Spirited Spring Break News, Observations & Thoughts ...

[Blueliner]

Well it sounds really nice. I'm not sure how I would feel about a week in Orlando and not 100% up disney's butt though. Or immersed or whatever the lingo is .

I'll be the first to admit that I'm probably a bit of a Pixie Duster, and I generally dig the whole "WDW Bubble"/immersion concept. However, the view of Orlando is a lot better when you're not "100% up disney's butt"!

 

[ParentsOf4]

Thoughts? Anyone? @ParentsOf4 ?

I don't know where our resident occupancy expert @ParentsOf4 went (I hope all is well ... maybe Disney got smart and bought him off when he was down there a few weeks ago?)

Hey, some of my responses take time to write, but since you asked ...

WDW has never been cheap. However, it’s much more expensive than it once was.

Twenty-five years ago, a theme park view room during Christmas at the Grand Floridian went for $235/night (excluding tax), about $450/night today.

Twenty years ago, that room was up to $345/night, about $550/night today.

Ten years ago, that room was up to $430/night, about $540/night today.

Since Iger took charge, prices have taken off.

That room will cost $928/night for Christmas 2014.

Beyond the price increases, to understand what’s happening financially at WDW today, it’s necessary to recognize where the greatest margins are: the hotels. WDW’s hotels are money-making machines and are the keys to WDW’s future financial success.

However, it’s also important to remember what feeds WDW’s hotels: the theme parks. Without the theme parks, WDW’s hotels are overpriced mid-to-entry-level rooms sitting on swampland. Guests don’t stay at WDW hotels because they want to vacation in Orlando, they stay because they want to vacation at WDW’s theme parks.

Anyone who’s compared WDW’s rates with offsite hotels recognizes how profitable they are. Using my favorite example, a 565 sq. ft. Family Suite at Art Of Animation often costs more than a 945 sq. ft. suite at the Waldorf Astoria (within walking distance of Art Of Animation).

If places like the Waldorf Astoria and Wyndham Bonnet Creek (located next to the Waldorf) can provide more for less, then WDW’s hotel prices have nothing to do with their quality or location on land that Walt paid $120/acre for; it has to do with having the “Disney” name as a prefix. It has to do with their direct association to the theme parks.

WDW’s future financial success is dependent on selling complete hotel and theme park vacation packages that attract discerning consumers to its Deluxe Resorts and yet still are within reach of the general public. Guests want to stay onsite but, in growing numbers, they just can’t find the value in it.

WDW’s greatest commercial problems fall into three categories.

First, a change in strategy to focus on families with younger children rather than adults and adults with older children has driven away much of WDW’s high-end customer base. Those who easily can afford WDW’s Deluxe Resort prices are not visiting WDW in the same numbers they used to. WDW is losing this market to other alternatives because WDW no longer is as competitive as it once was with an older market, a segment that tends to have more disposable income. This is not a WDW vs. Uni comparison; this is a WDW vs. every-other-vacation-destination-in-the-world comparison. In this market, WDW is competing less effectively than it once did.

Second, combined ticket and hotel prices have risen much more rapidly than those who dream of staying at WDW Deluxe and Moderate Resorts can afford. The lion’s share of WDW’s revenue is from middle-to-upper middle income families who want to experience what they view as “lifestyles of the rich and famous”. To them, a stay in the Grand Floridian represents the epitome of luxury. However, WDW price increases over the last 10-15 years have outpaced this segment’s income, forcing these guests to downgrade their stays to lower-margin Value Resorts or even offsite. WDW slowly is pricing itself out of its core market.

Third, the continued expansion of Disney Vacation Club (DVC) has eroded the customer base at WDW’s high-margin resorts.

WDW’s early financial success was driven primarily by what happened at the theme parks. Just like Disneyland before it, the Magic Kingdom and EPCOT were high-risk/high-reward investments in the future that produced positive cash flows for generations.

Yet the rest of Walt Disney Productions underperformed and Michael Eisner was brought onboard in 1984 to cure Disney’s woes in film and animation.

Early in the Eisner era, Sid Bass encouraged Eisner to expand WDW in order to take advantage of Disney’s land holdings. The strategy worked brilliantly. Theme and water parks were added. New Deluxe Resorts were brought online and operated at near capacity year-round. WDW began to offer moderate and value accommodations to appeal to a wider audience. WDW’s gross margins soared as guests flooded the onsite resorts in order to experience what was considered the complete WDW vacation.

