Mouse Business 106: Walt Disney World and the Economy

As promised, it’s time to take a look at how the current state of the economy may be impacting the Walt Disney World Resort and Disney Parks. We can start our investigation with the earnings conference call that Disney conducted on November 6. Now remember this was a call with the executives of Disney, including Bob Iger and Thomas Staggs, so although they might not be willing to tell us about all the problems Disney is facing. you can be assured the ones they do admit to are definitely pressing. Here are some of the highlights.

Room Reservations: This issue was brought up repeatedly as many investors view it as a good barometer of the overall strength and performance of the parks.

Here are the quotes:

“Our current room reservations on the books for the first two quarters of our fiscal year are a little under 10% below the prior year, with Q1 bookings down somewhat less than what we are seeing so far for Q2.” – Thomas Staggs, Chief Financial Officer, Senior Executive Vice President

“As I said in my remarks, attendance so far this quarter is down very marginally domestically, 1%, and bookings for the Christmas season, the two-week holiday period, are down around 1% as well. That’s very, very small. And so at the moment, because of attendance and because of our near-term bookings — I mean, bookings through what I’ll call calendar 2008 are what they are, I don’t think you will see that much need for us to vary our expenses because our attendance is likely not to vary as much.” – Bob Iger, President, Chief Executive Officer, Director

What it means: Essentially the bookings are stable for the rest of the year. This is good because it signals that the changes that need to be made in response to attendance drops will not be made until the beginning of 2009. So for those who have their holiday trips booked, don’t worry too much.

Disney was upfront about the fact that the bookings for next year are decidedly down. 10% is a large drop-off in room reservations in one year, and it was no surprise that during the conference call Bob Iger essentially announced that they would be rolling out the pay 4 for nights get 3 free deal. Disney does not offer projections on future room reservations but it is undoubtedly a concern. One of the explanations Bob Iger offered for the decline was that vacationers may have shortened their booking windows. The typical vacationer books their Disney Vacation 13 weeks in advance. Iger believes that vacationers may be waiting until their vacation is much closer before booking it. This would allow the vacationer to see how the economy and the holidays play out. Mr. Iger stated that their records indicated that the booking window had already shrunk from 13 weeks to 12. While this is a logical and reasonable explanation for a minor decline in bookings, it is hard to believe that this would result in a 10% drop.

Cuts and Changes: what might we expect to see in the Disney Parks?

The Quotes:

“An example (of changes) would simply be the frequency of some of our entertainment, which doesn’t change the quality of the experience at all, because you would simply have fewer people that are available, but it does give us an opportunity again to reduce expense with fewer people in attendance at our parks” – Bob Iger

“Business has both diversified and spread globally, there are opportunities to standardize some of our processes that we didn’t necessarily have when we were either smaller businesses or we were less diverse. And we are spending a fair amount of time or the parks and resorts team is spending a fair amount of time looking at that. That should deliver some interesting efficiencies.” – Bob Iger

What it means: These were probably the only somewhat direct answers that were given to the question of what changes Walt Disney World and the other Parks may face. I viewed the first comment as reasonable compromise. It seems clear that at least the first round of cuts that the Parks will face will be in quantity not quality. The reduction of the number of performances of a show (Fantasmic comes to mind) is a perfect example. Rather then trying to reduce costs by cutting corners on the show/performances they will keep the show intact but just offer it less often. It seems like a reasonable concession. Visitors may have to schedule the Disney itinerary a little tighter in 2009 since certain events/shows/performances will not be offered as frequently. Remember though, the reason they are doing this is because attendance will be down. There may be fewer shows but the parks will be less crowded (theoretically, of course).

The second statement may be a little more troubling. Although Mr. Iger did not delve further into what he meant by “standardizing,” it surely is not a phrase that Disney fans like to hear. One possibility is that he is referring to the behind the scenes operations of the parks, manufacturing, maintenance etc. The other possibility is that he may be referring to the standardizing of products or merchandise or rides (we have already seen this practice in rides such as Toy Story Midway Mania). One thing which some Walt Disney World fans lament is the homogenization of much of the merchandise, souvenirs and rides found in Disney World. For example, unlike maybe 15 years ago, today many of the stores in the various parks and Downtown Disney sell the same items. In addition, some of those items are sold over the internet or in the World of Disney store in New York. It’s this type of standardizing which might not be pleasing to fans.

We can already see some examples of “standardizing” at Walt Disney World, starting right off with the new Disney Parks branding. Having one logo that can be used at any of the domestic theme parks allows Disney to purchase things like napkins, cups, and t-shirts in seriously bulk quantities. On a more local level, look at the Walt Disney World Resort refillable mugs: where previously you could purchase a mug with a design exclusively for your resort, now all the mugs are the same (except at Coronado Springs, where the food services are actually run by an outside company). Having one design cuts down on the costs to create the artwork, and allows them to better control the inventory (if one resort runs out, they can just ship over some from another resort rather than purchase additional mugs). How much further will this process go? Time will tell.

What do you take out of the quotes in the article? Are you encouraged that they will cut quantity rather than quality? What do you make of the whole “standardizing”? Discuss this article on the DisneyWorldTrivia.com forums.

Next time: More on Walt Disney World.

The entire transcript of the Disney Earnings Call can be found here.

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