Lines at the FP+ entrances

[Nubs70]

When asked:

"And then, second, as you think about rolling out the FastPass+ and all of those new technological elements, do you think it's a better strategy to kind of bifurcate them by offering them to resort guests or something only at first to drive higher occupancy? Or do you go wide for everybody with that stuff?"

Iger responded with:

"I'll answer the second question, because it's easier to answer. We have for years had in place products that are available only to hotel guests. And actually, one thing that I think Jay alluded to, didn't say specifically, is MyMagic+ will definitely encourage people to stay more on-property than off-property. Jay was talking about essentially by being able to plan ahead, people will basically have more plans with us, and that will in effect discourage them from doing other things. I think it will also encourage them to stay more in our hotels. And so I think you have to look at that as an additional value to MyMagic+."

WDW hotel occupancy rates were down to 79% last year. They bottomed out at 76% in the post-9/11 economy.

Corporate Disney wants to get those hotel rooms filled again.

WDW has 30405 available onsite rooms.
79% occupancy = 6385 rooms unsold per night or 2.3MM roomnights/year

If FP+ results in 100% occupancy:
2.3MM roomnights/yr x $267 PRGS x 3.2 guests/room =$1.99B/yr gross revenue
$1.99B/yr x 13.4% margin = $268MM/yr net revenue increase.
$1.99B/.268B = 7.43 year payback.

Based on these projections, increase in room occupancy is a large component of the justification. However, to reduce payback time to five years or under, occupancy increases will also need to be accompanied with price and margin increases.

 

[jdmdisney99]

How bout we just get rid of FP?

 

[ParentsOf4]

WDW has 30405 available onsite rooms.
79% occupancy = 6385 rooms unsold per night or 2.3MM roomnights/year

If FP+ results in 100% occupancy:
2.3MM roomnights/yr x $267 PRGS x 3.2 guests/room =$1.99B/yr gross revenue
$1.99B/yr x 13.4% margin = $268MM/yr net revenue increase.
$1.99B/.268B = 7.43 year payback.

Based on these projections, increase in room occupancy is a large component of the justification. However, to reduce payback time to five years or under, occupancy increases will also need to be accompanied with price and margin increases.

Margins are much higher than 13.4% when filling what otherwise are unoccupied hotel rooms. The incremental cost of servicing rooms when the occupancy rate already is at 79% is minimal.

Per MyMagic+'s original reported budget of $800M, WDW did not need to fill anywhere near 100% of those empty hotel rooms to quickly produce a net gain.

Disney filled 8.3M room nights in 2013. For the sake of discussion, assuming an average stay is 7 nights, that's 1.2M families who paid Disney's current prices.

Disney is hoping they can find a couple of hundred thousand more families to switch from offsite and book their 7-night stays onsite instead. 200K more onsite families corresponds to 1.4M room nights. In 2013, Per Room Guest Spending (PRGS) was $267. $267 X 1.4M = $374M. That's just in one year at current PRGS (which can be expected to rise).

Again, the incremental cost of filling rooms at hotels that are running at 79% occupancy is small. Overwhelmingly, the $374M represents profit.

 

[Nubs70]

Margins are much higher than 13.4% when filling what otherwise are unoccupied hotel rooms. The incremental cost of servicing rooms when the occupancy rate already is at 79% is minimal.

Per MyMagic+'s original reported budget of $800M, WDW did not need to fill anywhere near 100% of those empty hotel rooms to quickly produce a net gain.

Disney filled 8.3M room nights in 2013. For the sake of discussion, assuming an average stay is 7 nights, that's 1.2M families who paid Disney's current prices.

Disney is hoping they can find a couple of hundred thousand more families to switch from offsite and book their 7-night stays onsite instead. 200K more onsite families corresponds to 1.4M room nights. In 2013, Per Room Guest Spending (PRGS) was $267. $267 X 1.4M = $374M. That's just in one year at current PRGS (which can be expected to rise).

Again, the incremental cost of filling rooms at hotels that are running at 79% occupancy is small. Overwhelmingly, the $374M represents profit.

