01 June 2020

Disney's Dilemma

"If they don't want to come out, nobody's gonna stop 'em."

--Yogi Berra, Baseball Hall of Fame Catcher, New York Yankees (1946-1963)


The Walt Disney Co. submitted plans to reopen four U.S. theme parks in July. (Shanghai Disneyland reopened on 11 May.)  As a result of the global coronavirus outbreak, Disney announced the closure of its parks on 12 March 2020.   

The request has been approved by the Orange County, Florida Economic Recovery Task Force, and Mayor Jerry Demings.  On 29 May Gov. Ron DeSantis signed off on the plan. 

The reopening schedule looks like this--

--The Magic Kingdom and Animal Kingdom:  11 July

--Epcot and Hollywood Studios:  15 July


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Disney Springs, Lake Buena Vista, Florida.
(C) Walt Disney Co.

Disney Springs (formerly Disney Village and Downtown Disney) reopened 20 May with CDC guidelines for social distancing in place.   

What about Disneyland in Anaheim, California?  Perhaps in June as part of California's Stage 3 road to reopening.  As to resort hotels in Florida, it looks as though some could reopen 11 July along with the Disney Vacation Club, all with safety guidelines and cleaning procedures in place.  

Universal Studios will reopen on 5 June with limited capacity.  SeaWorld is opening its three Orlando parks, including Discovery Cove and Aquatica, on 11 June--one month ahead of the Disney schedule.

The proposed Disney dates, if kept, will show why predicting can be a fool's errand.  On 22 April John Hodulik, managing director of research at UBS, wrote to his clients giving a date of 1 January 2021 as "our base case" for reopening.  

Scaling down

Google returns 97 million pages when you search "scaling up" on its website. "Scaling down," which is like looking through the opposite end of a telescope, instantly returns 104 million pages.  

Over the last decade "does it scale?" became a mantra for manufacturing, start-ups, high tech, retail, and financial services. 

Now, businesses are looking to move in the opposite direction to meet reopening guidelines keeping employees and customers safe.  As there is a cost to increasing health and safety measures, can businesses function this way and be profitable?  

Reopening

The Florida Disney parks will incorporate protocols from the county, state, and federal governments.  But Disney cast members will also be learning from their sister park in China which will have been open two months to the date when guests walk through the gates at the Magic Kingdom.  


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"Welcome back!" Mickey Mouse
(C) Walt Disney Co.

From the proposal submitted the last week of May, here's what to expect in the near term when returning to the "most magical place on earth:"

1.  Disney is placing limits on attendance and controlled guest density.  Guests will be required to make a reservation for a particular day.

2.  Events that draw big crowds--such as parades and nighttime spectaculars/fireworks--will not return until later.

3.  High-touch experiences like makeovers and playgrounds will not be available from the start.

4.  Character meet-and-greets will be unavailable upon reopening, but characters will still be out in the park.

5.  Guests ages 3 and up will be required to wear face coverings.

6.  Guests and cast members will be screened for temperatures before entering the park (as they are doing at Shanghai Disneyland). 

7.  The parks are encouraging cashless transactions.

Additionally, Disney issued a COVID-19 warning on its website-- 

"By visiting Walt Disney World Resort, you voluntarily assume all risks related to exposure to COVID-19."

In its proposal, Disney did not say by how much capacity will be capped at the parks as there is a corporate policy of not officially disclosing attendance figures.  However, daily capacity will probably be calculated on the 6' distancing guideline.   

This is a monumental task as Disney cast members will be stretched to manage the parks and monitor healthy behavior at the same time. 

A shock to the system

Walt Disney Co., with total 2019 revenue of $69.5 billion, is an entertainment giant that one news headline recently described as a "Stricken Empire."  


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Walt Disney Co. Headquarters, Burbank, California
(C) Walt Disney Co. 

Just over 100,000 employees have been laid off.  To further address costs, executive pay was cut up to 50 percent and Disney took out a $5 billion line of credit to boost liquidity.  That was in addition to $8.25 billion the company secured in March.  

Dividends?  Not at this time.

Bob Iger, executive chairman and former CEO who built this $239 billion enterprise over the past 14 years, decided in February to retire as chief executive officer.  Mr. Iger said on CNBC, "I don't want to run the company anymore."  The Board of Directors selected Bob Chapek as CEO with Mr. Iger overseeing creative content at Disney through 2021.

Then in March 2020, the world stopped spinning.

One observer expressed it this way, "Disney's vastness has become a liability.  ABC/ESPN. Disney Cruise Line.  Stage shows.  Disney Stores."  Launched just five months ago Disney+, with more than 50 million subscribers, is a bright spot as many adults and children are at home. 

What's Disney's dilemma?

The Wall Street Journal noted that "much of Disney's business rests on its ability to draw people into crowded spaces including theme parks, hotels, ships, sporting events, and movie theaters. The return of such massive entertainment options at any point this year remains questionable."

Disney's dilemma, then, is having to operate profitably, at reduced capacity, with guests' social distancing.  All that inside a fixed-cost business model driven by increased volume, high density, and large-scale venues.  

At 1:15 p.m. on New Year's Eve 2019, Walt Disney World issued an alert that the Magic Kingdom, which averages 57,128 guests per day based on estimates from Theme Park Tourist website, would stop accepting new guests.  When will that happen again?   

Managing risk

The future depends on factors no one controls--COVID-19 treatments and vaccines; employment levels; airlines staying in the air; and households willing to travel.  A survey by U.S. Travel found that only 18% of adults currently feel safe about flying.  

Willingness to travel more than 300 miles from home is going to weigh heavily on the success of reopenings at Disney and other destination resorts.   


Disney World's Magic Kingdom temporarily stops admitting new ...
The main entrance to Walt Disney World in Florida.
(C) Walt Disney Co.

According to a 2017 Money Magazine study, a family of four visiting Walt Disney World may spend about $6360 on average, for flights, hotels, souvenirs, food, and park tickets during a four-night trip. 

Knowing the cost Disney management and cast members will undoubtedly be working hard to show guests there's still "magic" in the Kingdom.   


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