Universal Orlando matches Disney price hike, reports 32% higher profit

Posted Tuesday, August 14, 2007 9:49 AM | Contributed by Jeff

The same day it reported a rise in corporate profits and a continued slide in theme-park attendance, Universal Orlando raised many of its ticket prices Friday, matching Walt Disney World's $71 for a one-day adult admission. The price hikes were announced shortly before the resort's parent company, Universal City Development Partners, filed its second-quarter financial statement, which reflected a 2.5 percent drop in attendance but a 32.2 percent rise in operating profit for the three-month period that ended July 1.

Read more from The Orlando Sentinel.

Tuesday, August 14, 2007 10:21 AM
Seems to be the trend...less butts paying more for in park food, etc!
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Tuesday, August 14, 2007 10:30 AM
eightdotthree's avatar The thing I don't get about Universal always matching Disney's price hike is that they want to attract people to come from the Disney resort to their own park. People staying at the Disney resort have multi-day tickets, and may feel that a single day at Universal is too expensive for their trip.

I know that went through our heads on the last Disney trip, we wanted to go to Universal for a day, but fought off the urge and just stayed at Disney to save some money since it was the tail end of a business trip. We did however go to City Walk for Bob Marley's and we will be back to Universal for a multi-day trip in the next year or so...but thats another story.

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Tuesday, August 14, 2007 10:58 AM
I don't see how Universal is worth that much. I don't think that Disney is worth $71 a day either, but I think Disney is a better value. There is so much more to do. Islands of Adventure has 3 coasters, a few water rides, and Spiderman.
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Tuesday, August 14, 2007 11:47 AM
With the parks raising prices and yet the profits are going up. It only makes since to charge less and you will get more people in with money to eat in the park. This will force people to look for alternatives in the smaller amusement parks which charge less for admission prices than the bigger amusement parks which charge alot. The only way that I would ever go down to ORlando's tourist trap is if I was rich and didn't care about the prices.
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Tuesday, August 14, 2007 12:07 PM
One word: Cypress Gardens!
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Tuesday, August 14, 2007 12:47 PM
Jeff's avatar

Seems to be the trend...less butts paying more for in park food, etc!
But if you read the article, you'd see that the attendance drop was partially caused by the Easter holiday being split between quarters.

I totally disagree that Disney a better value. To get value out of Disney, you have to really buy five day or greater tickets. Especially in the off season and without a family, three is plenty for me. Even in the peak season, three days is plenty for Universal, and at a fraction of the cost. If you think Universal is only about the coasters, you're not looking very hard.

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Tuesday, August 14, 2007 1:26 PM
That's the genius of Disney's plan. They make it clear that buying 7-, 8-, 9- and 10-day tickets makes the most sense, especially if you opt for the "no expiration" option that makes them valid forever. I don't know of anyone that spends 10 days at Disney so you're expected to return to the resort at a later date to use the tickets and spend more money.

I wouldn't say that Disney is a better value but I like the Disney parks more than the Universal parks. Years ago I was in love with IOA and while I still like the place, it's really not much aside from the excellent B&M coasters, Spiderman and the three water rides. USF is pretty much the same thing- not much that makes you want to re-ride aside from Men in Black and Mummy. Of course, the same can be said for MGM and Animal Kingdom at WDW, but at least Epcot and MK are parks that require more than a day.

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Tuesday, August 14, 2007 1:28 PM
Lord Gonchar's avatar Yeah, but it also mentions that attendance was down in the first quarter vs last year as well. I think that figures to be negative attendance growth compared to 2006 for the first half of the year.

I'm still with JRS on this one (surprise, we've been the two spouting this crap for a while now) - less visitors, more money per visitor. It's happening more and more when these quarterly reports come out.

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Tuesday, August 14, 2007 1:46 PM
But in a way, it also supports what I've been saying all along. People have varying tolerances when it comes to price increases, and if prices went up and attendance went down, the tolerance for a certain group of guests was reached. Sure, more money is being made on less people, but what's to say another increase isn't going to tick off more people and cause attendance to drop more? And at what point does attendance drop so much that the "higher prices/less people/more money" plan is offset?
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Tuesday, August 14, 2007 2:13 PM
^ I guess we'll know when we get there. Apparently we haven't gotten there yet. Can a 32% increase in profit be attributed only to higher per cap spending though? They say profit, not revenue, so there could be other factors at play here.
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Tuesday, August 14, 2007 2:15 PM
So far, that hasn't happened with *any* corporate operator. CF, SF, and UO all have higher revenues with fewer people. Disney is the only corporate operator I know of with honest-to-god increasing guest counts.