I was just using info off of the 2012 10k filing to get an order of magnitude estimate. 100% occupancy is not realistic. The estimate of performance shows investment into MM+ is marginally responsible, at best.

 

[Goofyernmost]

I agree that it will be while before we see how this ultimately plays out.

However, FP+ does not add ride capacity. Prior to FP+, WDW theme parks had insufficient capacity on their popular attractions, particularly at Epcot and DHS. FP+ doesn't change that.

Ultimately, FP+ doesn't make things better or worse, just different. It solves some problems but creates others.

Very true, but, it is also possible that it is solving problems that are much bigger then the ones it is creating. It all depends on ones perspective.

 

[ford91exploder]

When asked:

"And then, second, as you think about rolling out the FastPass+ and all of those new technological elements, do you think it's a better strategy to kind of bifurcate them by offering them to resort guests or something only at first to drive higher occupancy? Or do you go wide for everybody with that stuff?"

Iger responded with:

"I'll answer the second question, because it's easier to answer. We have for years had in place products that are available only to hotel guests. And actually, one thing that I think Jay alluded to, didn't say specifically, is MyMagic+ will definitely encourage people to stay more on-property than off-property. Jay was talking about essentially by being able to plan ahead, people will basically have more plans with us, and that will in effect discourage them from doing other things. I think it will also encourage them to stay more in our hotels. And so I think you have to look at that as an additional value to MyMagic+."

WDW hotel occupancy rates were down to 79% last year. They bottomed out at 76% in the post-9/11 economy.

Corporate Disney wants to get those hotel rooms filled again.

If @WDW1974 is to be believed the actual occupancy was far lower than the official percentage because of huge blocks of rooms being 'out of service' and therefore not counting against occupancy stats.

 

[ford91exploder]

Not quite, Tom Staggs, I believe it was, stated in the Q4 '13 conference call that they expected this program to generate 300M in new revenue for FY14,
the rollout year.

That's not labor management or crowd control, that's 820K per day in new spending. Does anyone think that's happening?

No I know when I went there in August I spent significantly LESS money than I did the prior August. There was almost NOTHING I wanted to buy, I'm not going to pay 29.95+ tax for a 9.95 T-shirt because it says Disney on it.

And with the dumbed down food choices - ate offsite and in-room more this time.

 

[ford91exploder]

WDW has 30405 available onsite rooms.
79% occupancy = 6385 rooms unsold per night or 2.3MM roomnights/year

If FP+ results in 100% occupancy:
2.3MM roomnights/yr x $267 PRGS x 3.2 guests/room =$1.99B/yr gross revenue
$1.99B/yr x 13.4% margin = $268MM/yr net revenue increase.
$1.99B/.268B = 7.43 year payback.

Based on these projections, increase in room occupancy is a large component of the justification. However, to reduce payback time to five years or under, occupancy increases will also need to be accompanied with price and margin increases.

With rooms being overpriced relative to market anyhow it's hard to see how Disney is going to make that happen.

 

[Lord_Vader]

I would assume by then that there should be more kiosks in place. I'm sure they will eventually turn all the old FP areas into new mm+ kiosks to help spread the crowds now that legacy FP is done for...I can't see them just letting all those old machines sitting there taking up space for no reason.

They are already replacing the legacy FP machines with kiosk stations to support FP+ reservations at DHS, I would bet the other park swaps will be happening very quickly.

 

[Lord_Vader]

With rooms being overpriced relative to market anyhow it's hard to see how Disney is going to make that happen.

Depends on your definition of market. WDW resort prices are MUCH higher than areas around the area but guests, including my family, continue to pay the extreme premium based on perceived value.

 

[ford91exploder]

Depends on your definition of market. WDW resort prices are MUCH higher than areas around the area but guests, including my family, continue to pay the extreme premium based on perceived value.

WDW's BEST hotel rooms do not come with either the quality of fitting or the quality of service that executive level at Hilton or Marriott have in the same market and they are 2-3x the price. Anyone who spends significant time in GOOD hotels is UNDERWHELMED at DIsney's offerings.

400-600 night in Orlando gets you a junior suite on the executive floor, access to the executive lounge and free softdrinks and discounted adult beverages as well as snacks in the evening and a full breakfast in the morning. Same price at DIsney gets you a 'moderate' and NOTHING's included.