The keys to WDW’s success were:

1. Build, build, build – Make WDW an electrifying vacation destination that everyone, including the adults and older children, wanted to visit.
   
2. Price control - Maintain prices that closely tracked people’s ability to pay for them.

As long as WDW grew, customers across all economic and age groups were drawn into the glowing orb of an electrifying WDW. WDW never was inexpensive but it was within reach. As long as vacationers felt they could afford both tickets and WDW hotel stays, they bought both.

WDW’s period of greatest financial success followed the decades when the theme parks expanded and tickets closely followed Median Household Income. WDW knew their target audience and operated accordingly.

The opening of Value Resorts beginning in 1994 helped mitigate the effect of rapid prices increases that started in the late 1990s. However, as WDW continued its price expansion into the 2000s, the lower-margin Value Resorts eroded margins as guests downgraded from WDW’s Deluxe and Moderate Resorts to Value Resorts.

Things truly headed south in the post-9/11 era when travel suffered. Parks & Resorts performed well in FY2001 (ending in September 2001) but Eisner was under an increasing strain because of a growing number of misfires outside of WDW.

It was at this time that corporate Disney hastened the trend started in the late 1990s and raised prices even faster.

It’s an understandable strategy. When external market forces adversely impact business and when the CEO is under pressure to produce strong results, companies often sail into a safe harbor to weather the storm. In WDW’s case, this meant higher prices, quality cuts, and stagnation. This strategy can work but only temporarily. Long-term, this approach leads to gradual decline.

It was at the same time that WDW embarked on another short-term strategy with long-term consequences: DVC.

Corporately, timeshares are great; they infuse a company with quick high-margin cash. However, they sacrifice long-term profits for the sake of short-term profits.

In WDW’s case, DVC stole guests away from Disney’s obscenely profitable Deluxe Resorts and provided these vacationers with decades of Deluxe Resort style rooms at significantly reduced rates.

In the 1990s, WDW operated only 2 DVC resorts with a combined total of about 900 units. Since then, the number of DVC units has more than tripled, taking business directly away from Deluxe and even Moderate Resorts, robbing the company of high-margin profits. Families who once might have stayed repeatedly at Deluxe or Moderate Resorts instead plopped over big money once for the promise of much less expensive stays for years to come.

Infused with the quick cash from DVC sales, P&R financial performance rebounded in the late 2000s. It never remotely approached peak levels but gross margin did recover modestly after cratering at 13.1% in FY2005.

During the economic downturn that followed, WDW offered a series of incredible discounts in order to keep hotel occupancy rates up. It worked. WDW occupancy was 86% in 2006, 89% in 2007, 90% in 2008, and 87% in 2009.

However, it also whetted the public’s appetite for discounts. Once those steep discounts ended and the flood of DVC inventory began to take effect, occupancy plummeted at WDW’s higher-end hotels. Non-DVC members began to wise up to the value of renting DVC points. Deluxe Resorts had to complete directly with the growing number of DVC members who rented out their points.

Without a series of flashy new theme park expansions constantly repolishing the WDW orb, the luster of a complete WDW vacation faded. WDW now attracts “The Easy To Please” crowd.

WDW has become a rite of passage for the current generation, a place for parents to bring their strollered youngsters before they grow out of WDW’s dumbed-down childish offerings. Rather than appeal to single adults or older parents in their peak earning years, WDW unwittingly is targeting those least able to splurge on high-end hotel stays.

Of course WDW hotel occupancies are down at Disney’s Deluxe Resorts. The crowd that WDW is catering to cannot afford them.

Of course margins are down even as the Magic Kingdom is bursting at the seams. Vacationers are staying offsite, bopping into WDW for a day or two, and then heading off elsewhere to enjoy the other offerings in Orlando. WDW no longer is the only game in town and without the Magic Kingdom drawing people in, WDW’s other 3 parks would suffer terribly.

Add it all together and you have an organization that continues to make short-term blunders that will lead to long-term institutional problems.

As demonstrated by the New Fantasyland expansion targeted towards young children, the latest price increases, DVC expansions, nickel-and-dime quality cuts, disappointing Art of Animation Family Suite bookings, the decision to proceed with MyMagic+, and delays in Pandora and Star Wars Land, Parks & Resorts is an organization that continues to make the same mistakes that caused it to underperform in the first place.

