Disneyland During A Recession - Anaheim's 2022-23 Strategy?

[TP2000]

I just saw this article from this past weekend in the OC Register. In short, Wells Fargo analysts have stated the "wheels have come off" Disney's faltering stock due partly to lower theme park revenues. While Cedar Fair seems to be doing better business, and Universal's theme park biz is "red hot".

Gas prices and the Recession arriving this summer are obvious problems for any theme park.

Disneyland countered the Great Recession in 2009 by heavily discounting AP's and letting everyone in for free on their birthday. That kicked off the booming AP population of the 2010's that brought with it many new problems and headaches that they have tried for years to fix now. Did they learn a lesson from that? Or, like Fastpass at Pirates of the Caribbean, is it a huge mistake no one left in TDA remembers and they'll do it again?

What's going to be Disneyland's recession strategy into late 2022 and 2023, I wonder?

How the slowing economy is affecting theme parks this summer

The economic slowdown is keeping visitors off roller coasters this summer, according to financial analysts reports.

www.ocregister.com

Wall Street analysts are raising concerns about lagging attendance and spending levels at Disney, Six Flags, SeaWorld and other U.S. theme parks during the industry’s busy summer season as visitors contend with recession worries, high gas costs and ticket price increases.

The economic slowdown in the wake of COVID-19 pandemic shutdowns at theme parks across the United States is keeping visitors from riding roller coasters and tackling thrill rides this summer, according to financial analysts reports.

“This is happening despite the early predictions and performance reports claiming that the theme park industry was expected to thrive this year,” Screamscape’s Lance Hart wrote for Blooloop. “After all, prior indicators claimed that there was a huge pent-up demand for the product amongst the public.”

Wall Street analysts are beginning to see signs of weakness across the theme park industry.

Wells Fargo analyst Steven Cahall said Disney stock has “seen the wheels come off” in 2022, in a note to clients on July 25.

Wells Fargo blamed the slowing economy for lower spending, revenue and income at Disney theme parks, according to the analyst report. Cahall expects visitor spending, hotel revenue and operating income at Disney theme parks to be lower in 2023. The Wells Fargo analyst expects Disney theme parks to recover in 2024.

“We remain Disney bulls,” Cahall wrote in the analyst report. “We see a big catalyst ahead.”

Citi Analyst James Hardiman lowered his price targets for SeaWorld Entertainment, Cedar Fair and Six Flags in early July, according to a report to investors.

“While we continue to like the theme park industry’s ability to mitigate losses even in the event of a recession, we are beginning to see signs of weakness across the industry, with the month of June particularly problematic,” Hardiman wrote on July 8 in a note to investors.

Cedar Fair released financial data after the Fourth of July weekend that painted a rosy picture during the first half of the year – showing strong performance compared to the same period in 2019 prior to the COVID-19 pandemic.

The parent company of Knott’s Berry Farm set new record highs for net revenue, theme park spending and season pass sales through the first half of 2022, according to financial statements released by Cedar Fair.

“Yet early reports from a number of theme parks this summer have painted a different picture,” Hart wrote for Blooloop. “Attendance seems to be lacking at many theme parks thus far, despite favorable weather conditions throughout most areas during June.”

Fewer visitors this summer would not necessarily be a surprise at Six Flags, where new CEO Selim Bassoul has been willing to trade lower attendance for higher visitor revenue from price increases, according to the amusement park chain’s latest quarterly report.

Universal parks are showing no signs of a negative impact from a slowing economy after parent company Comcast reported quarterly earnings on July 28.

“Universal theme parks are knocking the cover off the ball,” writes MoffettNathanson analyst Craig Moffett.

Universal’s “red hot” theme park revenues jumped 64.7% year over year, according to MoffettNathanson.

 

[Phroobar]

So basically Universal and Knotts are doing great! Magic Mountain gets lower attendance for higher prices and Disneyland has a screw loose. Every other park in the country is in the toilet including WDW.

 

[Wendy Pleakley]

Is this trying to spin other theme parks as doing "better" than Disney?

A revenue bump for Universal is great for them, but it's all relative. A 20% revenue jump for Disney, for example, might represent a whole lot more money than a larger percentage bump for other theme parks.

Disney is doing fine. I remember years ago when they had true "off seasons" and were presumably still making money hand over fist. They could face major attendance drops and be in no danger of losing money.

 

[TP2000]

Is this trying to spin other theme parks as doing "better" than Disney?

