Disney dogged more and more by analysts

I'm not going to post yet another news story on this, but Disney is taking a beating again because analysts think they could be hurt by the recession.

I'm still not buying it. Comparing the current state of things to the post-9/11 travel bust isn't apples to apples at all. People were traveling less because they were scared to travel, not because they didn't have money.

I'm also not buying it because when I booked my forthcoming trip, I couldn't get into a monorail hotel at Disney World at all. They were booked solid. That doesn't say danger to me.

Who are Disney's customers at the theme parks, and are they really going to visit less in the next six months to a year? How much pain is real, and how much if fear that people will get over?

I think the key word in your post is FEAR. People are afraid, reasonably or otherwise, that this "downturn" could turn into a global economic catastrophe. I've stated elsewhere that it FEELS to me like this dip is "artifactual" to the extent that while the housing and financial markets had some serious deficiencies in oversight, the *tipping point* was when investors began to realize Barack WAS likely to be elected, and fears ran rampant over tax burdens come January 09. More likely, there will be some increased taxes for large corporations, executive pay will come down somewhat, and the economy will begin to turn around once there are plans in place for sensible housing and energy policy (gas prices *today* are reflective of not much beyond expectations about tomrrow - but the bigger picture is reflected by stock prices). Disney is kinda fun for us enthusiast-economists (all three of us!) because it really does give us a decent glimpse in the GLOBAL economy, well beyond the borders of the US.

#3 has arrived. ;)

I don't buy it either.

However, we're going in the first week of February and the current promotions have the value resorts available for as little as $49 for passholders.

That's insane and not much worse than the "my wife is in the industry" rates we usually get at hotels.

Fear is fear, and has a way of becoming a sincere reality.

Until this past weekend, my sister and a couple of her friends had all sorts of travel plans for 2009. These plans got cancelled today when Mittal Steel annouced they were shutting down their blast furnace operations in the Cleveland Works. They, sister and friends, fear a complete shutdown, which may happen.

The company has no orders for steel.

I agree with Jeff when he said that people were traveling less because they were scared, not because of money. It was that situation that led to us bailing-out the airlines, and I'm not sure that haleped at all.

That's an off-season week, so you're already getting the lower rates. I looked into that period of time as well when booking, and I can tell you that being an annual passholder, if you can go twice in that year for a couple of days each time, seriously pays. Aren't you also getting a Floridian rate, cheater? ;)

Didn't one of the execs in a recent call or article say they'd adjust pricing accordingly at the resorts? I suspect they'll do their best to keep the occupancy up. But discounting is one thing... predicting double-digit drops is I think totally unrealistic.

Yeah, but still - $49? That's crappy-motel-advertising-on-a-billboard-along-the-highway rates. Even with the slower time of year, discounts that deep strikes me as a certain level of fear...probably from lack of reservations.

The Florida resident specials for that week haven't been released yet as far as I know.

Forty-nine bucks is so cheap - I could get an oceanfront room in Myrtle for that price late this past summer...have to wonder if they change the sheets! "Mommy, there's a stain shaped like Mickey in my bed"... ;)

$49 is hardly even the start of what you'll be spending that day. If you go to some dump on I-Drive, they get that money, and that's it. At Disney World, they own your ass, and you pay for theme park tickets, food and dressing your kid up as a princess. It's so not the same thing.

Kind of like getting a comp discount on your room rate in Vegas. They know you'll empty the rest of your wallet with them, so why not make you feel good about it.

Jeff said:
$49 is hardly even the start of what you'll be spending that day. If you go to some dump on I-Drive, they get that money, and that's it. At Disney World, they own your ass, and you pay for theme park tickets, food and dressing your kid up as a princess. It's so not the same thing.

Very true, however, I'm sure they're treated as sperate entities and that's not looking good on the hotel books. The managers of the properties can't be happy.

(always thinking like a hotel dork :) )

^Have to wonder if Mickey doesn't somehow "compensate" for that on the books (for purposes of stuff like hotel management bonuses, etc.). But I've got to figure that The House of Mouse looks at the bigger picture more closely - how much revenue are we generating per guest, per family, and so on. Plus the parks really would experience a slowdown if it weren't for "us locals" taking advantage of the off-season to get OUR Mickey on... ;)

I think that's the problem, you can't look at it like a traditional hotel. I think it's really nuts to be "sure" they're treated like separate entities. The hotel manager gets no say in the pricing, all they can do is control costs. At the end of the day it's going to come down to per-cap versus expense from the time they get on the Magical Express to the time they get back off of it.

Jeff said:
I think that's the problem, you can't look at it like a traditional hotel. I think it's really nuts to be "sure" they're treated like separate entities. The hotel manager gets no say in the pricing, all they can do is control costs.

Perhaps, but that would seem absolutely ridiculous to me. I have no idea how it really works, but I would assume each property is treated as a seperate entity - like any hotel - with a budget and expectations and such.

And yes, I get the idea that the same rules might not apply due to the nature of the company watching the big picture as Gator is saying, but on paper I think selling rooms a half price doesn't look good.

Far from ridiculous, that's the kind of efficiency and macro view that gives them an advantage. It's no different than moving the cost of soda to the gate. If they didn't leverage this advantage, they'd be complete idiots.

^...and advertising on-site hotel rooms at Disney for THOSE prices....is (leverage) enough to get enough of you on the plane to FL - where your every waking moment will be Mickey-fied....for a small fee, LOL. Disney characters, Disney dining, Disney transport, Disney hotels, Disney parks, Disney WORLD. Walt never had THIS kind of vision, LOL. :)

Jeff said:
It's no different than moving the cost of soda to the gate.