 

[bubbles1812]

Well it sounds really nice. I'm not sure how I would feel about a week in Orlando and not 100% up disney's butt though. Or immersed or whatever the lingo is .

Broadening your horizons is a good thing. I promise. Plenty more than just Disney out there... Shockingly, there really is more to life (and Orlando) besides Disney. And this is coming from someone who obviously loves Disney or else I wouldn't be on this site. Disney Co. would just like you to believe otherwise. It was originally a hard break, but no regrets whatsoever now. Any Orlando vacation for me has to now at least have some time allotment for Uni (and not just because of HP), and if I get more time, other things too.

 

[Funmeister]

Madame Tussauds isn't a theme park so it's not covered under the contract.

Umm...neither is a monorail but it was not allowed on the Epcot beam. MT is still an attraction. So you are saying that Disney could build a Marvel attraction (or themed restaurant) at Disney Springs? Then....why not?

 

[wdisney9000]

Just want to repeat that point.

BUT the RITZ HAS NO MAGIC!!!!!!!!!!!!!!!!!!!!!!!!

It has a bar though...

In all seriousness, I love the magic you get from staying on property and can't imagine staying off site but more people may start sacrificing the magic of on site resorts and take ACTUAL 5 star service from a place like the Ritz over $600 a night for BLT.

I've had so many friends who have called me when planning a Disney trip looking for tips to save on resorts and they wind up staying off site and visiting Uni and SW and only going to WDW 2 or 3 days out the 7 days they're in Orlando. Maybe Disney has an algorithm that justifies the insane resort prices and lower occupancy rates, or maybe they've just got they're heads up their ***

 

[Cesar R M]

I disagree. Often times, it takes decades for abuse to come to light for a variety of reasons (and male on male is always the worst because boys/men are supposed to be strong and be able to ward off an attacker, so if a boy gets it in the end, well, he wanted it ... or so goes the crazy thought pattern in our society.)

Look at the scandals in the Chruch or at Penn State U., it often takes a VERY long time to come out.

Now, if you're saying that this has been in the hands of the lawyers for months and they waited until now for maximum damage, then I might agree.

It also might depend on how much the Church was paying under the rug to silence, or using lobbying groups to silence the allegations, like they did at first.
I wonder if Mr. Singer would have groups that would try to silence his victims.

 

[danlb_2000]

Umm...neither is a monorail but it was not allowed on the Epcot beam. MT is still an attraction. So you are saying that Disney could build a Marvel attraction (or themed restaurant) at Disney Springs? Then....why not?

The monorail iteslf isn't a theme park, but it enters one. Probably still a grey area but it's likely that Disney didn't find it worth fighting. The contract doesn't say anything about attractions, it gives exclusive rights to use in theme parks, MT really doesn't fit the definition of theme park, it's more like a museum. I think Disney Springs is another grey area. It's themed and has resturants, shops, shows, an arcade with interactive attractions, and a ride, so Uni could claim it's a theme park.

 

[doctornick]

Why would Disney fear this? Bryan Singer and the X-Men franchise are at Fox.

If anything this is probably a classic hollywood hit job by Disney to tarnish Fox and the X-Men films.

Yeah, I was going to say the same thing. What does Bryan Singer have to do with Disney? I know he's directed some Marvel films (X-men) but they have been for Fox.

I mean, you have to be really tortuous to come up with a connection to Disney and even then a simple "we have never employed Mr. Singer" press release by Disney should squash it. FWIW, I don't think it impacts Fox either, but at least there is a real connection there.

Regardless of the validity of the lawsuit, large companies are inevitably going to have employees that do bad things. Wall St realizes this. Unless Fox was covering up or enabling the illicit behavior, it's not going to have an impact on them.

 

[RSoxNo1]

Justin Upton.
B.J. Upton.
Dan Uggla.
Freddie Freeman.
Chipper Jones.
Cody Ross.
The Pittsburgh Penguins.
Frank Rizzo.

How did Cody Ross make the list?

 

[Astro Blaster]

Hey, some of my responses take time to write, but since you asked ...

WDW has never been cheap. However, it’s much more expensive than it once was.

Twenty-five years ago, a theme park view room during Christmas at the Grand Floridian went for $235/night (excluding tax), about $450/night today.