 

[Lord_Vader]

WDW's BEST hotel rooms do not come with either the quality of fitting or the quality of service that executive level at Hilton or Marriott have in the same market and they are 2-3x the price. Anyone who spends significant time in GOOD hotels is UNDERWHELMED at DIsney's offerings.

400-600 night in Orlando gets you a junior suite on the executive floor, access to the executive lounge and free softdrinks and discounted adult beverages as well as snacks in the evening and a full breakfast in the morning. Same price at DIsney gets you a 'moderate' and NOTHING's included.

I don't know what moderate you are staying at, but I have never paid more than $300 per night at CB or POFQ.

Disney doesn't offer the same ammenities at the same price points because they don't have to, guests are willing to pay more because of location, location, location. The same reason a house in my area costs $600,000 while a home of similar size three miles away sells for less than $200,000 with better/updated styling and appliances.

 

[ford91exploder]

I don't know what moderate you are staying at, but I have never paid more than $300 per night at CB or POFQ.

Disney doesn't offer the same ammenities at the same price points because they don't have to, guests are willing to pay more because of location, location, location. The same reason a house in my area costs $600,000 while a home of similar size three miles away sells for less than $200,000 with better/updated styling and appliances.

Are they?, Deluxes and Moderates had half empty parking lots over the holidays, I've NEVER seen that before and even with cooked books ie huge blocks of rooms at Deluxe's 'Out of Service' occupancy at the world was only 79% which is only 3% higher than immediately after 9/11. And now we have 30% discount ads every 10 minutes on TV.

I think WDW has a problem, They MAY have hit that quality/value inflection point and from now on all trends will be downward absent some big moves from TDO.

 

[Lord_Vader]

Are they?, Deluxes and Moderates had half empty parking lots over the holidays, I've NEVER seen that before and even with cooked books ie huge blocks of rooms at Deluxe's 'Out of Service' occupancy at the world was only 79% which is only 3% higher than immediately after 9/11. And now we have 30% discount ads every 10 minutes on TV.

I think WDW has a problem, They MAY have hit that quality/value inflection point and from now on all trends will be downward absent some big moves from TDO.

I don't disagree with you regarding their price points compared to quality. The retail prices they last are rediculous, I would not even reserve a Deluxe room at the prices they quote unless I was absolutely sure we would see hefty discounts that I can take advantage of later.

I have three reservations late this summer over 16 days, AKL/BC/POFQ with 12 of the days at AKL/BC. If they do not give the typical AP discount of 35% on those rooms, we will be changing to POFQ or a value because the prices simply are not worth it to us. We prefer the deluxe resorts because of location, dining and theming in that order.

I REALLY like walking to EC/DHS from the Boardwalk resorts, absolutely fantastic. It took my children (21 & 16) and I six to ten minutes on average to walk from the International Gateway to our room, maybe fifteen minutes on NYE after the fireworks at EC, that ease was well worth the extra cost to me. No offsite hotel/resort can offer anything that comes close to that level of convinience, even with the extreme price tag that comes with it.

 

[ford91exploder]

I don't disagree with you regarding their price points compared to quality. The retail prices they last are rediculous, I would not even reserve a Deluxe room at the prices they quote unless I was absolutely sure we would see hefty discounts that I can take advantage of later.

I have three reservations late this summer over 16 days, AKL/BC/POFQ with 12 of the days at AKL/BC. If they do not give the typical AP discount of 35% on those rooms, we will be changing to POFQ or a value because the prices simply are not worth it to us. We prefer the deluxe resorts because of location, dining and theming in that order.

I REALLY like walking to EC/DHS from the Boardwalk resorts, absolutely fantastic. It took my children (21 & 16) and I six to ten minutes on average to walk from the International Gateway to our room, maybe fifteen minutes on NYE after the fireworks at EC, that ease was well worth the extra cost to me. No offsite hotel/resort can offer anything that comes close to that level of convinience, even with the extreme price tag that comes with it.

