Scrooge McDuck filled a money bin after turning his "Number One" dime into a fortune. The Disney parks, though, might be giving even McDuck a run for his
While other companies were retrenching and cutting investment during the recession, Disney made massive and costly improvements to its global theme park empire. Last year, the company poured $3 billion into its theme parks, investments that are now paying off better than Pinocchio's wish upon a star.
Now, Disney parks are bursting with visitors and well-positioned for what's expected to be one of the busiest summers for theme parks in years. Perhaps most important, attendance is soaring, even as Disney is raising ticket prices and dropping any semblance of discounting.
On Saturday, Disney announced ticket price increases for both its Disneyland Resort in California and Walt Disney World Resort in Florida. The price for a single-day, single-park ticket at Disneyland Resort hit $92 for guests ages 10 and above, up 5.7 percent from last year. Even traditional discounts given to Southern California residents for Disneyland, called 2fers, were abandoned this year. "They have a lot of pricing power," says Michael Corty, a Morningstar analyst. "There's enough demand they must feel they don't have to (discount)."
Disney is leading the way in what's been a powerful rebound in the fortunes of theme parks. During the recession, visitors dropped off as consumers opted for cheaper putt-putt courses over a day at theme parks. But now, with consumer confidence on the upswing, visitors to theme parks are picking up, as well.
"If this continues, some of these parks will exceed all-time attendance levels this year," says Tuna Amobi of S&P Capital IQ. During the company's conference call announcing first-quarter results, Disney CEO Bob Iger said, "Walt Disney World and Disneyland Resort both set new attendance records for the quarter."
That's not been missed by investors. Shares of major theme park operators (Disney, Six Flags, Cedar Fair and Comcast) are climbing. While the market for initial public offerings has been mixed this year, theme park operator Sea World successfully sold stock at $27 a share in April. Shares are up more than 30 percent since.
Park operators are seeing big gains for several reasons, including:
--Reaping investmet benefits.Disney is the poster child for making investments when the economy was soft. The company regained its pricing swagger in large part due to investments made -- at a time others hoarded cash and retrenched -- that are generating returns now.
Disney will have plowed $10 billion of expansion investment, not including maintenance, into its theme parks and cruise ships from 2009 to 2015, says Michael Morris of investment company Davenport. It added a new "land" to its California Adventure theme park last year. That $1 billion investment has turned the park, once considered a flop, into a success. California Adventure now rivals Disneyland for traffic, getting 45% of visitors, up from 25 percent before the invest-ment. It also refreshed Fantasyland in Disney World in Florida and is building a new park in China.
The theme parks business at Disney, the gold standard for the industry, was a major driver of profit and growth during the recently reported first quarter. Revenue at Disney's Parks and Resorts unit rose 14% at the theme parks unit, making Disney one of the few companies going beyond cost-cutting to find the growth that investors are craving. But higher prices, too, helped by pushing operating income up 73 percent for the segment.
"The transformation of Disney California Adventure at Disneyland Resort and the expansion of Fantasyland at our Magic Kingdom park in Florida highlight just a few of the major investments we have made to our parks around the globe," Tom Staggs, chairman of Walt Disney Parks and Resorts, wrote in an e-mail. "We constantly challenge ourselves to connect our guests with beloved Disney characters and stories in ways that are more imaginative, more interactive and more immersive than ever before."
Even analysts have been surprised at how fast the big investments Disney has made have paid off, says Amobi of S&P Capital IQ. "They made investments in the recession," he says. "No one could see how things could come back so quickly."
It's a similar story with Comcast Universal, which invested heavily to build the Harry Potter theme park in Orlando. "They're putting up some of the best numbers they've ever put up," Amobi says.
--Finding ways to garner more revenue.Not only are theme parks weaning consumers off discounts, they're finding new ways to sell products to them. Higher average ticket prices, plus a bump in spending on discretionary items, such as food and merchandise, are fueling results.
The story is in the numbers. The average amount of money spent by a Disney park visitor rose 10% in the first calendar quarter of the year, Davenport's Morris says. That's a return to form for Disney not seen since the recession disrupted the industry in 2008 and 2009. Average spending per Disney visitor was up 7 percent in 2012, 8 percent in 2011, 3 percent in 2010 and declined 6 percent in 2009, Morris says.
--Shaking off the recession.Theme park operators in some cases resorted to extreme measures during the recession. In the case of Six Flags, the company loaded up with debt, and the interest costs hurt the company's prospects, says Michael Broudo of Miller Tabak. "The debt had gotten out of control," he says.
After emerging from bankruptcy protection, the company has focused on its core business of offering thrill rides mostly to local visitors. The company isn't investing heavily in new rides -- it spends about 3% of revenue on capital expenditures -- so it's not expecting big gains in revenue, he says. But it has a big opportunity to boost the bottom line by raising prices and pushing profitable annual passes, Broudo says.
Some see the parks' recovery as a case in which investing for the future paid off. "A Disney vacation has been something of an aspirational good in a softer economy," Morris says. "Consumers have put off visitsfor a number of years, but we're gradually seeing people coming back to it."
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OCTOBER 30, 2014
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