Twenty years ago, that room was up to $345/night, about $550/night today.

Ten years ago, that room was up to $430/night, about $540/night today.

Since Iger took charges, prices have taken off.

That room will cost $928/night for Christmas 2014.

Beyond the price increases, to understand what’s happening financially at WDW today, it’s necessary to recognize where the greatest margins are: the hotels. WDW’s hotels are money-making machines and are the key to WDW’s future financial success.

However, it’s also important to remember what feeds WDW’s hotels: the theme parks. Without the theme parks, WDW’s hotels are overpriced mid-to-entry-level rooms sitting on swampland. Guests don’t stay at WDW hotels because they want to vacation in Orlando, they stay because they want to vacation at WDW’s theme parks.

Anyone who’s compared WDW’s rates with offsite hotels recognizes how profitable they are. Using my favorite example, a 565 sq. ft. Family Suite at Art Of Animation often costs more than a 945 sq. ft. suite at the Waldorf Astoria (within walking distance of Art Of Animation).

If places like the Waldorf Astoria and Wyndham Bonnet Creek (located next to the Waldorf) can provide more for less, then WDW’s hotel prices have nothing to do with their quality or location on land that Walt paid $120/acre for; it has to do with having the “Disney” name as a prefix. It has to do with their direct association to the theme parks.

WDW’s future financial success is dependent on selling complete hotel and theme park vacation packages that attract discerning consumers to its Deluxe Resorts and yet still are within reach of the general public. Guests want to stay onsite but, in growing numbers, they just can’t find the value in it.

WDW’s greatest commercial problems fall into three categories.

First, a change in marketing strategy to focus on families with younger children rather than adults and adults with older children has driven away much of WDW’s high-end customer base. Those who easily can afford WDW’s Deluxe Resort prices are not visiting WDW in the same numbers they used to. WDW is losing this market to other alternatives because WDW no longer as competitive as it once was with an older market, a segment that tends to have more disposable income. This is not a WDW vs. Uni comparison; this is a WDW vs. every other vacation destination in the world comparison. In this market, WDW is competing less effectively than it once did.

Second, combined ticket and hotel prices have risen much more rapidly than those who dream of staying at WDW Deluxe and Moderate Resorts can afford. The lion’s share of WDW’s revenue is from middle-to-upper middle income families who want to experience what they view as “lifestyles of the rich and famous”. To them, a stay in the Grand Floridian represents the epitome of luxury. However, WDW price increases over the last 10-15 years have outpaced this segment’s income, forcing these guests to downgrade their stays to lower-margin Value Resort or even offsite. WDW slowly is pricing itself out of its core market.

Third, the continued expansion of Disney Vacation Club (DVC) has eroded the customer base at WDW’s high-margin resorts.

WDW’s early financial success was driven primarily by what happened at the theme parks. Just like Disneyland before it, the Magic Kingdom and EPCOT were high-risk/high-reward investments in the future that produced a positive cash flow for generations.

Yet the rest of Walt Disney Productions underperformed and Michael Eisner was brought onboard in 1984 to cure Disney’s woes in film and animation.

Early in the Eisner era, Sid Bass encouraged Eisner to expand WDW in order to take advantage of Disney’s land holdings. The strategy worked brilliantly. Theme and water parks were added. New Deluxe Resorts were brought online and operated at near capacity year-round. WDW began to offer moderate and value accommodations to appeal to a wider audience. WDW’s gross margins improved as guests flooded the onsite resorts in order to experience what was considered the complete WDW vacation.

The key to WDW’s success was:

1. Build, build, build – Make WDW an electrifying vacation destination that everyone, including the adults and older children, wanted to visit.
   
2. Price control - Maintain prices that closely tracked people’s ability to pay for them.

As long as WDW grew, customers across all economic and age groups were drawn into the glowing orb of an electrifying WDW. WDW never was inexpensive but it was within reach. As long as vacationers felt they could afford both tickets and WDW hotel stays, they bought both.

WDW’s period of greatest financial success followed the decades when the theme parks expanded and tickets closely followed Median Household Income. WDW knew their target audience and operated accordingly.

The opening of Value Resort beginning in 1994 helped mitigate the effect of rapid prices increases that started in that late 1990s. However, as WDW continued its price expansion into the 2000s, the lower-margin Value Resorts eroded margins as guests downgraded from WDW’s Deluxe and Moderate Resorts to Value Resorts.

