Iger: Disney will dial back on park discounts in latter part of 2010

[fosse76]

This was just pandering to analysts and (indirectly) instutional investors. Those guys *hate* it when a premium brand resorts to wide-scale discounting.

The fire-sale discounts will end when consumer confidence improves. Not a minute before. Not a minute later. Bob knows it. The analysts know it. But, he has to say that because that's what CEOs are expected to tell analysts.

I wouldn't be surprised to hear that some investors and board members were grumbling about the discounts, which would explain the public statement.

I disagree. The package discounts during Peak season '08 (when the economy was booming)?

The recession started in Dec. 2007. The economy was not booming (though the widespread effects had a delayed reaction).

Free park hopping, water parks (in February! woo!), and a modest (as in maybe 10%) discount on the room rate. In '09, when room/ticket prices were essentially the same but the economy had crashed? Buy-4-get-3.

The price was not the difference between those two years. The economy was.

That still doesn't mean that Disney wasn't overpriced to begin with. The difference is more people were able to afford to visit then. If you look at any comparable resort to the Disney resorts, you'd find that the off-site versions of the moderates charge less than the on-site Values and offer more perks. The only thing the Disney resorts have going for them is free parking at the parks and EMH (which is a negligible perk with no financial value). I'm not saying that staying on site doesn't have its privileges, I'm talking about the services offered.

 

[bgraham34]

I wouldn't be surprised to hear that some investors and board members were grumbling about the discounts, which would explain the public statement.



The recession started in Dec. 2007. The economy was not booming (though the widespread effects had a delayed reaction).



That still doesn't mean that Disney wasn't overpriced to begin with. The difference is more people were able to afford to visit then. If you look at any comparable resort to the Disney resorts, you'd find that the off-site versions of the moderates charge less than the on-site Values and offer more perks. The only thing the Disney resorts have going for them is free parking at the parks and EMH (which is a negligible perk with no financial value). I'm not saying that staying on site doesn't have its privileges, I'm talking about the services offered.

These are my sentiments. The issue I will have because of such discounts is people will continue to expect to have these discounts. Some will refuse to go because they don't want to pay full price because they don't see the value in staying at a Disney resort paying full price.

 

[cdunbar]

Wow, Iger can predict that the economy will get better in the latter part of 2010? If he can do that perhaps he can find a job in a certain house with an address of 1600...:zipit:

 

[CaptainMichael]

Wow, Iger can predict that the economy will get better in the latter part of 2010? If he can do that perhaps he can find a job in a certain house with an address of 1600...:zipit:

Well, "the weatherman" is a good forecaster:lookaroun

 

[DisneyMusician2]

These are my sentiments. The issue I will have because of such discounts is people will continue to expect to have these discounts. Some will refuse to go because they don't want to pay full price because they don't see the value in staying at a Disney resort paying full price.

Well, perhaps this is the wake-up call that Disney needs that many on the boards have been referring to for so long. Maybe attendance will drop and other parks will begin to gain on them, forcing some real change.

But I'm not counting on it.

 

[cdunbar]

well, "the weatherman" is a good forecaster:lookaroun

Ha!:ROFLOL::ROFLOL::ROFLOL:

 

[Brommy]

They are interested in going to Disneyland Paris for "a day or two",

You can see all of DLRP in 2 days if the crowds are small

 

[wm49rs]

The Orlando Sentinel on their WDW blog had a piece about dropping revenue at WDW, which may help detail why Iger is going to cut back on the discounts:

