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There's potentially big news in today's update that may affect many of your upcoming
vacations, if it comes to fruition.
Let's start with the crowds at Disney World. Presently, they are still there!
Hordes of folks still clamor for FastPass, huddle for parades, and snap up them
restaurant reservations. Disney has indeed weathered the looming (present?)
recession relatively well so far. As Iger noted recently, Disney parks are
well-positioned for an economic downturn, in part because of programs like Magic
Your Way tickets (which make extra-day tickets so ridiculously cheap you dare
not go to Universal instead) and the Disney's Magical Express shuttles (which
move you from airport to Disney hotel for free, so you dare not waste money on a
car). Disney still has a pretty lock-solid captive audience, even more than ever
before.
But scratch under the surface and you'll begin to see the faintest signs of
decay. The reservations desks are a lot quietier than was the case in previous
years. Don't take my word for it; talk to any travel agent. People aren't
booking travel and buying packages like they used to.
We don't have to stretch our imaginations to see why. A flight from LAX to
Orlando used to run about $200; now a check reveals most flights in October on
that same route going for $400. With transportation costs going through the
roof, and the price of a barrel of oil setting new records every week (if not
every day), people just aren't looking to travel.
As you might imagine, people staying home isn't part of the business plan for
Walt Disney World. Projects to be built in the coming years, some of them
cataloged in the recent Rumor Rundown, are suddenly questionable. It's not that
things are being cancelled, but there's no particular rush forward at this
point. MiceChat user WDW1974 called them the administrative equivalent to the
"creep" mode you might have seen on the Haunted Mansion: you click a button and
things dramatically slow down, but still creep forward, centimeter by
centimeter.
I wonder if we’ll still get mega-attractions like Expedition Everest if
attendance drops
significantly. Might we get MORE attractions in such a downturn, or FEWER?
There have been some contingency plans assembled, in case this fall looks
more dicey than Disney had originally planned for. One major push that probably
will see the light of day is the reduction of operating hours, starting right
after the summer season. Parks will close an hour or two earlier, and some may
even open an hour later… and this is on top of the usual shifting of operating
hours that occurs every autumn. That saves Disney quite a bit of money on
operating expenses, and they still reap the same income from ticket sales, at
least theoretically. In the back of my mind I'm already grumbling about the
Decline by Degrees (Disney saves money while you pay the same, but get a
lessened experience).
There are other plans afoot. One of them is to maybe offer the Free Dining
program to Disney hotel guests even beyond the usual autumn time slot, perhaps
even into the start of the winter months and the hallowed Christmas season.
That's unheard of. Offering Free Dining is one of Disney's big guns, and usually
brings stampedes of visitors to Disney's hotels (and to its parks). Will it work
this time? Even if airline flights cost so darn much? (Not to mention the
minivan fill-up!)
The hope is that it works to bring a rush of visitors. Because otherwise,
another contingency plan may be enacted - brace yourself - to close down one
Disney World theme park at least one day per week. The Magic Kingdom (MK)
appears safe (it's such a big draw) as Epcot (E) (it has so many corporate
sponsors that would demand otherwise), but Disney's Animal Kingdom (DAK) and
Disney's Hollywood Studios (DHS) may well be dark, locked, and inaccessible one
day a week, starting in early 2009 if attendance levels get bad enough.
Obviously, the plan would be to take turns. Perhaps Monday would see DAK go
dark, and more people would rush into MK, E, and DHS as a result. Then, on
Tuesday, DHS would stay locked, and MK, E, and DAK would get increased traffic.
Monday or Tuesday closings for the Studios
park? Or both?
There are positives, to be sure. Disney could use this time to paint and
refurbish the parks. I have not one doubt in my mind that they say they will do
that anyway, but it will only be beneficial if they REALLY do that. If they do
seize the chance, patrons might actually benefit. The parks would be spotless,
well-painted, and well-maintained. Besides, the argument goes, the same thing
used to happen at Disneyland. During its first years, the Anaheim park was
closed on Mondays and Tuesdays during the off season, and this down time was
used to paint and refresh the park (and let the employees have a "weekend"). No
doubt the WDW Press and Publicity department will latch onto this Walt factoid
as justification for doing it in Orlando too.