Things truly headed south in the post-9/11 era when travel suffered. Parks & Resorts performed well in FY2001 (ending in September 2001) but Eisner was under an increasing strain because of a growing number of misfires outside of WDW.

It was at this time that corporate Disney hastened the trend started in the late 1990s and raised prices even faster.

It’s an understandable strategy. When external market forces adversely impact business and when the CEO is under pressure to produce strong results, companies often sail into a safe harbor to weather the storm. In WDW’s case, this meant higher prices, quality cuts, and stagnation. This strategy can work but only temporarily. Long-term, this approach leads to gradual decline.

It was at the same time that WDW embarked on another short-term strategy with long-term consequences: DVC.

Corporately, timeshares are great; they infuse a company with quick high-margin cash. However, they sacrifice long-term profits for the sake of short-term profits.

In WDW’s case, DVC stole guests away from Disney’s obscenely profitable Deluxe Resorts and provided these vacationers with decades of Deluxe Resort style rooms at significantly reduced rates.

In the 1990s, WDW operated only 2 DVC resorts with a combined total of about 900 units. Since then, the number of DVC units has more than tripled, taking business directly away from Deluxe and even Moderate Resorts, robbing the company of high-margin profits. Families who once might have stayed at Deluxe or Moderate Resorts plopped over big money once for the promise of much less expensive stays for years to come.

Infused with the quick cash from DVC sales, P&R financial performance rebounded in the late 2000s. It never remotely approached peak levels but gross margin did recover modestly after cratering at 13.1% in FY2005.

During the economic downturn that followed, WDW offered a series of incredible discounts in order to keep hotel occupancy rates up. It worked. WDW occupancy was 86% in 2006, 89% in 2007, 90% in 2008, and 87% in 2009.

However, it also whetted the public’s appetite for discounts. Once those steep discounts ended and the flood of DVC inventory began to take effect, occupancy plummeted at WDW’s higher-end hotels. Non-DVC members began to wise up to the value of renting DVC points. Deluxe Resorts had to complete directly with the growing number of DVC members who rented out their points.

Without a series of flashy new theme park expansions constantly repolishing the WDW orb, the luster of a complete WDW vacation faded. WDW now attracts “The Easy To Please” crowd.

WDW has become a rite of passage for the current generation, a place for parents to bring their strollered youngsters before they grow out of WDW’s dumbed-down childish offerings. Rather than appeal to single adults or older parents in their peak earning years, WDW unwittingly is targeting those least able to splurge on high-end hotel stays.

Of course WDW hotel occupancies are down at Disney’s Deluxe Resorts. The crowd that WDW is catering to cannot afford them.

Of course margins are down even as the Magic Kingdom is bursting at the seams. Vacationers are staying offsite, bopping into MK for a day or two, and then heading off elsewhere to enjoy the other offerings in Orlando. WDW no longer is the only game in town and without the Magic Kingdom drawing people in, WDW’s other 3 parks would suffer terribly.

Add it all together and you have an organization that continues to make short-term blunders that will lead to long-term institutional problems.

As demonstrated by the New Fantasyland expansion targeted towards young children, latest price increases, DVC expansions, nickel-and-dime quality cuts, disappointing Art of Animation Family Suite bookings, decision to proceed with MyMagic+, and delays in Pandora and Star Wars Land, Parks & Resorts is an organization that continues to make the same mistakes that had caused it to underperform in the first place.

Very true. I would go to WDW much more often if the hotel prices weren't so outrageous. I used to go VERY often (twice per year in the mid 90s thru about 2004). I've been back three times since. In that time I've also visited DLR, TDR, and DLP - places I hadn't been previously.

I'm a 2 hour flight from Orlando, and if I go there, it will be to visit WDW. I want to stay on property, I can afford to stay on property, but I look at those prices and don't want to feel like a sucker paying $450 for a deluxe. Instead, I'll pay less to stay at a great golf resort with unlimited golf included. It's the same reason I almost never pay full price for clothes. Yes, I like Brooks Brothers and consider them to be a very high quality product, but why pay $185 for one shirt when they inevitably will have a sale and I can pay $125 for three?

WHERE ARE THE WDW HOTEL ROOM SALES THESE DAYS?!?

