forward there would still be a bump in summer numbers. They don’t know if it will be possible to operate this summer without social distancing right now so they are planning as if it won’t to be safe and make sure they can open the show either way. I don’t see the plans for that show as some kind of guarantee that social distancing will be fully needed.

From a purely logistical standpoint, why would the performers need to continue to practice social distancing this summer if they are all vaccinated? The only way I see it being necessary is if they aren’t vaccinated yet and Disney made that announcement before JnJ was approved (still isn’t technically approved yet) and also before Pfizer and Moderna increased their supply and moved up their timetable.

On the capacity side I think as soon as possible they remove the capacity limits overall. I think what you are saying is the same thing. If you had no capacity limits at all the crowds will naturally be limited by demand. By this summer it’s likely that they are fully open and only on a handful of days like July 4th will they have to limit anything. Staffing will not limit their capacity. Disney wants every dollar they can make so they won’t turn away guests if they don’t have to.

 

[GoofGoof]

This line gets thrown around a lot, but I have my doubts that Disney will be the beneficiary in the way people think they will be. Prior to the pandemic, their numbers were flattening and it is unlikely they will discount in the way the public thinks they will. A Disney vacation is a major investment and I see splurges closer to home, think sporting events, movies (which benefits Disney) and regional amusement parks being a more affordable proposition.

The other thing to keep in mind here is that while Americans will not be able to leave the US easily for travel this year, there are a lot of destinations within this country that are a lot more desperate for business than Disney and can offer a better value proposition.

Disney will get a piece of that. Nobody will be traveling to Mexico and even the Caribbean will be limited. People will go plenty of other places too, but there will be an overall surge of pent up travel demand which will be let loose once people get the vaccine. Disney has a unique problem in that lots of people who visit have kids and kids won’t be eligible for a vaccine right away, but it seems like a lot of people with kids are dismissing that risk because of the narrative that kids don’t get as sick with Covid. Some may be more cautious but a lot will not worry about it. I am not saying there will be anything like a return to normal business by the summer but a significant increase from today is still well below normal so it’s possible to be well below normal levels and also see a surge in demand.