New Resort

[WDWCP]

All the more reason for them NOT to build more resorts. Disney is not concerned about keeping rates low. Disney is concerned only with their profit margin. With a new resort comes huge overhead that exists regardless if the rooms are occupied or not. If the current resort capacity is hovering around the 90% capacity level there is no reason to add on more rooms when you are not filling the ones you already have. If capacity does increase to 100% it would be easier to increase price to level out the supply and demand numbers. The only way we are going to see another resort built is when the market research shows that there is enough money being left on the table because people are being turned away due to lack of capacity.

This is pretty much my point, too... The tough part comes in with the higher level management folks. You have to try to predict what the future will hold in order to maximize your profits. That's why I'm thinking that if they really are building out the rest of Pop Century Phase 2, that they are predicting that they will have enough new guests that they would reach that level where "there is enough money being left on the table".

That's the risk of running a company. Hopefully they are right on in their forecasts and when the increased number of guests start to show up, there are the new rooms to hold them and they bring in enough money to exceed the large costs involved in the construction and operation of more rooms and profit is maximized. If they are wrong in their forecasts, then rooms sit unused, there is a great loss of money and management made a mistake that costs all the shareholders and ultimately, guests...

****EDIT**** I do disagree a bit about your statement that Disney isn't interested in keeping rates low. Can you imagine how complex the calculations/predictions are for Disney on how to maximize their profits based on room reservations and price points? I would imagine that there are many of those calculations that say Disney might make more money overall if they had more people staying at a cheaper rate then fewer people staying at a higher rate. Keep in mind that it would have to take into account all the money that the "more people at a cheaper rate" would be spending on park tickets, food, gift shops, etc... I'm sure Disney would almost subsidize room rates if they felt they would make up the difference and more on people spending in other ways...

Great points Master Yoda!!!

 

[Master Yoda]

I do disagree a bit about your statement that Disney isn't interested in keeping rates low. Can you imagine how complex the calculations/predictions are for Disney on how to maximize their profits based on room reservations and price points? I would imagine that there are many of those calculations that say Disney might make more money overall if they had more people staying at a cheaper rate then fewer people staying at a higher rate. Keep in mind that it would have to take into account all the money that the "more people at a cheaper rate" would be spending on park tickets, food, gift shops, etc... I'm sure Disney would almost subsidize room rates if they felt they would make up the difference and more on people spending in other ways...

Great points Master Yoda!!!

I honestly think Disney would charge much more for their rooms if they could. The only thing that is really keeping them from doing so is the amount of competition they have for lodging. If there wasn’t another hotel for 50 miles you could pretty much bet that values would be $150 a night in the off season. But you are very correct they will drop their prices to make money from attraction tickets, shopping etc. In this sense the accommodations would be a loss leader, much like the free dinning plan that was recently offered.

 

[cuteazabutton74]

Last year in Dec. we stayed at Pop Century and found it to be cute. We always stay at the Contemporary but it was booked. We were told that the Pop Century will be adding new rooms and I took video of what they had built which pretty much looked like they were almost done. I told my husband that we should come back to the Pop century once they are done so that we could see how cool they were going to be. Too bad for the delay. Thanks for the update

Cary

 

[WDWCP]

I honestly think Disney would charge much more for their rooms if they could. The only thing that is really keeping them from doing so is the amount of competition they have for lodging. If there wasn’t another hotel for 50 miles you could pretty much bet that values would be $150 a night in the off season. But you are very correct they will drop their prices to make money from attraction tickets, shopping etc. In this sense the accommodations would be a loss leader, much like the free dinning plan that was recently offered.

I agree with you that Disney would charge more if they could... I think the basic overall concept is that Disney will continue to take everything they can think of into consideration (room prices, guest level projects, all sorts of what if scenarios, attaction tickets, food and gift shop stuff) and they will consider every conceivable combination of things until they come up with whatever scenario they feel will make them the most money. If one part (room rates at a value resort) become a loss-leader, then that's fine if they feel overall revenue and profits will be higher...