(Actual ones, not the 30% off rooms already marked up 175%)

You used to be able to get room sales if you put in about 2 minutes of effort. Use the disney club discount, call the Disney travel company and ask. I have no problem with Disney letting all the suckers they want pay the insane "rack rates," but where are the deals for people who love WDW and aren't total rubes??

 

[PhotoDave219]

How did Cody Ross make the list?

2010 NLCS.

 

[RSoxNo1]

My point was Disney fears a sex scandal involving one of its top creatives and underage boys.

I don't believe this is a money grab at all, but we don't have all the facts. But there has been plenty of talk in the business about Singer and what he's into over the years.

And the fact the young man/accuser has an attorney who is absolutely one of the go-to most respected guys for REAL victims (he doesn't take cases without merit) speaks loudly to me about the veracity of the claims.

I would think anyone would fear a sex scandal involving an employee and underage boys.

 

[Darth Sidious]

I do not know about licensing fees, starting with The Amazing Spider-Man Disney owns the merchandizing rights to the Sony films in exchange for Sony keeping the character without the time limits that pushed a reboot.

I wish I could see the internal financial analysis done in regards to making that deal. No doubt Disney believed they make out in the deal that way but it's still quite interesting. I did know about the merchandise deal, I believe it was in the WSJ a year or two ago.

 

[lazyboy97o]

Umm...neither is a monorail but it was not allowed on the Epcot beam. MT is still an attraction. So you are saying that Disney could build a Marvel attraction (or themed restaurant) at Disney Springs? Then....why not?

The monorail iteslf isn't a theme park, but it enters one. Probably still a grey area but it's likely that Disney didn't find it worth fighting. The contract doesn't say anything about attractions, it gives exclusive rights to use in theme parks, MT really doesn't fit the definition of theme park, it's more like a museum. I think Disney Springs is another grey area. It's themed and has resturants, shops, shows, an arcade with interactive attractions, and a ride, so Uni could claim it's a theme park.

Even if Disney could come up with something for Disney Springs, what do they gain? It just reminds more people that one of the greatest attractions in the world is not at Walt Disney World.

 

[RSoxNo1]

Hey, some of my responses take time to write, but since you asked ...

WDW has never been cheap. However, it’s much more expensive than it once was.

Twenty-five years ago, a theme park view room during Christmas at the Grand Floridian went for $235/night (excluding tax), about $450/night today.

Twenty years ago, that room was up to $345/night, about $550/night today.

Ten years ago, that room was up to $430/night, about $540/night today.

Since Iger took charges, prices have taken off.

That room will cost $928/night for Christmas 2014.

Beyond the price increases, to understand what’s happening financially at WDW today, it’s necessary to recognize where the greatest margins are: the hotels. WDW’s hotels are money-making machines and are the key to WDW’s future financial success.

However, it’s also important to remember what feeds WDW’s hotels: the theme parks. Without the theme parks, WDW’s hotels are overpriced mid-to-entry-level rooms sitting on swampland. Guests don’t stay at WDW hotels because they want to vacation in Orlando, they stay because they want to vacation at WDW’s theme parks.

Anyone who’s compared WDW’s rates with offsite hotels recognizes how profitable they are. Using my favorite example, a 565 sq. ft. Family Suite at Art Of Animation often costs more than a 945 sq. ft. suite at the Waldorf Astoria (within walking distance of Art Of Animation).

If places like the Waldorf Astoria and Wyndham Bonnet Creek (located next to the Waldorf) can provide more for less, then WDW’s hotel prices have nothing to do with their quality or location on land that Walt paid $120/acre for; it has to do with having the “Disney” name as a prefix. It has to do with their direct association to the theme parks.

WDW’s future financial success is dependent on selling complete hotel and theme park vacation packages that attract discerning consumers to its Deluxe Resorts and yet still are within reach of the general public. Guests want to stay onsite but, in growing numbers, they just can’t find the value in it.

WDW’s greatest commercial problems fall into three categories.

First, a change in marketing strategy to focus on families with younger children rather than adults and adults with older children has driven away much of WDW’s high-end customer base. Those who easily can afford WDW’s Deluxe Resort prices are not visiting WDW in the same numbers they used to. WDW is losing this market to other alternatives because WDW no longer as competitive as it once was with an older market, a segment that tends to have more disposable income. This is not a WDW vs. Uni comparison; this is a WDW vs. every other vacation destination in the world comparison. In this market, WDW is competing less effectively than it once did.