Funny, I almost used that same example to qualify my 'on paper' comment.

Even though a park like HW is bringing in more revenue than ever, on paper it shows no drink revenue. On Disney's paper, the hotels show low revenue due to giving rooms away for half price. Those properties still have books to keep...and they need to show profit.

I really don't think for a second that it's ok to be down X amount from last year at the hotels because the money is still coming in elsewhere. I think you're giving WAY too much credit here. The big financial suit guys might look at the overall picture that way, but at the hotel/park/restaurant/whatever level, I'd bet you almost anything it isn't looked at, treated or handled that way. Those guys have budgets to meet and expectations independent of what the park is doing.

Plus, I'm not sure where they make that rate drop up at - people still bought all the other per cap stuff when the rooms were going for $99. The rest of the disney experience remains...all that's changed is that the room rates dropped...hard.

I know you know this. The idea is that in slow times a lower rate is incentive for people to stay at your property in addition to visiting the parks. When the market is slow, it becomes necessary to grab a bigger chunk - (the one exception to Gonch's business plan - lack of customers) - 'tis better to have 2 people's $49 than nobody's $89.

I don't think it's any more complicated than that.

And no, Disney isn't hurting. They're fine. But $49 at the values and $89 at the moderates says bookings are slow...real slow.

Dude, no, you're looking at it all wrong. There's no way in hell that Disney is stupid enough to create little kingdoms who have to meet their contribution profit. We're talking about Disney, which manages to integrate its entire brand, top to bottom, across all media and theme parks.

You've talked to their travel people, right? They're not looking out for any particular profit center, they just want to book as much as they can, sell tickets, tours, get you on the Magical Express, the meal plan and book some restaurant reservations. You couldn't hold individual properties accountable for that if you wanted to, which is part of the reason why each level of resort starts at exactly the same pricing.

The last room rate I looked at for the value resorts puts it at $99 for the very next week (MLK weekend?). That sounds about right to me, and it'd be the rate I was getting next month if I didn't have the pass discount.

I'm not sure I understand what you are saying, Jeff. Are you saying there is no accountability for profit for the resort management? I know you mentioned keeping costs down, but given Disney sets the quality standard, too, wouldn't that mean the resort management bears very little responsibility at all?

Jeff said:
There's no way in hell that Disney is stupid enough to create little kingdoms who have to meet their contribution profit.

So there's no accountability anywhere? As long as the bottom line is the right number, they don't care?

Carrie M. said:
...wouldn't that mean the resort management bears very little responsibility at all?

Exactly! It just doesn't make sense.

Jeff:
We're talking about Disney, which manages to integrate its entire brand, top to bottom, across all media and theme parks.

In an effort to make all of those things profitable. To attain a certain level of money from them.

They're not looking out for any particular profit center, they just want to book as much as they can, sell tickets, tours, get you on the Magical Express, the meal plan and book some restaurant reservations.

Obviously. They're Disney's people. They just need to sell you on Disney and Disney gets the money. It still doesn't mean there's not expectations for the individual areas of the company.

You couldn't hold individual properties accountable for that if you wanted to, which is part of the reason why each level of resort starts at exactly the same pricing.

You absolutely could.

They start at the same price points because there's not much good reason to compete with themselves - they get the money either way. (although as you move up the chain you do find differences) But you better damn well bet that if one property is moving slow compared to the others that it'll be the one to get the discount or incentives to fill the property. If the whole segment is slow it becomes a sweeping discount/incentive.

The fact that they're offering those discounts on all the values and moderates says things are f'n slow across the board on the mid & low end.

Beyond that the only discounts are Wilderness Lodge at $144 and a Saratoga Springs studio at $179.

That says to me that things are still solid on the upper end with a couple of exceptions where they need to fill some rooms to meet expectations.

The last room rate I looked at for the value resorts puts it at $99 for the very next week (MLK weekend?).

The discount rates apply from Jan 2 - Jan 15 and Jan 19 - Feb 12.

In other words, all the time between the first of the year and the busy Presidents Day weekend with the exception of the also busy MLK weekend.

And yes, the discounts only apply to Passholders right now. Depending on how much business that drums up, they'll move on to residents and finally GP if necessary.

The 'standard' rate for those dates at the value resorts appears to be $82. Not sure how that comapres to this same time frame last year. That'd be the true measure. If that $82 is lower than the 'standard' rate for those dates in 2008, then they're slow.

I'm not sure where I'm heading here - that got kind of rambly.

I guess what I'm saying is that you don't drop your hotel rates if you don't have to fill rooms. :)

Whether or not they're dropping rates to fill rooms is a different issue from whether or not the properties have autonomy to set prices. And I'm saying that they don't.

If Disney World allowed itself to have little autonomous kingdoms, the properties would compete with each other, which wouldn't make sense because they'd drive each other's prices down. Furthermore, some kingdoms don't have any direct profit at all, like Magical Express or the transportation system. Even when they do have profit, like the meal plan, they can't arbitrarily reward a restaurant at Epcot if someone is eating at a hotel food court.

Everything that Disney does leads me to believe that they have a target per cap for each financial demographic, and it's decided at the Disney World level how best to achieve that number with a balance of hotel, ticket, food and merchandise pricing to get there. And given that target, reducing room rates as the means to induce spending elsewhere is no different than unlimited soft drinks at Holiday World or 49-cent Coke at the grocery store.