It's just financial analysts, who don't work for theme parks, taking an analytical look at the various theme park companies and their 2022 revenue. I don't see much "spin" there from those sources, just hard financial data backing up recommendations to investors.

Unless, of course, the financial analyst for Wells Fargo is a Potter fan and hates Frozen, or something weird like that. But I'd like to think Wells Fargo management has a way of filtering out buy and sell recommendations from the financial research guy with the signed autograph of Lord Voldemort on his desk.

Disney is doing fine. I remember years ago when they had true "off seasons" and were presumably still making money hand over fist. They could face major attendance drops and be in no danger of losing money.

I'm sure they are doing "fine". But like you say, it's all relative.

A relatively small 3% or 4% decline in business due to the recession can cause havoc and massive changes to the theme park operation and strategy. Just look at the last recession in 2008-09 and what it did to Disneyland's operating strategy and culture.

Heck, they barely lost any attendance in '08 before the panic swept in and they started giving out free tickets to anyone with a driver's license for 2009 and 2010.

A recession set in, attendance went down a smidge in '08.... PANIC IN TDA!!!

 

[PiratesMansion]

I don't know that I'd be lauding Cedar Fair as doing well when they're closing CGA at some point over the next decade to pay down debt.

Disneyland was slammed last week in marked contrast to pretty much every park I hit in June (Six Flags parks or parks run by independent operators).

Disney'll be fine. All they need to do is figure out a solution to the AP problem and they're golden.

 

[TP2000]

Disney'll be fine. All they need to do is figure out a solution to the AP problem and they're golden.

That last part is my concern. It wasn't in the OC Register article, but many of us here lived that mess back in 2009-2010 that directly fueled the massive AP problems of the 2010's.

I worry there's not institutional knowledge in TDA to remember what to do, and not do, in a recession.

The executives they have were not brought up in the theme park industry. They almost all came from merchandising and marketing divisions up in Burbank. Ken Potrock is the current President Du Jour warming that office in TDA, and he arrived in Anaheim from Consumer Products in Burbank. The woman in TDA before Mr. Potrock was from Disney's London office where she was in charge of Disney's European film/TV distribution.

The revolving door of TDA's executive suites always seems to lead to boneheaded decisions when the business climate gets even just a little bit tricky for them. If attendance declines by a smidge, they panic.

Ken Potrock: May, 2020 - Present
Rebecca Campbell: September, 2019 - May, 2020 (Not even a full 12 months, just enough time for her to Instagram the cool stuff, then she left)
Josh D'Amaro: 2018 - 2019 (Movin' on up, to the Eastside!)
Michael Colglazier: 2013 - 2018 (Has he mentioned his HBS Masters yet? He'd love to tell you about it if he corners you at a party! So would his even less charming wife. Zzzzzz.... )
George Kalogridis: 2009 - 2013
Ed Grier: 2006 - 2009 (Who?)

Look at that slight decline in attendance in '08 again to see the hairtrigger that goes off leading to dumb decisions from the Presidents Du Jour. The TDA execs don't have a great track record of dealing with anything less than constantly rising attendance.

 

[BuzzedPotatoHead89]

If I’m speculating the question is how are TWDC’s competitors in the theme park space spending their increased revenue from YTD? In the case of Sea World and Cedar Fair you’re looking at both BoDs opting to spend millions in stock buybacks that won’t be going to park investment. Some of this might suggest they’re shoring up the stock price in advance of a suspected economic downturn. But time will tell.

For Disney their biggest apples-apples competition in the parks and resort space is probably Universal which will be interesting to track. Like TWDC, Comcast/NBCUniversal is also an integrated media/streaming/entertainment company that is susceptible to many of the same broader macroeconomic concerns as TWDC in the event of an downturn or other inflationary pressures. This could lead to similar crossover trends in production costs and consumer household cord cutting impacts for general movie going, Peacock, Hulu and D+ that would proportionally impact both companies (and their projected quarterly earnings) similarly. This could squeeze parks spending downstream too.

Universal could also be well positioned in the marketplace coming out of a recession if they do open EU on plan for 2025.

 

[MarvelCharacterNerd]

I'm sure this potential recession reaction is feeding into whatever last-minute decision making they are trying to figure out for the DL Magic Key/AP/Program #3 In As Many Years.

In less than three weeks, the majority of Magic Keys expire. I say "majority" because all days a week later and onward are still fully available when normally many would be "sold out" by now. But I could make a reservation right now for *any* non-blockout day after the last week of August because clearly most keyholders were people who bought them and activated them the first week of availability and now can't make any future reservations past their expiration date. Whereas I didn't get my key until later, so it's still valid to make future reservations.