Second, combined ticket and hotel prices have risen much more rapidly than those who dream of staying at WDW Deluxe and Moderate Resorts can afford. The lion’s share of WDW’s revenue is from middle-to-upper middle income families who want to experience what they view as “lifestyles of the rich and famous”. To them, a stay in the Grand Floridian represents the epitome of luxury. However, WDW price increases over the last 10-15 years have outpaced this segment’s income, forcing these guests to downgrade their stays to lower-margin Value Resort or even offsite. WDW slowly is pricing itself out of its core market.

Third, the continued expansion of Disney Vacation Club (DVC) has eroded the customer base at WDW’s high-margin resorts.

WDW’s early financial success was driven primarily by what happened at the theme parks. Just like Disneyland before it, the Magic Kingdom and EPCOT were high-risk/high-reward investments in the future that produced a positive cash flow for generations.

Yet the rest of Walt Disney Productions underperformed and Michael Eisner was brought onboard in 1984 to cure Disney’s woes in film and animation.

Early in the Eisner era, Sid Bass encouraged Eisner to expand WDW in order to take advantage of Disney’s land holdings. The strategy worked brilliantly. Theme and water parks were added. New Deluxe Resorts were brought online and operated at near capacity year-round. WDW began to offer moderate and value accommodations to appeal to a wider audience. WDW’s gross margins improved as guests flooded the onsite resorts in order to experience what was considered the complete WDW vacation.

The key to WDW’s success was:

1. Build, build, build – Make WDW an electrifying vacation destination that everyone, including the adults and older children, wanted to visit.
   
2. Price control - Maintain prices that closely tracked people’s ability to pay for them.

As long as WDW grew, customers across all economic and age groups were drawn into the glowing orb of an electrifying WDW. WDW never was inexpensive but it was within reach. As long as vacationers felt they could afford both tickets and WDW hotel stays, they bought both.

WDW’s period of greatest financial success followed the decades when the theme parks expanded and tickets closely followed Median Household Income. WDW knew their target audience and operated accordingly.

The opening of Value Resort beginning in 1994 helped mitigate the effect of rapid prices increases that started in that late 1990s. However, as WDW continued its price expansion into the 2000s, the lower-margin Value Resorts eroded margins as guests downgraded from WDW’s Deluxe and Moderate Resorts to Value Resorts.

Things truly headed south in the post-9/11 era when travel suffered. Parks & Resorts performed well in FY2001 (ending in September 2001) but Eisner was under an increasing strain because of a growing number of misfires outside of WDW.

It was at this time that corporate Disney hastened the trend started in the late 1990s and raised prices even faster.

It’s an understandable strategy. When external market forces adversely impact business and when the CEO is under pressure to produce strong results, companies often sail into a safe harbor to weather the storm. In WDW’s case, this meant higher prices, quality cuts, and stagnation. This strategy can work but only temporarily. Long-term, this approach leads to gradual decline.

It was at the same time that WDW embarked on another short-term strategy with long-term consequences: DVC.

Corporately, timeshares are great; they infuse a company with quick high-margin cash. However, they sacrifice long-term profits for the sake of short-term profits.

In WDW’s case, DVC stole guests away from Disney’s obscenely profitable Deluxe Resorts and provided these vacationers with decades of Deluxe Resort style rooms at significantly reduced rates.

In the 1990s, WDW operated only 2 DVC resorts with a combined total of about 900 units. Since then, the number of DVC units has more than tripled, taking business directly away from Deluxe and even Moderate Resorts, robbing the company of high-margin profits. Families who once might have stayed at Deluxe or Moderate Resorts plopped over big money once for the promise of much less expensive stays for years to come.

Infused with the quick cash from DVC sales, P&R financial performance rebounded in the late 2000s. It never remotely approached peak levels but gross margin did recover modestly after cratering at 13.1% in FY2005.

During the economic downturn that followed, WDW offered a series of incredible discounts in order to keep hotel occupancy rates up. It worked. WDW occupancy was 86% in 2006, 89% in 2007, 90% in 2008, and 87% in 2009.

However, it also whetted the public’s appetite for discounts. Once those steep discounts ended and the flood of DVC inventory began to take effect, occupancy plummeted at WDW’s higher-end hotels. Non-DVC members began to wise up to the value of renting DVC points. Deluxe Resorts had to complete directly with the growing number of DVC members who rented out their points.

