Disney Parks Revenue up

[CaptainAmerica]

It sounds to me like Iger is admitting their hotel rates are high (Shocking, I know) but via discounts they believe they can entice guests to stay longer.

No, but I can see why you would have thought that based on the way @Rteetz phrased it. If you listen to the call, it's clear that Iger thinks they can raise hotel rates and entice guests to stay longer. It's not one or the other, he thinks they have room to do both.

 

[HauntedPirate]

No, but I can see why you would have thought that based on the way @Rteetz phrased it. If you listen to the call, it's clear that Iger thinks they can raise hotel rates and entice guests to stay longer. It's not one or the other, he thinks they have room to do both.

Ah, thanks for the info!

Wow. Ego... I mean, Iger, believes they can charge more and people will stay longer??? Maybe it's just me, but that makes absolutely zero sense. They've added 2 attractions at AK, and SWL won't be live for another 2 years, minimum. Maybe they think they're going to attract so many more people that you'll be forced to stay longer because wait times are going to be so long?

 

[Rteetz]

No, but I can see why you would have thought that based on the way @Rteetz phrased it. If you listen to the call, it's clear that Iger thinks they can raise hotel rates and entice guests to stay longer. It's not one or the other, he thinks they have room to do both.

Yes I'm with you I believe that means Iger thinks they can go higher with rates.

 

[ford91exploder]

"Disney expects to repurchase $9-10 billion in shares."

Just think of what they could do with that money instead of propping up the stock price...

And THERE is the problem in a nutshell at Disney, Management is so creatively challenged they cannot even think of doing anything besides pumping the stock.

That 9-10 billion is about the price tag of a digital platform to distrubute Disney content.

 

[ford91exploder]

No, but I can see why you would have thought that based on the way @Rteetz phrased it. If you listen to the call, it's clear that Iger thinks they can raise hotel rates and entice guests to stay longer. It's not one or the other, he thinks they have room to do both.

If so Bob is certifiably insane

 

[ford91exploder]

With ESPN and other media accounting for 3 times the operating income of the parks, is it any wonder that Iger's attention cannot be on an unimaginative Imagination Pavilion and a flaccid TTA narration?

Movies are huge, and the cruise ship capacity will soon grow by 50% (2 more ships in addition to the 4 we already have).

Also, Shanghai is obviously the greatest growth opportunity among the parks. IP acquisition and new projects (much of it IP based) will drive growth domestically among those parks, but that is still a relatively small percentage of the corporation's overall revenues and operating income.

Yup, we frequent these boards because our primary Disney focus is the big park in Orlando, yet that park accounts for less than 10% of the company's operating income. The parks also cost much more to operate in many ways along with far greater potential downsides such as lawsuits. Put another way, It takes a lot more hands-on work to make a dollar of profit at the parks than it does to make a dollar in most other segments. My love of Disney, and my reason for participating in these boards, arise from the parks (especially Epcot). Yet the real money for Disney comes from areas that few people are as passionate about. Again, is it any wonder that the thing we love is not given the corporate attention that we desire?

If WDW is such an insignificant contributor to revenue then it must be sold off as an underperforming asset

 

[Ralphlaw]

Ah, thanks for the info!

Wow. Ego... I mean, Iger, believes they can charge more and people will stay longer??? Maybe it's just me, but that makes absolutely zero sense. They've added 2 attractions at AK, and SWL won't be live for another 2 years, minimum. Maybe they think they're going to attract so many more people that you'll be forced to stay longer because wait times are going to be so long?

Classic economics indicates that to be true, but overall vacation lodging at WDW is in epic demand right now. The economy is up, transportation costs are down, and the current generations of vacationers value experiences over stuff. My parents' generation (born in the 20s and 30s) are often classic hoarders who value a house full of stuff. The current generations for whatever reason have way too much stuff, and we tend to value experiences instead of more junk crowding up the house.

Thus, more demand for vacations that maximize our vacation days. Spending days driving across the country, only to visit relatives for a few of those days, is gone. Now, we want every minute of every vacation day to be great, and no one does this better than Disney. "Magical days" do not include a thousand miles on a highway only to see relatives and 2nd rate roadside attractions. A good Disney vacation can indeed be magical. And the current generation has enough income and/or credit to make it come true.