Spending on tickets, food and merchandise at Walt Disney World fell in 2009, the first annual drop at the Orlando resort in nearly a decade and yet another example of how it has been squeezed by the global recession.
Guests at Disney World spent an average of 4 percent less in the resort’s theme parks during its 2009 fiscal year, according to a new regulatory filing from the Walt Disney Co. Park spending last dropped at Disney World in 2001, during the country’s last recession.
Disney’s year-end filing provides the most detailed glimpse of how the company’s biggest theme-park resort has fared through what Disney Co. Chief Executive Officer Bob Iger called probably “the weakest economy in our lifetime.”
In addition to the in-park drop, guest spending at Disney World’s hotels and time shares dropped 8 percent, from a per-room average of $223 to $205. That was the lowest level since 2005 and the first year-over-year decrease since 2003.
Both drops reflected Disney’s use of heavy discounts — including promotions featuring either seven hotel nights for the price of four or free dining — to keep travelers coming amid the brutal environment. Average ticket prices and average daily hotel-room rates both fell on the discounting.
Attendance for the year was essentially flat with 2008. Hotel occupancy slid 3 percentage points, to 87 percent.
Spending at Disneyland also dropped, with in-park spending fell 9 percent and hotel spending dropped 7 percent. But attendance at the Anaheim, Calif., resort, which draws far more local traffic than Disney World, jumped 7 percent.
Disney’s fiscal year ended Oct. 3. The company’s fiscal 2009 had an extra week in it because of a timing quirk; every six years or so, Disney has a 53-week fiscal year in order to keep the ending date of the year close to Sept. 30.
The shrinking guest spending was one of the primary factors that led overall revenue at Disney’s U.S. resorts to sink by $531 million. Disney’s domestic operations were also hurt by the inability of Disney Vacation Club to securitize time-share mortgages in a locked-up credit market.
Revenue at Disney’s international resorts dropped by $306 million for the year, primarily because of declines at Disneyland Paris, which suffered from both lower guest spending and strengthening of the U.S. dollar against the Euro.
Total revenues at Walt Disney Parks and Resorts fell $837 million for the year to $10.7 billion, a 7 percent drop. The division partially offset that by slashing expenses by $358 million, or 4 percent, to just under $9 billion. The cost-cutting included the elimination of 1,400 jobs in Florida.
Operating profit at Disney’s parks-and-resorts division sank $479 million for the year to $1.4 billion, down 25 percent

 

[MousDad]

[We interrupt this thread for a message from the Automated Stock and Shareholder Emergency System (A.S.S.E.S.).]

"Your attention Walt Disney Parks and Resorts, this is the Automated Stock and Shareholder Emergency System automatic voice alert messaging service. Please pay close attention to the following announcement. This is not a drill.

Operating profit was only 1.4 billion dollars for the year. I repeat, operating profit was only 1.4 billion dollars for the year.


We are urging you to take the following necessary steps immediately:

• CLOSE ALL QUICK SERVICE LOCATIONS EXCEPT 1 PER PARK
• RE-CALIBRATE ALL AUDIOANIMATRONIC CHARACTERS TO STATIC MODE ONLY
• RE-SCHEDULE ALL ATTRACTION EXPANSION AND REFRUBISHMENT PROJECTS TO PREFURB MODE ONLY.
• Decrease Bob Iger's raise to only 1% for the year, bringing his compensation to only 31 million.
• AND FINALLY, CANCEL EFFECTIVE IMMEDIATELY ALL REPLACEMENTS FOR OBSOLETE HOLIDAY TECHNOLOGY.

Please stay tuned for further announcements."

 

[Brian Noble]

The recession started in Dec. 2007. The economy was not booming (though the widespread effects had a delayed reaction).

To be more clear---in Winter '08, consumer confidence was still strong. It didn't crash until Spring.
http://www.market-harmonics.com/free-charts/sentiment/consumer_confidence.htm

That still doesn't mean that Disney wasn't overpriced to begin with.

Certainly it does. If the resorts are full, and the parks are drawing record attendance, without having to discount, then by definition it is not overpriced. You may find it a poor value, but the broader market disagrees.

 

[wm49rs]

• also, please stuff, cram and/or crowbar as many people into the parks over the next month as possible, regardless of their lack of arm movement or shortage of deoderant.

 

[Scooter]

I just wish Disney would get rid of the free dining...I'm sick of having to plan my meals 180 days in advance. I'm also sick of the slashed menus due to the dining plans.

I want to be able to do walk ups again like we did in the early 90's.

 

[EpcotServo]

*Echo PA Voice over third shift at WDW*

"Your attention Walt Disney Parks and Resorts, this is the Automated Stock and Shareholder Emergency System automatic voice alert messaging service. Please pay close attention to the following announcement. This is not a drill.