There's a separate thread to discuss the Key renewals, but I think part of the decision making factor may be looking at the financial headwinds coming... or already arrived.

 

[Disney Analyst]

I don’t trust any of these people. Disney stock was at its highest (I think ever) when the majority of the theme parks weren’t even open…

 

[Disney Irish]

The reports of a recession looming have been quite overblown.

Fed's Bullard sees more interest rate hikes ahead and no U.S. recession

St. Louis Fed President James Bullard said the central bank will continue raising rates until it sees compelling evidence that inflation is falling.

www.cnbc.com

With the job market still continuing to add 100s of thousand of jobs every month and the unemployment rate at 3.5% you're not in a recession. Inflation is still the one problem of this economy, which is hopefully on the mend as the Fed continues to raise rates.

Will the US go into a recession, yes at some point in the future as its inevitable, but it won't be this year and maybe not next either.

As for Disneyland, as others have said Disneyland will be fine.

 

[CaptinEO]

The reports of a recession looming have been quite overblown.

Fed's Bullard sees more interest rate hikes ahead and no U.S. recession

St. Louis Fed President James Bullard said the central bank will continue raising rates until it sees compelling evidence that inflation is falling.

www.cnbc.com

With the job market still continuing to add 100s of thousand of jobs every month and the unemployment rate at 3.5% you're not in a recession. Inflation is still the one problem of this economy, which is hopefully on the mend as the Fed continues to raise rates.

Will the US go into a recession, yes at some point in the future as its inevitable, but it won't be this year and maybe not next either.

As for Disneyland, as others have said Disneyland will be fine.

I don't know. You can be as technical as you want to what does or doesn't classify a recession. I know personally many families that have dramatically cut back in spending this year. Everyone has been hit hard by inflation and wages aren't keeping up at all with the record inflation we've seen since 2020.

 

[Disney Irish]

I don't know. You can be as technical as you want to what does or doesn't classify a recession. I know personally many families that have dramatically cut back in spending this year. Everyone has been hit hard by inflation and wages aren't keeping up at all with the record inflation we've seen since 2020.

Yes many families are affected by the high prices due to inflation and wage stagnation, that is not even in doubt. What is in doubt and the point I’m making is that is this idea that the US is on the edge and falling into a recession. For most of this year I’ve been saying that it’s all overblown, and even now the Fed is starting to agree with me. The data for the past 18 months have shown that while the GDP has been contracting the rest of the economy is still roaring.

So yes it’s affecting people on a personal micro level, but we’re talking about the overall economy.

 

[CaptinEO]

Yes many families are affected by the high prices due to inflation and wage stagnation, that is not even in doubt. What is in doubt and the point I’m making is that is this idea that the US is on the edge and falling into a recession. For most of this year I’ve been saying that it’s all overblown, and even now the Fed is starting to agree with me. The data for the past 18 months have shown that while the GDP has been contracting the rest of the economy is still roaring.

So yes it’s affecting people on a personal micro level, but we’re talking about the overall economy.

I'm not sure if "micro level" is the right scale but I agree with you for the most part.

In regards to Disneyland and Themeparks/Vacation/Travel, I can see these industries taking a massive hit. It's the first thing to go when people have less income to spend.

 

[PiratesMansion]

In regards to Disneyland and Themeparks/Vacation/Travel, I can see these industries taking a massive hit. It's the first thing to go when people have less income to spend.

Perhaps there will be a downturn at tourist-centric places like Orlando, but not necessarily elsewhere.

post-2008 recession there were many parks that had years of record attendance despite what was going on with the economy, as many people chose to go to their local theme parks instead of going on more elaborate vacations. With ample local population around, Disneyland and other SoCal parks could theoretically benefit or be minimally affected by any economic uncertainty.

And if the park itself isn't working as a selling point, there are always discounts they can offer to draw more people back into the parks.

 

[Disney Irish]

Perhaps there will be a downturn at tourist-centric places like Orlando, but not necessarily elsewhere.

post-2008 recession there were many parks that had years of record attendance despite what was going on with the economy, as many people chose to go to their local theme parks instead of going on more elaborate vacations. With ample local population around, Disneyland and other SoCal parks could theoretically benefit or be minimally affected by any economic uncertainty.

And if the park itself isn't working as a selling point, there are always discounts they can offer to draw more people back into the parks.