 

[rob0519]

It sounds to me like Iger is admitting their hotel rates are high (Shocking, I know) but via discounts they believe they can entice guests to stay longer.

Well he's right about lower rates getting the guest to say longer, at least in our case. If I can stay seven days for the amounts I'm currently paying for five, that makes the price of the tickets and food easier to take for the extra days. At the rate the room prices have been increasing over the last 10 years our visits have gone from 10 to 7 to 5 and sometimes even down to 4 nights.

 

[Ralphlaw]

If WDW is such an insignificant contributor to revenue then it must be sold off as an underperforming asset

Won't happen. Synergies. Nevertheless, corporate attention is less about magic and more about where that magic or other expertise can be used to bring in bucks. The parks still make plenty of money, but corporate bigwigs by necessity cannot spend undue time worrying about the minutiae of less profitable areas.

 

[networkpro]

In spite of the snark and cynicism I see here, its basic economics to see that there is balancing point is where the customers will start to use substitute goods (as in destinations other than WDW or for that matter DL as well). As revenue is up but attendance is down, that equilibrium point has not been met yet. DL and WDW are two different markets entirely.

 

[ford91exploder]

Classic economics indicates that to be true, but overall vacation lodging at WDW is in epic demand right now. The economy is up, transportation costs are down, and the current generations of vacationers value experiences over stuff. My parents' generation (born in the 20s and 30s) are often classic hoarders who value a house full of stuff. The current generations for whatever reason have way too much stuff, and we tend to value experiences instead of more junk crowding up the house.

Thus, more demand for vacations that maximize our vacation days. Spending days driving across the country, only to visit relatives for a few of those days, is gone. Now, we want every minute of every vacation day to be great, and no one does this better than Disney. "Magical days" do not include a thousand miles on a highway only to see relatives and 2nd rate roadside attractions. A good Disney vacation can indeed be magical. And the current generation has enough income and/or credit to make it come true.

I dont know in which alternate universe you think the economy is good in. Most people who still get paid vacation are afraid to use it beyond adding a day or two to a long weekend.

So if anything vacations will get shorter at least for US citizens who are the ONLY country not to have mandated vacation. Even China gives all workers two weeks of vacation

 

[ford91exploder]

In spite of the snark and cynicism I see here, its basic economics to see that there is balancing point is where the customers will start to use substitute goods (as in destinations other than WDW or for that matter DL as well). As revenue is up but attendance is down, that equilibrium point has not been met yet. DL and WDW are two different markets entirely.

When the inflection point is reached I think the result will be sharp declines in both revenue and attendance. SWL will buffer some of the effect but its design capacity is too small and as a result at WDW may be the cause of guest dissatisfaction because of crowding and excessive waits. (This of course assumes it comes online in 2019 at WDW)

DL it will probably work because of the local nature of the park.

Iger is frankly delusional about being able to increase pricing and length of stay at hotels. Disney might be able to increase short term revenue by further cuts in hotel services like Mousekeeping and decreasing HVAC costs closing 'small' pools etc.

 

[ford91exploder]

Well he's right about lower rates getting the guest to say longer, at least in our case. If I can stay seven days for the amounts I'm currently paying for five, that makes the price of the tickets and food easier to take for the extra days. At the rate the room prices have been increasing over the last 10 years our visits have gone from 10 to 7 to 5 and sometimes even down to 4 nights.

Um, Iger was talking about RAISING room rates and having guests stay longer. My guess is we are about to see FP tiering so only one headliner per day so those who want to do pandora banshee and boat ride will need to stay for TWO DAYS.

Got news for ya bob, it aint happening for US guests who unless they work for government are lucky to string together a 4-5 day vacation at most

 

[King Panda 77]

Um, Iger was talking about RAISING room rates and having guests stay longer. My guess is we are about to see FP tiering so only one headliner per day so those who want to do pandora banshee and boat ride will need to stay for TWO DAYS.

Got news for ya bob, it aint happening for US guests who unless they work for government are lucky to string together a 4-5 day vacation at most

that assumes he is targeting the US guests

 

[CaptainAmerica]

Ah, thanks for the info!