This has been a great conversation! Sounds like we're basically on the same page on this Master Yoda...

 

[Master Yoda]

I agree with you that Disney would charge more if they could... I think the basic overall concept is that Disney will continue to take everything they can think of into consideration (room prices, guest level projects, all sorts of what if scenarios, attaction tickets, food and gift shop stuff) and they will consider every conceivable combination of things until they come up with whatever scenario they feel will make them the most money. If one part (room rates at a value resort) become a loss-leader, then that's fine if they feel overall revenue and profits will be higher...

This has been a great conversation! Sounds like we're basically on the same page on this Master Yoda...

Yep pretty much. I do long for the old days of $39 value rooms though

 

[WDWCP]

Yep pretty much. I do long for the old days of $39 value rooms though

They are hiding away with those days of the $0.99 / gallon gas prices!!

 

[socalkdg]

All the more reason for them NOT to build more resorts. Disney is not concerned about keeping rates low. Disney is concerned only with their profit margin. With a new resort comes huge overhead that exists regardless if the rooms are occupied or not. If the current resort capacity is hovering around the 90% capacity level there is no reason to add on more rooms when you are not filling the ones you already have. If capacity does increase to 100% it would be easier to increase price to level out the supply and demand numbers. The only way we are going to see another resort built is when the market research shows that there is enough money being left on the table because people are being turned away due to lack of capacity.

Room income only accounts for 1/3 of the income that the WDW resorts makes. For every family that spends $150 a night at a WDW resort, they are spending another $300 for merchandise, food, tickets, etc.

Increasing the price of hotel rooms as opposed to building new ones when at full capacity makes the company less money. Bringing in 10% more onsite guests is much more valuable than increasing the cost of rooms 10%.

Example:
Lets say you have 20,000 rooms at ave. of $150. That scores you $3,000,000 per day, thus 300K more w/ 10% increase. But the loss of 2-3% of the customers(your purpose for increasing the cost of the room) brings that down to 75K(500 rooms x $450) per day.

Or build 2,000 rooms at $150 which scores you 900K more(450 x 2000), less 80% daily expenses and you still take in $180K per day. Or better yet, build a new resort with half of it DVC. Let DVC give the initial money that pays for all the construction, then you have new rooms for the general public at no initial cost.

Capacity at 90% is actually quite high. Nearing 95% capacity just begs for room additions.

Lastly WDW isn't just competing against local hotels. They have the rest of the world that they compete against. If the ave. room price was $250 many people are going to vacation elsewhere. There is a max. ave. cost WDW will charge regardless of its local hotel competition.

 

[speck76]

Room income only accounts for 1/3 of the income that the WDW resorts makes. For every family that spends $150 a night at a WDW resort, they are spending another $300 for merchandise, food, tickets, etc.

Increasing the price of hotel rooms as opposed to building new ones when at full capacity makes the company less money. Bringing in 10% more onsite guests is much more valuable than increasing the cost of rooms 10%.

Example:
Lets say you have 20,000 rooms at ave. of $150. That scores you $3,000,000 per day, thus 300K more w/ 10% increase. But the loss of 2-3% of the customers(your purpose for increasing the cost of the room) brings that down to 75K(500 rooms x $450) per day.

Or build 2,000 rooms at $150 which scores you 900K more(450 x 2000), less 80% daily expenses and you still take in $180K per day. Or better yet, build a new resort with half of it DVC. Let DVC give the initial money that pays for all the construction, then you have new rooms for the general public at no initial cost.

Capacity at 90% is actually quite high. Nearing 95% capacity just begs for room additions.

Lastly WDW isn't just competing against local hotels. They have the rest of the world that they compete against. If the ave. room price was $250 many people are going to vacation elsewhere. There is a max. ave. cost WDW will charge regardless of its local hotel competition.