If the parks do close on a rotating basis, the Cast Members would likely be
rotated around and put to work cross-training. Since this isn't a simple
one-park operation like Walt's Disneyland, they can't all be just given the day
off (and some presumably wouldn't want that). The effect of a rotational
schedule would be pretty significant even on the parks that don't close. Have
you ever seen how the crowds at SeaWorld just move in unison, from one show to
another? That's what would happen on a macro scale at Disney World. The parks
left open would be more crowded on a Monday because the visitors, lessened in
total number though they may be, will be squeezed into three parks instead of
four. Disney likely saves money, but will the customers understand?
A competing school of thought within Disney wonders if the problem might be
self-correcting. If the downturn continues, as most are expecting for this fall
and beyond, it will probably drive a whole bunch of Orlando-area businesses
right out of the marketplace. The smaller ones, that is. The midways, the
dinner-theaters, and the like may not be able to compete. Disney has deeper
pockets, and can endure more before crying uncle, so it's likely the smaller
attractions around here might buckle long before Disney has to, even if fewer
people fly to Orlando this year. They may not have to close Disney parks to make
up for it, since folks will simply stay with Disney and not venture off to the
dinner theaters and small attractions. So goes the theory, anyway. My answer is:
"Maybe." I suspect the smaller operators really will feel the pain first, and I
suppose this effect may delay the pain Disney feels. But I don't think it will
be a pronounced enough counter-effect to stave off the need to conserve money on
Disney's end, and that probably does mean closed parks.
Clearly, the idea is that this would be temporary, until attendance bounces
back. But it's at this point when I'm inclined to consider the worst-case
scenario. What if oil, gas, and jet fuel prices never really come back down?
If oil and jet fuel prices keep visitors away,
will crowded days be a thing of the past?
Several months ago, I used this space to muse about "peak oil," a phenomenon
of the world starting to run out of petroleum and the effect on prices in
general and Disney World in particular. Disney had commissioned a study, and if
oil stays above $160/barrel, Disney was advised to sell off the WDW parks and
just collect a licensing fee. The parks would still eke out a profit, but not as
much of a profit margin as Disney wants and the parks would be a drag on the
company's bottom line. Here's what I wrote about this, when breaking the story
back in September of 2007:
There are wildly different accounts and interpretations of
what kind of future we might be facing regarding oil. There are
prognosticators who confidently predict that not only has the world used up
less than half of the 'proven reserves' out there, but that we're finding
more all the time (indeed, that's almost a direct quote from Bill Nye in
Epcot's Energy pavilion). But at the other end of the spectrum, people are
making more and more noise about 'peak oil', also called Hubbert's Peak,
named after a Shell geologist who predicted, correctly, that US production
of oil would peak and then decline in the 1970s, and predicted a world peak
in 1995. Hubbert was obviously off about world production, which is still
climbing, but some experts warn that the 1970s oil instability caused the
delay, and that the peak will be reached any day now (indeed, some claim
it's happened already).
Big deal, you may be thinking, we still have half the oil
left! Not so fast. China, India, and the emerging countries now gobble oil,
whereas before they only sipped. Much worse is the fact that the remaining
oil is much harder to obtain and much, MUCH more costly. The result, these
folks claim, is that oil prices could rise sharply higher, and the entire
economy take a turn for the worst. On a dime. Permanently. We're talking
$200 barrels of oil (it's around $70 now, and was at $40 only a few years
ago, and an incredible $10 in the late 1990s). The news only gets worse--as
inventories shrink and demand STILL goes up, remembering that other
countries will continue to need more energy, the prices will soar ever more.
The really bad predictions say all this could occur in the span of just a
year or two, once it starts. Remember, experts vary wildly on whether this
event will even occur.
But Disney, understandably, is nervous. Shortly after 9/11
rocked the economy and put a very sizeable dent in airline travel, Disney
re-examined its assumptions about the business it was in, and commissioned
an internal study in the past couple of years, hiring a major investment
banking and consulting firm to help them drum up scenarios. Not wanting to
repeat the tourist shock of 9/11, Disney wanted to know what the future
might bring. What's the worst-case scenario, they asked?
Turns out there are some pretty bad scenarios. The hired
accountants brought back a picture of Disney World that no one wanted to
hear. As you might suspect, there does come a time at which point oil is so
expensive that Disney World ceases to make money. That part is intuitive
enough--just imagine oil costing a hypothetical $2,000 per barrel, and a
flight from Los Angeles costing $40,000. No one would fly to Disney World,
right? To bring the numbers back to reality, the breaking point at which
Disney World would no longer make [enough] money is much closer than we
think: something less than $200/barrel of oil, perhaps as low as
$160/barrel. True, that's more than twice the current level. But if you'd
told me in 1999 that oil would vault from $10 to $70 in less than a decade,
a seven-fold increase, and people would simply accept it, then I wouldn't
have believed that either.