Yep, which is the reason why DLR likely won’t ever do away with some kind of AP type program completely. It’s their built-in recession proof way of keeping attendance up and people spending something in the Parks.

 

[TP2000]

I don't know. You can be as technical as you want to what does or doesn't classify a recession.

It's pretty straight forward. Per Google and the Oxford Dictionary, the definition of a recession is at least two consecutive quarters of negative GDP growth. We've already had two now, we're working on the third currently.

re·ces·sion
/rəˈseSH(ə)n/
noun

1. a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.
   
   
   

 

[TP2000]

I'm sure this potential recession reaction is feeding into whatever last-minute decision making they are trying to figure out for the DL Magic Key/AP/Program #3 In As Many Years.

In less than three weeks, the majority of Magic Keys expire. I say "majority" because all days a week later and onward are still fully available when normally many would be "sold out" by now. But I could make a reservation right now for *any* non-blockout day after the last week of August because clearly most keyholders were people who bought them and activated them the first week of availability and now can't make any future reservations past their expiration date. Whereas I didn't get my key until later, so it's still valid to make future reservations.

There's a separate thread to discuss the Key renewals, but I think part of the decision making factor may be looking at the financial headwinds coming... or already arrived.

Great point! I'm sure it's an issue that's been top of mind in TDA this summer.

I just don't trust them to have the institutional memory to remember what mistakes they made the last time.

 

[Disney Irish]

It's pretty straight forward. Per Google and the Oxford Dictionary, the definition of a recession is at least two consecutive quarters of negative GDP growth. We've already had two now, we're working on the third currently.

re·ces·sion
/rəˈseSH(ə)n/
noun

1. a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.
   
   

Sorry but that is only the “unofficial” classification. In the US it’s only the NBER that can declare a recession or not. And they use more data than the GDP like unemployment numbers.

How to know when a recession has begun

The U.S. economy has contracted for two straight quarters, intensifying fears that it is on the cusp of a recession, if not already in one, barely two years after the pandemic downturn officially ended.

www.pbs.org

 

[drizgirl]

Who is “they?” We’ve got a few groups of people that like to change definitions.

In this case, Google and the Oxford Dictionary.

People sure have trouble with pronouns these days.

 

[TP2000]

Sorry but that is only the “unofficial” classification. In the US it’s only the NBER that can declare a recession or not. And they use more data than the GDP like unemployment numbers.

How to know when a recession has begun

The U.S. economy has contracted for two straight quarters, intensifying fears that it is on the cusp of a recession, if not already in one, barely two years after the pandemic downturn officially ended.

www.pbs.org

The NBER is always a few quarters late, because they only use backwards-looking data.

The NBER didn't declare the 2008 recession began until their press release on December 8th, 2008. The problem is that the reality a recession had begun had already landed with a thud on the desk of every sharp pencil boy in America, plus most middle class homeowners who knew it months ago.

GDP shrunk by 2.5% in 2008, but the NBER didn't announce a recession had begun until mid December of '08. Think about that.

In the sinking economy of '08, the panic had already set in at TDA and in Burbank. Disneyland announced "Get In Free On Your Birthday In 2009!" on September 18th, 2008. Three months before the NBER made their backwards-looking announcement on '08.

The NBER reminds me of the Bureau of International Expositions headquartered in Paris, the official board of very important "experts" who declare with great fanfare and pomposity which expositions are actually "World's Fairs". The Bureau has arcane and trivial rules they create that determine what is a World's Fair, and what is not. The team that produced the 1962 Seattle World's Fair made a trip to Paris in 1961 to wine and dine the Bureau staff and convince them to declare their Seattle event a World's Fair. They brought a map of North America to point out where Seattle was, since no one east of Spokane had heard of it before. It worked, as Parisian bureaucrats love nothing more than wining and dining and ego-stroking.

In 1963, the great New Yorker and planner Robert Moses sent them a telegram saying he needed their stamp of approval for his 1964-65 New York World's Fair, arguably a much bigger and grander affair than Seattle in '62. The Bureau refused because the New York team didn't come visit them in person and take them to dinner. Officially, the 1964-65 New York World's Fair was not a World's Fair. It was an imposter, a sham, a tawdry collection of carnival games and corporate sales pitches in Flushing Meadows that only pretended to be a World's Fair.

But honestly, we all know the 1964-65 New York World's Fair really was a World's Fair, and possibly the greatest one ever produced. Even if the Bureau of International Expositions refused to admit it.

Look at their website, they don't even acknowledge New York 1964-65 even happened or ever existed.

Since 1851

www.bie-paris.org