(As an aside, anyone know what Busch parks are doing these days?)

Sure, there is a ceiling there somewhere---we all agree on that. Have they reached it yet? Evidently not. Are they likely to? Probably not by accident. All of these players are obsessive about surveying their guests---they have a pretty firm guess, likely to be much more accurate than ours, of what they average guest will tolerate, price-wise.

I'm still of the opinion (completely uninformed) that there is head room in theme park pricing compared to the costs of other family entertainment options. A day at a theme park is still less expensive than a day at a college football game, a live play or musical, a day of skiing, a round of golf, or nearly anything else I can think of. And, for the hobbyist, as opposed to the casual visitor, it's even better in comparison.

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Tuesday, August 14, 2007 2:32 PM
Lord Gonchar's avatar

Rob A:
Sure, more money is being made on less people, but what's to say another increase isn't going to tick off more people and cause attendance to drop more? And at what point does attendance drop so much that the "higher prices/less people/more money" plan is offset?

Totally agree Rob...and that's the point - finding the optimal balance.

Hypothetical example:

100 people at $10 = $1000

That's cool, but what if we push to $13? Oooh, 88 people still bit.

88 x 13 = $1144

What if we continue to push to $16? Hmmm, 76 people this time.

76 x 16 = $1216

We're still ahead and we've droppoed our customer base almost 25%. Let's try $19. Ouch, only 59 people at that price.

59 x 19 = $1121

While you've dropped your customer base by 41% and you're still technically making more than you were at $10 per person, it's still not as much revenue as the $16 price point. Obviously you went to far and you back up a level to the optimal point. (Over simplified, of course - you'd probably try $18 or $17 and fine tune it more)

Amusement parks have traditionally been at that first level. Some are finally trying the jump to the second level and so far it seems to be working out. Will they push to another level? Will it work if they do? Can they go to levels beyond that?

Only one way to find out. :)
(or like RGB said, we'll know when we get there)

There's no reason to operate at a less efficient level than necessary. Why try to serve 100 people for $1000 if you can serve 76 people for $1200? It makes no sense on any level.

A few park operators seem to be figuring this out...finally!


RGB:
Can a 32% increase in profit be attributed only to higher per cap spending though? They say profit, not revenue, so there could be other factors at play here.

Entirely true. But the article does say:

"The increase in operating profit was partly the result of the average visitor spending more on tickets, food, drink and merchandise than the average visitor during the second quarter of 2006."

So per cap spending was up. It just wasn't the only factor - and I'm not surprised. A 32% increase in per cap would be ridiculous...it's just not going to happen.

But to tie in to the first half of this - it is easier to lower costs when you serve less people. So not only does your revenue go up at higher rates, but your profit margin probably does to. (not that the small attendance drop they saw really makes a real world difference - we're talking theory here :) )


Brian:
I'm still of the opinion (completely uninformed) that there is head room in theme park pricing compared to the costs of other family entertainment options.

Yes! :)

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Tuesday, August 14, 2007 10:50 PM
This is great news! Now less people than ever can afford to go to parks! I love it! What took them so long? Finally!

I'm glad that they didn't get some crummy idea like increasing the amount of attractions to accept more guests. Keeping people from using your product is the best route.

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Tuesday, August 14, 2007 10:51 PM
Jeff's avatar While your sarcasm is noted, the price hikes over the years does not seem to be preventing them from making more money each year.
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Wednesday, August 15, 2007 12:00 AM
dexter:

You're a consistent advocate for low prices and crowded parks. I certainly respect your unyielding stance. Out of respect (no sarcasm meant at all) I will show you the flaws of your way! :)

This is great news! Now less people than ever can afford to go to parks! I love it! What took them so long? Finally!

When you look at price increases, you see less people going and feel bad for those who can't go. When I see less people going to parks, I see a better chance for an improved park experience. When I see higher profit margins I see a better chance that these parks will not go the way of Astroworld, Pavillion, etc.

It is no secret that a primary guest complaint for any park is that the lines are too long. There is simply no fair way to reduce park crowds sans the increased gate price. You yourself have been primarily against "pay to cut" as unfair...yet you are also against price increases at the gate. It seems there is no realistic way for the parks to reduce crowds that a person with your opinion could accept...?

I'm glad that they didn't get some crummy idea like increasing the amount of attractions to accept more guests. Keeping people from using your product is the best route.

The solution that you sarcastically suggest...and no doubt believe with all you heart given your past postings...has already been tried to colossal failure. Geagua Lake fully implemented this plan as did the entire Premier-owned Six Flag's Chain for quite a few years.