Wow. Ego... I mean, Iger, believes they can charge more and people will stay longer??? Maybe it's just me, but that makes absolutely zero sense. They've added 2 attractions at AK, and SWL won't be live for another 2 years, minimum. Maybe they think they're going to attract so many more people that you'll be forced to stay longer because wait times are going to be so long?

If so Bob is certifiably insane

I'm not sure what his plans are for length-of-stay but I think he's 100% correct about increasing prices. Looking at a calendar, I'd have to guess that fiscal Q2 (January through March) is the slowest quarter for WDW since it doesn't have Christmas (Q1) or summer vacation (Q3 and Q4). They were at 88% occupancy in their slowest quarter. For all intents and purposes, that's fully booked. People are missing out on vacations because their dates aren't available. When quantity demanded = quantity supplied, that means it's time to raise prices.*

Also worth noting, Iger didn't bring up length-of-stay, the analyst from J.P. Morgan did. He may have just been answering off-the-cuff.

Alexia S. Quadrani - JPMorgan Securities LLC: Hi. Thank you very much. My first question is on the parks. There's a lot of excitement around the expansion of Animal Kingdom later this month. Can you talk about what the levers are for further financial growth at the parks sort of in general, not just in Orlando? I guess when you look at how far you've come in terms of margin expansion over the last, say, five years, I guess I'm trying to want to put the drivers specifically for the next leg of – is it attendance, price, longer stays or perhaps all of the above?

Robert A. Iger - The Walt Disney Co.: The answer would be all of the above. We have a lot of investment activity actually across the globe in that segment. You mentioned Avatar, which opens just in a couple of weeks. We're building two Star Wars Lands, as you know, in Orlando and in Anaheim. We're opening a new hotel in Hong Kong. We opened Iron Man recently. We just announced a $1.4 billion expansion of the Hong Kong Park. We intend with our partner, OLC, to continue to grow our business in Tokyo. And of course, we've talked about what we're doing in Paris, which is all aimed at long-term investment and long-term growth, and then we had a quarter of profitability at Shanghai. I mentioned in my comments that we're just days away from Shanghai hitting 10 million people in attendance, which is nicely ahead of where we thought we would be because the year anniversary is in June. And we are already building to expand there. So we think we've got opportunities to continue to grow that.

And of course, we've got two new cruise ships in the works and a number of other plans as it relates to our hotel business. So we think that we've got room on pricing there. It's not just about taking pricing up. It's just about being more strategic at how we price, particularly how we manage demand, and we've taken a number of steps there. We think we can expand length of stay with some – across the globe actually with some of these investments. We have some nice pricing leverage with our hotels. We actually are comping nicely in hotel rates, particularly in Orlando as a for instance, but we have an opportunity to expand. And again, our global footprint continues to grow, particularly when you consider expansion in Hong Kong, in Paris and ultimately in Shanghai.

So I think there are a lot of levers here. We also have a business that has been great at managing its costs. They'll go up somewhat this coming quarter with the quarter that we're in because of some of the investments we've talked about, but they've managed their costs to continue to improve margins. And we don't see any reason why that can't continue.

So this doesn't sound like "get people to stay longer at WDW and raise their prices." The length-of-stay comments seem to be referring to the international resorts and the pricing comments seem to point towards something like more strategic price seasons.

 

[LuvtheGoof]

As revenue is up but attendance is down, that equilibrium point has not been met yet. DL and WDW are two different markets entirely.

Umm, attendance was up this quarter, not down.

 

[wdisney9000]

I'm not sure what his plans are for length-of-stay but I think he's 100% correct about increasing prices. Looking at a calendar, I'd have to guess that fiscal Q2 (January through March) is the slowest quarter for WDW since it doesn't have Christmas (Q1) or summer vacation (Q3 and Q4). They were at 88% occupancy in their slowest quarter. For all intents and purposes, that's fully booked. People are missing out on vacations because their dates aren't available. When quantity demanded = quantity supplied, that means it's time to raise prices.*

I thought @ParentsOf4 , (or perhaps someone else) posted something awhile back in regards to the occupancy rates being slightly skewed due to a certain amount of rooms being taken off the "available" list of rooms, which boosts occupancy rates? I could be wrong.