Operating profit was only 1.4 billion dollars for the year. I repeat, operating profit was only 1.4 billion dollars for the year."

*Two third shift guys looking around*


"We are urging you to take the following necessary steps immediately:

• CLOSE ALL QUICK SERVICE LOCATIONS EXCEPT 1 PER PARK
• RE-CALIBRATE ALL AUDIOANIMATRONIC CHARACTERS TO STATIC MODE ONLY
• RE-SCHEDULE ALL ATTRACTION EXPANSION AND REFRUBISHMENT PROJECT TO PREFURB MODE ONLY."

*one guy looks at the other*

*other guy shrugs*



*Guy spray paints a dot on a track support*


"Prefurbed! You all saw it!"

 

[NewfieFan]

I viewed the discounts a little differently! I saw the discounts "as the real price" for a Disney vacation. The "regular" prices were just to convince us we were indeed getting a "deal"! Kind of like when stores have outrageous prices on clothes and then a week later it all goes 50% off. Now we think we're getting a deal b/c it's 50% off!

People like to think they're saving! People like to think they're getting a deal! I thought Disney had caught on to this!?! Maybe not!?!

I know I will never pay "regular" prices for a WDW vacation. I will travel at times when it is cheaper or discounted or I just won't be able to go. Coming from Canada so much of our travel budget goes into... well, traveling! Getting there is almost as much as the WDW portion of the trip.

This year for the first time we are taking two (that's right, count 'em TWO) trips to WDW. This may change if the prices rise and the discounts disappear. It will just be too expensive for us.

I think Disney will see it's numbers drop.

 

[JWG]

[We interrupt this thread for a message from the Automated Stock and Shareholder Emergency System (A.S.S.E.S.).]

"Your attention Walt Disney Parks and Resorts, this is the Automated Stock and Shareholder Emergency System automatic voice alert messaging service. Please pay close attention to the following announcement. This is not a drill.

Operating profit was only 1.4 billion dollars for the year. I repeat, operating profit was only 1.4 billion dollars for the year.



We are urging you to take the following necessary steps immediately:

• CLOSE ALL QUICK SERVICE LOCATIONS EXCEPT 1 PER PARK
• RE-CALIBRATE ALL AUDIOANIMATRONIC CHARACTERS TO STATIC MODE ONLY
• RE-SCHEDULE ALL ATTRACTION EXPANSION AND REFRUBISHMENT PROJECTS TO PREFURB MODE ONLY.
• Decrease Bob Iger's raise to only 1% for the year, bringing his compensation to only 31 million.
• AND FINALLY, CANCEL EFFECTIVE IMMEDIATELY ALL REPLACEMENTS FOR OBSOLETE HOLIDAY TECHNOLOGY.

Please stay tuned for further announcements."

Hey, ExxonMobile is still making more money than they are, how do you expect Iger to feed his kids?

These disocunts, honestly, are a disservice to to Disney's most loyal customer - DVC owners. Not that there aren't loyal hotel vacationers, but any company will see their buy-in guests as their key demographic. Hence, no new hotels but DVC rooms all over the place.

I do not own DVC, but we do within the family. It is very frustrating to them to see all of these discounts offered to the casual guest while as a loyal customer they see their discounts and benefits taken away. There was a day DVC included park admission - GONE, there was a day DVC included merchandise discounts - GONE, there was a day there were broad and extensive dining discounts - GONE (now there's rotating discounts that you don't even know about far enough in advance to make dining reservations).

No different that cell phones and television, loyal subscribers don't get the deals. But frustrating none the less. I can't imagine it's helping DVC sales, I know when people ask me about my family's ownership I'm honest to say that the current package deals really make the cost analysis more difficult.

 

[RSoxNo1]

This could also be posturing from Iger to get people to take advantage of the discounts now. Perhaps because they've been going on for an extended period of time, those that were going to take advantage of it, have already done so and they are trying to get people to get another discounted vacation in before the price skyrockets again.