Without a series of flashy new theme park expansions constantly repolishing the WDW orb, the luster of a complete WDW vacation faded. WDW now attracts “The Easy To Please” crowd.

WDW has become a rite of passage for the current generation, a place for parents to bring their strollered youngsters before they grow out of WDW’s dumbed-down childish offerings. Rather than appeal to single adults or older parents in their peak earning years, WDW unwittingly is targeting those least able to splurge on high-end hotel stays.

Of course WDW hotel occupancies are down at Disney’s Deluxe Resorts. The crowd that WDW is catering to cannot afford them.

Of course margins are down even as the Magic Kingdom is bursting at the seams. Vacationers are staying offsite, bopping into MK for a day or two, and then heading off elsewhere to enjoy the other offerings in Orlando. WDW no longer is the only game in town and without the Magic Kingdom drawing people in, WDW’s other 3 parks would suffer terribly.

Add it all together and you have an organization that continues to make short-term blunders that will lead to long-term institutional problems.

As demonstrated by the New Fantasyland expansion targeted towards young children, the latest price increases, DVC expansions, nickel-and-dime quality cuts, disappointing Art of Animation Family Suite bookings, decision to proceed with MyMagic+, and delays in Pandora and Star Wars Land, Parks & Resorts is an organization that continues to make the same mistakes that had caused it to underperform in the first place.

I wonder if part of the problem is that fewer and fewer young adults are having children, or they're having children later than at any point previously. By targeting families is that conceivably creating a gap?

 

[Lee]

Lee, where might I find details on the deal between fox & marvel for the x-men & the sony deal for spidey?

No idea, sorry.

 

[doctornick]

Regarding Deluxe hotel occupancy, it's clear to me that (1) Disney is not going to reverse the rates and (2) they want to increase the occupancy. So, the only solution is to offer a greater incentive for those rooms over other competition. Isn't the obvious solution to offer Deluxe guests extra FP+ automatically? That's not something that costs Disney anything and can be easily coded to the FP+ programming. Give Deluxe guests 4 (or 5?) FP+ a day with the "extra" FP+ being any attraction (so they could book Soarin' and Test Track, for example) and you'd at least be giving them an incentive with value. Because the number of rooms at Deluxes is a relatively small amount compared to the total all the onsite rooms, I don't think that would kill FP+ access overall -- though it would make the additional FP+ you get after using 3 less useful.

It just seems like that would be an inevitable solution to the problem.

 

[Funmeister]

Even if Disney could come up with something for Disney Speigs, what do they gain? It just reminds me people that one of the greatest attractions in he world is not at Walt Disney World.

I agree. My point is MT is more of an attraction than anything at Disney Springs (except Disney Quest). I think there is more to it than MT is not a theme park.

MT might have special rights gained prior to the Universal and Disney deals.

 

[WDW1974]

17 year old...while underage, let's not pretend it is too young for consent. I think the bigger issue is the allegations of rape and drug abuse. I think it is odd that they picked and chose the defendants that they did.

Well, I may agree that 17-year-olds (and I'd even go a few years younger) are generally quite capable of consenting, but that is not what our laws say or reflect. You have sex with someone who is 17 years, 11 months old and you are going to jail (unless you are quite wealthy and/or powerful) and you'll be labeled a sex offender for life here in 'Merika.

But I agree that the issues of rape and drug abuse (and, if true, he tried to kill the kid by holding his head under water when he wouldn't perform an act) are much more serious. ... I am not sure I get what you are saying about choosing the defendants.

And I think it is pretty much every company's concern that one of their top creatives involved in any child abuse scandal. Look at BBC.

With Disney, it is much larger an issue due to their squeaky clean image plus having quite a few creatives in their employment who don't see much difference between someone who is 15 or 16 and someone who is 24. It isn't exactly something not known, even if it is Disney's Truly Best Kept Secret.

 

[WDW1974]

Are you sure it is the economy and not just the wide spread of 'spring break' schedules from the school districts. Spring Holidays have become much more spread out over the season across the country over the last few years, less focused on the Easter Holiday.

I think all of it has some merit. However, I also know that this week is traditionally packed no matter the circumstances and all the availability -- both on-site and off -- would suggest a slower than normal Easter season.