Agree with all your points, There is definitely great value in staying 'on-property' its why we bought DVC years ago, The thrust of my argument is Disney has no more room for price increases, They need to increase service and reduce prices and go back to the quality for which they were once known and stop being so obvious about grubbing for the last dime.

Their strategy of making Disney an aspirational brand like Coach or Gucci has failed and they are filling the parks and hotels with overseas visitors to which they give huge discounts but which are easy to obscure on the balance sheet.

 

[WendyTinkerbell]

One of the reasons for the 30% off rooms or vacation packages is that people believe they are saving money. It's the same thing when when there is a sale or a when a store is having a going of business "sale". Disney is able to raise the room and ticket prices, then offer a discount, and people will come because they think they are getting a great deal. This was something that JCPenney tried to not do, and pay a hefty price for it. People like the feeling of saving and getting a great deal.

It's a win-win for Disney. On-site vacations increase with the offer, and occasionally they can sell the rooms at rack rates when the demand is higher, like during the holidays. There is a very strategic reason why the offer is only for certain dates, certain resorts and for a restricted number of rooms.

 

[Weather_Lady]

WDW has 30405 available onsite rooms.
79% occupancy = 6385 rooms unsold per night or 2.3MM roomnights/year

If FP+ results in 100% occupancy:
2.3MM roomnights/yr x $267 PRGS x 3.2 guests/room =$1.99B/yr gross revenue
$1.99B/yr x 13.4% margin = $268MM/yr net revenue increase.
$1.99B/.268B = 7.43 year payback.

Based on these projections, increase in room occupancy is a large component of the justification. However, to reduce payback time to five years or under, occupancy increases will also need to be accompanied with price and margin increases.

BUT FP+ is spread so thin and of so little value, I don't think it's going to be much of a draw for anyone to stay onsite. We've been thinking of going offsite after our next trip, and getting early reservation access to a single FP+ of value at HS/Epcot and 3 a day at MK (way too little) or AK (where we've never needed them anyway) isn't remotely valuable enough for us to even be a factor in the decision. I agree with your numbers, but not the underlying assumption: I don't think WDW hotels are going to see any increase in occupancy because of the earlier access to FP+ that an onsite stay offers. To the contrary, with the constant cost increases in ticket prices and hotel stays (and the corresponding lack of new attractions until Avatarland opens), I think occupancy may go down unless WDW is able to compensate by enticing guests with discount offers.

EDITED: If the information in the post that follows is correct (that WDW will offer offsite guests Magicbands and early FP+ reservations for $15 apiece in the future), then that only enforces the lack of incentive to stay onsite. It may cost me $60 to "arm" my family with Magicbands and early FP+ access, but I'll be saving hundreds upon hundreds of dollars by staying offsite, meanwhile getting far nicer accommodations...

 

[Disneyfamily4]

Starting in March, Disney will be charging off site guests 15 per person to get the magic bands. That will then allow them to plan fast passes in advance rather than the day they get to the park. During peak season, I wonder how that will hurt the reservation times available. Especially if changes need to be made the day of.

 

[msteel]

Starting in March, Disney will be charging off site guests 15 per person to get the magic bands. That will then allow them to plan fast passes in advance rather than the day they get to the park. During peak season, I wonder how that will hurt the reservation times available. Especially if changes need to be made the day of.

Do you know if this charge is supposed to allow advance FP+ indefinitely, or just for the initial trip?

In other words, are these Magic Bands "lifetime free refill", or "length of stay"? If they are lifetime, will it say so on the bands? Or will people be disgruntled in a few years when the "Rapid Reserve" system rolls out in an attempt to prevent unauthorized pre-booking by offsite guests? Will there be any documentation to prove that they were lifetime bands?

OK, the first question really was serious. The rest you can make up your mind.

 

[Redhawk]

I think the TV ads are targetted mostly to attract new Disney visitors. My husband and I had two families we know who have never been to WDW and because they know we've gone several times, they asked us about going this winter after seeing the 30% discount ads.

Before, they had thought it too expensive to stay on property, but the ad made them feel they might get a deal. Both ultimately decided not to go, mostly due to price but also the only time theycould go was over Presidents Day weekend. We told them it was a bad time for a first visit.