Safe to say, that your model for crowd control and improved guest experience is the single biggest large scale failure in amusement park history. One major city lost a park. Quite a few were sold to small operaters who...time will tell...might be best served by selling the real-estate given the large operational expenses they inherited due to thinking exactly as you.

The increased capacity through multiple attraction offerings has left one particular park (Geagua Lake) and entire chain (Six Flags)on the brink of financial ruin. Cedar Fair can not remove Geagua Lake attractions fast enough to bring expenses in line with the market served. I dare say most regional themers have too many attractions to run in profitable manner. The quest to reduce expenses and maintain solvency illustrates itself through understaffed food stalls, tiered opening times, reduced hours, "pay to cut",etc...and in the worst cases it shows up as a closed park! All the operational snafus that enthusiasts love to debate can...in one way or another...be traced to a quest to profit...of which there has been less going around these days.

As I said in another thread...this is not the oil business. This is a competative market in which many parks are struggling to stay open. While Universal is no Six Flags...anybody following the business side of amusement events knows they've been sold a time or two and are not exactly a hot commodity in the financial world. Today's news was good for anybody interested in theme park's. It shows that another chain...besides Disney is finding a way to increase profits.

This is not about Gonch or I being happy people cannot go. It is about simple financial realities. I'm sure it "feels" good to always trumpet the "little guy" and suggest expensive attraction offerings as (un)realistic solutions to overcrowding. In the real world...these parks are highly competative entities...many struggling to maintain last year's profit margins...let alone increase their profits.

Next time you get all emotional defending the "little man's" God-given right to enjoy cheap amusement park entry with nary an upcharge in sight...think a minute about the financial realities of this little hobby we all love. Parks are closing at a much faster rate than they are opening. You either accept the fact that quarterly reports are important in maintaining viable options for ride enthusiasts, or you bemoan the unfairness of it all when Valencia has a nice new shopping center/entertainment district and Sandusky has some new waterfront mixed-use condo developments...all of which are more profitable options for local government and investors than running amusement parks!

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Wednesday, August 15, 2007 1:04 AM
Lord Gonchar's avatar Said much better than I ever could have. :)

Just want to reinforce a point:


When I see less people going to parks, I see a better chance for an improved park experience.

Yes! Believe it or not, I see more value in paying a higher price and keeping the crowds down. It's not about keeping certain people out, but rather about making my time and money better spent.

Still pretty selfish motivation, but for totally different reasons than you seem to think, Dex - and no less selfish than wanting parks to continue to struggle and keep prices at a level that are reasonable to you.

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Wednesday, August 15, 2007 5:18 AM
While all of the above statements are true, I think there's one primary mentality that they tried to lock out:

"Disney's a better deal for 5 days, so let's do 5 days there and one or two at Universal."

I think it would be much more beneficial to their markets to make people choose between 5 days at Disney and 5 days at Universal.

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Wednesday, August 15, 2007 8:24 AM
Gonchar, the value might go up when you charge higher admission prices and less crowds. When you keep raising prices then only the people who are making above a certain amount of money can afford to go the parks. Thus you are cutting your nose off if you are trying to reach the mainstream of people. Six Flags used to offer a 2 day pass more than a decade ago for less than 2 individual single day tickets. I live around 140 miles north of Atlanta and if I am going to travel over 2 hrs to Atlanta, then I expect more value and lower prices. The only reason why I might be heading towards Atlanta is for the SFOG and Whitewater. I have to think about the gas prices and other factors as that would entice me going there. Right now, the big name parks aren't offering that much value for the money because of the high admission prices.
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Wednesday, August 15, 2007 2:02 PM
Lord Gonchar's avatar

When you keep raising prices then only the people who are making above a certain amount of money can afford to go the parks.

That's the point. (and just for clarity, I'd change "who are making" in that line to "who can/will spend" - more accurate that way)


Thus you are cutting your nose off if you are trying to reach the mainstream of people.

Again, that's the point. Trying to reach the largest number of people is not necessarily the best business approach. So far we've seen SF, CF and now Universal (to an extent) increase revenue while serving less guests.


Right now, the big name parks aren't offering that much value for the money because of the high admission prices.

I'd rather have short lines, better service and potentially lower prices in the park for $100 (or more) ticket price, than long lines, bad service and higher in-park prices for $40 or $50 ticket price. It's a better value.

What do you expect to improve if they keep lowering the gate? With less money coming in, the parks will surely not be able to offer a better (or more of a) experience.

Just remember that the lowest price isn't always the best value.

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