Since posting that about nine months ago, the price for a barrel of oil has
moved from $70 to $130 (and above). I took some heat in the discussion boards
and emails as being a bit alarmist, and yet oil has risen substantially. I think
that kind of trend, even a micro trend, means it might be worthwhile thinking
about what happens if it continues. And it's just not a pretty picture.
Here in Orlando, Universal Studios may actually be better positioned than
Walt Disney World. They don't pay as much in gas and transportation. At Uni,
there are a couple of boats, but mostly, people walk from their cars to the
parks, and they walk from park to park. At Disney, the scale hurts. No one can
walk from park to park, and few can walk from hotel to park. Instead, Disney has
to pay enormous fortunes in gas money every day. Every single hotel has a fleet
of busses to take those patrons to their desired parks using 17,000 gallons of
diesel a week. And Disney has all that space filled with asphalt that must be
maintained, or concrete that must be painted, or grass that must be mowed. The
upkeep costs are enormous at Disney.
If Uni-Orlando is the big winner in a
downturn, we might all end up eating at Mel’s Diner.
The costs are such, in fact, that some folks internally are beginning to
wonder if there's any possible way to start charging for riding the hotel
busses. They know that's an uphill battle as they are already not universally
popular, as they can be noisy, overcrowded, and often late.
No, Disney World is stuck between the proverbial rock and a hard place. The
real winners in an environment like this are the regional parks: Dollywood,
Kennywood, and Hersheypark. All of them are near a large population base that
will keep coming even with high gasoline prices. To that list we must
responsibly add Anaheim's Disneyland. The SoCal market is sprawling, sure, but
by and large it's just one big city, and people will still come to Disneyland.
There's even a railroad connecting the area to Northern California.
None of the same demographics apply to Central Florida. The parks are way too
large to be filled up by locals (heck, we all work there, or did once). WDW is
stuck.
Not so, I hear you say. The international and overseas visitors will still
pour into WDW. They will do it even more than before, in fact, because the
dollar is so low! To that I answer: not in the numbers needed to maintain
Disney's profit margin. Don't forget that Homeland Security and its procedures
aren't welcoming to a lot of foreign visitors, and many tell their friends not
to bother as it can be so difficult. Meanwhile other opportunities beckon
elsewhere. (Dubai, anyone??)
The situation makes you appreciate that Disney does have overseas parks of
its own: Disneyland Paris (DLP) and Hong Kong Disneyland (HKD). Hmm. Suddenly,
the propensity for duplicating ride experiences exactly at international
locations doesn't seem so stupid. This move was done to save development money,
and many (including me) decried it as cannibalizing Orlando's business. If
people can easily afford to visit the Paris park, they will just do without
Orlando. This strategy is possibly going to pay off for Disney, even though they
weren't trying to make it happen that way. Now Europeans really may go to DLP
rather than WDW.
I might even draw a connection out to the Location-Based-Entertainment (LBE)
concept that Jay Rasulo wants to spread across the globe. Think of these as
hotels plus a single ride. Jay wanted to save money and take the cheap direction
to getting Disney's name everywhere, but his mismanagement may actually end up,
ironically, saving Disney by accident. If "peak oil" occurs and people only
travel locally from then on, Disney may still be a leader. But the concept of a
destination resort, like Walt Disney World, definitely depends on the presence
of affordable airline tickets. If that changes, watch out WDW; they may have to
call in Wall·E to clean it all up and cart it
away.
Disney is in a frenzy of building DVC units –
will that continue if bookings dry up?
If oil is really expensive, will DVC stop minting money for the Mouse?
Another thought here: WDW's big sales lately have also been built on the
destination concept. I'm thinking here about Disney Vacation Club (DVC), the
timeshares in Disney hotels. Will these folks have buyer's remorse if airline
tickets spiral toward infinity and flying becomes a luxury item? Will they feel
cheated for spending tens of thousands of dollars on something they now can't
afford to visit? Or if they do come, what will these frequent visitors think
about DAK being closed on a Monday to save Disney some costs? Could those DVC
folks sue, arguing that they bought into the contract with the understanding
that parks would remain open?
I'm only a local, and I only visit on weekends, so these one-day closures
won't affect me personally. I won't see a surge of visitors on the "remaining
three" parks because I won't be there on a day when one is closed. In theory,
this closing of parks is great news for me. The parks may be more spruced up.
But what about the tourists Disney makes its money on? What will they think?
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