We are visiting WDW in about month and my sister and her boys decided to join us. She just booked her room a week ago and their was availability at most resorts, (BW, BC, YC, AKL,etc). She actually booked BC, then switched the other day to AKL to be at same resort as us. If there is availability at most resorts in the busy summer season, less than a month out, I would question how high occupancy truly is.

 

[CaptainAmerica]

I thought @ParentsOf4 , (or perhaps someone else) posted something awhile back in regards to the occupancy rates being slightly skewed due to a certain amount of rooms being taken off the "available" list of rooms, which boosts occupancy rates? I could be wrong.

We are visiting WDW in about month and my sister and her boys decided to join us. She just booked her room a week ago and their was availability at most resorts, (BW, BC, YC, AKL,etc). She actually booked BC, then switched the other day to AKL to be at same resort as us. If there is availability at most resorts in the busy summer season, less than a month out, I would question how high occupancy truly is.

Disney has no incentive to artificially inflate occupancy. Yes, room refurbs and other things take rooms out of the "available inventory," but I think it's misguided to suggest that they do those things on purpose to drive the occupancy rate higher.

Put it this way... if the reported occupancy was BS, they wouldn't be planning resort expansion. Since they are planning resort expansion, it means the occupancy numbers can at least somewhat be trusted.

 

[Ralphlaw]

I dont know in which alternate universe you think the economy is good in. Most people who still get paid vacation are afraid to use it beyond adding a day or two to a long weekend.

So if anything vacations will get shorter at least for US citizens who are the ONLY country not to have mandated vacation. Even China gives all workers two weeks of vacation

Uh, unemployment is very low. Inflation is non-existent. Obamacare has allayed much of the fear of debilitating medical expenses to a large share of the population. Although people in some places may be afraid to use their vacations, that seems to be a minority from my viewpoint. Talk to fellow guests at WDW, and you'll see that the vast majority of them have jobs and are on vacation from those jobs. Call various businesses and government offices to talk to a specific person, and you'll find that at various times of the year that person is on vacation for a week or more out of town.

I don't know what alternate universe you're living in, but I find that most people take vacation days every year. Yes, in precarious or ultra-competitive job situations, people forego their vacations, but that is an exception to the norms. Personal history: From 1999 until late 2003, I took no vacation because I had an infant son and I was starting a business. I've been making up for it since, with an average of three to four weeks of vacation per year since. Those early years were awful, but I did it to get my business on firm ground.

Everyone needs a long sanity break. Not getting away can lead to mental anguish, messed up kids, failed marriages, and general misery. I force my employees to take vacations every year because I know what happens to office tension and morale when they don't get them. Long weekends are nice, but I do not want to look back on my family years without seeing some great longer trips in there. I would recommend that anyone who's stuck in such a non-vacationing job situation should find a more human place to work. Jobs are out there right now because of the good economy. Businesses are begging for good workers, and most of those good workers want to be able to get away for a few weeks every year. Demand it, and you should get it. Make a humane switch.

 

[ParentsOf4]

I thought @ParentsOf4 , (or perhaps someone else) posted something awhile back in regards to the occupancy rates being slightly skewed due to a certain amount of rooms being taken off the "available" list of rooms, which boosts occupancy rates? I could be wrong.

Roughly, Disney keeps about 4% of all theoretical rooms out of service at any one time. Given the age of their resorts, this does not seem excessive.

This varies slightly when, for example, rooms are being converted to DVC.

Really you need to compare Disney with its own historical performance to appreciate what's happening:

Occupancy is strong at the moment.

What's surprising is that Per Capita Guest Spending (PCGS) was flat for the quarter, the first time it hasn't increased since the last recession, while Per Room Guest Spending (PRGS) was up only 0.6%, this despite an average rack rate increase of 4.5%.

Disney is offering both room and ticket discounts while, it seems, Guest appetite to pay Disney's prices has curbed a bit.

Don't interpret this as ominous. This is only one quarter and, more importantly, is right before WDW's biggest addition since the opening of Disney's Animal Kingdom in 1998. Historically, Guests delay vacations before the opening of major additions. With attendance up 4% and occupancy still at a strong 88%, it appears Disney leadership decided to offer discounts rather than let attendance and occupancy drop. This is good for consumers.