Part of the issue is risk....the economy is good right now, but WDW is too large to build for the periodic good economies without paying attention to the long term economic trends.

If WDW hotels run 90%, and they add another 2,000 rooms, that means to keep the same margin (which is what really matters) they would need to be able to attract about 187,000 additional guests (the average orland visitor stays 3.5 nights and the hotel would have to occupy 657,000 room nights to maintain the property-wide 90% occupancy) over a year.....with only the addition of the hotel.

The big problem with building a new hotel is that they cost $250+million, and the margins are not very high...and if the economy tanks, you have a big empty building costing you additional money.

The best of both worlds would be in demand was so great that WDW could raise the prices 10% AND the guests that were sensitive to the higher rates were to stay off property and still spend a similar amount at the parks. Not only would the lower paying guests still be contributing to 2/3 of WDW revenue, but the 1/3 would be larger......

 

[bgraham34]

I think more DVC's will come in or existing resorts will have that option added on. But i cant see added more moe Value Resorts. Once the Pop Century Resort is completed I think that will be it for the Value's.

 

[WDWCP]

I think more DVC's will come in or existing resorts will have that option added on. But i cant see added more moe Value Resorts. Once the Pop Century Resort is completed I think that will be it for the Value's.

Logically, I would agree with this statement too... At least no new Value resorts for a VERY long time!!

 

[marni1971]

The big problem with building a new hotel is that they cost $250+million, and the margins are not very high...and if the economy tanks, you have a big empty building costing you additional money.

Indeed - you all know about EuroDisneys problems after opening. They built 6 big resorts from day one (to avoid a Disneyland style mess) but they were planned in the heydays of the late 80`s. Come mid `92, Europe is in a deep recession, and bang! Big problems. The Newport Bay, one of the largest hotels in Europe, was mothballed over the winter of `92-3. Thankfully the hotels are now holding their own (indeed, the Newport was VERY busy this year) but EDLSCA & TWDC are allowing the opening of non-Disney hotels now at DLP (Holiday Inn etc. - think Hotel Plaza Blvd. at WDW) despite still having the original prime site on Lake Disney for the Orleans Resort still empty. I doubt TWDC will be bitten like that again. Just look at HKDL`s Hotel inventorary. TDL is about to groundbreak for it`s first new hotel in 4 years - before TDS` 2 resorts TOLC/TWDC didn`t open a resort at TDL since 1983-4 (correct me if I`m wrong, but most of the TDL Resort Loop Hotels are 3rd party)

 

[WDWCP]

Indeed - you all know about EuroDisneys problems after opening. They built 6 big resorts from day one (to avoid a Disneyland style mess) but they were planned in the heydays of the late 80`s. Come mid `92, Europe is in a deep recession, and bang! Big problems. The Newport Bay, one of the largest hotels in Europe, was mothballed over the winter of `92-3. Thankfully the hotels are now holding their own (indeed, the Newport was VERY busy this year) but EDLSCA & TWDC are allowing the opening of non-Disney hotels now at DLP (Holiday Inn etc. - think Hotel Plaza Blvd. at WDW) despite still having the original prime site on Lake Disney for the Orleans Resort still empty. I doubt TWDC will be bitten like that again. Just look at HKDL`s Hotel inventorary. TDL is about to groundbreak for it`s first new hotel in 4 years - before TDS` 2 resorts TOLC/TWDC didn`t open a resort at TDL since 1983-4 (correct me if I`m wrong, but most of the TDL Resort Loop Hotels are 3rd party)

Man, I sure would like to learn more about the hotel/resorts at the other parks. I've never been to any other than DL and WDW. Is there any great place to learn about them all, or do you just find your info by browsing all the different official Disney parks?

 

[speck76]

(correct me if I`m wrong, but most of the TDL Resort Loop Hotels are 3rd party)

You are correct.

At the same time, TDL does not need significant hotel inventory....95% of their guests come from Japan...with the vast majority coming from Metro Tokyo.