 

[Future Guy]

Total agreement. I may get hate mail, but I believe Free Dining is slowly turning all Disney Owned Restaurants into hot dog stands.

I agree as well. On Labor Day Weekend 2007, I made ADRs from my cell phone at Downtown Disney the night we got there. Today you wouldn't be able to do that.

Heck, in late October 2001, we didn't have ADRs at all. We walked up to places like Le Cellier and Garden Grill and were seated immediately. Of course, that was during the post-9/11 period where people were still scared to travel.

 

[Giraffe Lounge]

...but he's obviously out of touch with basic economics. Disney isn't discounting because of the economy. They're discounting because they're too expensive to begin with. As prices rise at some point demand will fall (supply, demand economics), and when that happens companies discount. In reality Disney should be reducing their prices just as many car models are now less expensive than a year or two ago, 529 college plan admin fees are cheaper, housing, food, etc.

You need to consider that to reach the most profitable equilibrium price, sometimes people are priced out of the market.

 

[CRO-Magnum]

Absolutely true...

You need to consider that to reach the most profitable equilibrium price, sometimes people are priced out of the market.

...but profitability is typically measured on a very short term basis. However on a long term basis the local optimums reached in profitability can wreak havoc. Disney is no longer managing the experience and it's "magic", they are managing scarcity by controlling supply. That's great as long as you can indeed control supply. But at some price point alternative suppliers are sought which then changes the equilibrium. No company has managed scarcity well over the long run, the closest being DeBeers but even they have succumbed to competition.

It's the Bigger Idiot theory all over again. As long as there is someone who is a bigger idiot than me, willing to pay Disney's prices, Disney is fat, dumb and happy. What will they do when they run out of idiots? It happens. When people in the top 5% of wage earners look for alternatives I can tell you that's not what Disney is counting on.

 

[Giraffe Lounge]

...but profitability is typically measured on a very short term basis. However on a long term basis the local optimums reached in profitability can wreak havoc.

This is typically true of cutting services while charging the same to make more money, not charging more to be more profitable. Very different animals.

Disney is no longer managing the experience and it's "magic", they are managing scarcity by controlling supply. That's great as long as you can indeed control supply. But at some price point alternative suppliers are sought which then changes the equilibrium. No company has managed scarcity well over the long run, the closest being DeBeers but even they have succumbed to competition.

Yes, some people will divert to Universal or to their regional parks. But that's exactly the point. Again, what I'm saying is that Disney may well decide that they can make more money by pricing themselves out of certain people's business.

Check out some of the Disneyland boards where there are constantly discussions about the annual passes being too cheap-- overcrowding the park, and ruining the experience, which chases away some people. So why not chase away some people with higher prices instead, creating a better experience for you guests, while requiring less staff which also boosts margins?

You're dramatically oversimplifying things here-- these aren't pork bellies.

It's the Bigger Idiot theory all over again. As long as there is someone who is a bigger idiot than me, willing to pay Disney's prices, Disney is fat, dumb and happy. What will they do when they run out of idiots? It happens. When people in the top 5% of wage earners look for alternatives I can tell you that's not what Disney is counting on.

It has nothing to do with "idiots" of any sort. It's a premium experience and commands a premium price, which some can't afford. It is no where near the top 5% number, so that's a mute point.

A personal example, there are three grocery stores within 5 minutes of me, I shop at the most expensive one because the experience is much better (nicer interior, knowledgeable staff) and I feel its worth it. It doesn't make me an idiot that I choose to shop there, I know of the cheaper alternatives.

Now, if I lose my job, I may not be able to shop there any more, or I may just decide at some point that its not worth the premium for me personally. Neither of those mean that the grocery store won't go on being profitable. Understand?

From your earlier post it sounds like thats the situation you're in with WDW, it just isn't worth the premium anymore. That's fine. But it doesn't mean Disney isn't profitable or that they are incompetent just because they don't discount to get your business back.

Disney is fat, dumb and happy.

I would suggest to you that there are scores of people at Disney that know quite a bit more about economics than you (or I for that matter) and have access to significantly more data.

Not that they can't do any wrong, but they deserve some respect.