Disney theme park annual passholders have seen two prices increases this year, with corporate Disney strongly hinting that additional increases will be forthcoming for all ticket purchasers.
Disney Parks & Resorts (P&R) Chairman Bob Chapek's statement that:
Is just a smokescreen. It's a public excuse for P&R's latest increase and lays the groundwork for more to follow. Disney is giving the public time to absorb this information in the hopes of blunting criticism once these additional increases are implemented.
The reality is that Chapek is seeking to justify his recent appointment to the post, seen as the company's #3 position ever since CEO Bob Iger made current COO Tom Staggs P&R Chairman in 2010. Like Staggs before him, Chapek is attempting to establish his credentials in order to eventually become Disney CEO.
Chapek has big shoes to fill.
During Staggs' brief tenure, P&R's operating income soared from $1.32 billion in 2010 to $2.66 billion in 2014. Operating income is up an additional $317 million in the first 9 months of FY2015 alone. Staggs is Iger's heir apparent exactly because Staggs turned around a division that saw its operating margin plummet to a company record low 12.2% of P&R revenue in 2010 under the now defunct Jay Rasulo. As a result of an improving economy, investment decisions made during Rasulo's reign, and Staggs' aggressive but careful pricing strategy, P&R is the healthiest it's been financially since 9/11.
The truth is, corporate Disney anticipates theme park attendance to remain strong despite the most recent increase; 34.7% at Disneyland ($779 to $1049 for an unrestricted annual pass) and 14.5% at Walt Disney World ($654 to $749 for a similar pass). Next year's almost certainly higher crowds will be used to justify further hikes, slowing only when the next recession hits, impacting the pockets of the tens-of-millions who visit Disney's theme parks annually.
Traditionally, companies satisfy increased demand by increasing production, yet it's now approaching 20 years since Walt Disney World's last major expansion, Disney's Animal Kingdom in 1998. Today's crowd level more than justifies opening a 5th major theme park (a.k.a. "Gate") at Walt Disney World:
(This chart assumes 1% attendance growth in 2016 and beyond.)
Like Disney's other domestic theme parks, a 5th Gate at Walt Disney World would become a gravy train in the decades to follow. Today's P&R is so profitable exactly because former leaders such as Michael Eisner, Card Walker, Roy Disney, and Walt Disney himself saw the money-making opportunity even when traditional investors with little imagination did not. All went against Wall Street conventional wisdom and built for the long-term good of the company, wise investments that helped make Disney the corporate juggernaut that it is today.
However, a 5th Gate would cost billions and require 10-to-20 years to fully recover costs. Today's Wall Street is capital investment adverse and demands immediate returns, despite sage advice from power brokers such as BlackRock CEO Larry Fink, who question the financial soundness of stock repurchases over investments in future growth initiatives.
Make no mistake; this increase is not for theme park expansions, improved Cast Member compensation, or to "thin out the herd" at Disney's overcrowded domestic theme parks.
It's about increasing profitability in order for Chapek to establish himself with Disney shareholders as Staggs' likely successor.
Disney Parks & Resorts (P&R) Chairman Bob Chapek's statement that:
We have to look at ways to spread out our attendance throughout the year, so we can accommodate demand and avoid bursting at the seams.
Is just a smokescreen. It's a public excuse for P&R's latest increase and lays the groundwork for more to follow. Disney is giving the public time to absorb this information in the hopes of blunting criticism once these additional increases are implemented.
The reality is that Chapek is seeking to justify his recent appointment to the post, seen as the company's #3 position ever since CEO Bob Iger made current COO Tom Staggs P&R Chairman in 2010. Like Staggs before him, Chapek is attempting to establish his credentials in order to eventually become Disney CEO.
Chapek has big shoes to fill.
During Staggs' brief tenure, P&R's operating income soared from $1.32 billion in 2010 to $2.66 billion in 2014. Operating income is up an additional $317 million in the first 9 months of FY2015 alone. Staggs is Iger's heir apparent exactly because Staggs turned around a division that saw its operating margin plummet to a company record low 12.2% of P&R revenue in 2010 under the now defunct Jay Rasulo. As a result of an improving economy, investment decisions made during Rasulo's reign, and Staggs' aggressive but careful pricing strategy, P&R is the healthiest it's been financially since 9/11.
The truth is, corporate Disney anticipates theme park attendance to remain strong despite the most recent increase; 34.7% at Disneyland ($779 to $1049 for an unrestricted annual pass) and 14.5% at Walt Disney World ($654 to $749 for a similar pass). Next year's almost certainly higher crowds will be used to justify further hikes, slowing only when the next recession hits, impacting the pockets of the tens-of-millions who visit Disney's theme parks annually.
Traditionally, companies satisfy increased demand by increasing production, yet it's now approaching 20 years since Walt Disney World's last major expansion, Disney's Animal Kingdom in 1998. Today's crowd level more than justifies opening a 5th major theme park (a.k.a. "Gate") at Walt Disney World:
(This chart assumes 1% attendance growth in 2016 and beyond.)
Like Disney's other domestic theme parks, a 5th Gate at Walt Disney World would become a gravy train in the decades to follow. Today's P&R is so profitable exactly because former leaders such as Michael Eisner, Card Walker, Roy Disney, and Walt Disney himself saw the money-making opportunity even when traditional investors with little imagination did not. All went against Wall Street conventional wisdom and built for the long-term good of the company, wise investments that helped make Disney the corporate juggernaut that it is today.
However, a 5th Gate would cost billions and require 10-to-20 years to fully recover costs. Today's Wall Street is capital investment adverse and demands immediate returns, despite sage advice from power brokers such as BlackRock CEO Larry Fink, who question the financial soundness of stock repurchases over investments in future growth initiatives.
Make no mistake; this increase is not for theme park expansions, improved Cast Member compensation, or to "thin out the herd" at Disney's overcrowded domestic theme parks.
It's about increasing profitability in order for Chapek to establish himself with Disney shareholders as Staggs' likely successor.
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