How might the re-opening of Disney World look?

Disney World has been closed for a month. and Cast Members have now been furloughed. Many of my friends are out of work. I work in Corporate Strategy and Analytics and have a lot of time on my hands (thanks Social Distancing while working abroad). I decided to put some thought to what considerations and decisions might look like when it comes to reopening the Disney Parks.

Parks before Resorts?

Hotels and Resorts give travellers a place to stay when they have come long distances but travel will be fairly limited to start. Resorts however are also how Disney is able to improve its margin. Park tickets barely pay for the cost of your visit so that needs to be made up in Merchandise, Room and Food & Beverage spend. Especially when Disney are likely to have to heavily discount to even get people to visit initially.

One strategy might be open the parks before the resorts. Start generating demand and cash flow from more local guests and then open the resorts in a phased approach as demand improves. The issue with this is it drives demand to off-property hotels which is not a strong strategy. Otherwise though the costs will start racking up quickly and that $6bn cash raise is going to disappear fast.

No Restaurants?

The federal government has made clear that in the early phases of reopening it expects to continue to impose restrictions on restaurants and bars to avoid close social contact. This could include reducing the number of tables in restaurants and limiting patrons in bars. Disney makes a LOT of money from restaurants but its serving staff are also some of its most flexible workforce with many servers on part time or seasonal contracts. One strategy could be to keep restaurants closed at initial launch if that enabled them to comply with regulations however as a one of its profit centres it would need to get them open fairly quickly to even pay its bills.

Significantly Reduced Entertainment

Unions (among other things) make entertainment very expensive. Those with slightly longer memories will remember the 2009/10 period where Disney cut back on everything from parades to Fireworks. Fantasmic 3 times per week anybody? I would highly expect this to be a key theme when thing start to re-open. Anything that is not an essential and has flexible scheduling is likely to be cut back or even removed.

Virtual Queues

Hate boarding groups for Rise of the Resistance? Get used to them! I suspect you might even them even being needed to enter parks. With social distancing rules park capacity will be greatly reduced and waiting in line is a nightmare. I expect you will effectively need to book your entire day in advance so that lines everywhere can be avoided as far as possible.

This brings a problem though, Disney Parks are a scale business, you need tens of thousands of people per day to cover the fixed costs of operating. If you can’t do this you either need to raise prices (a struggle when the economy is struggling) or lower costs. To some extent if you have less people you need less staff but the guy working the popcorn stand has to be paid whether he serves 5 people or 50. Again, expect lots of closing of small carts and focussing things down with far less staff.

Reduced Hours

This is a tougher one. Reduced hours saves labor costs and helps to optimise for profit. But, if they are limited on the number of people in the park they might want to stay open longer to try to capture more demand. But who wants to start their day with kids at 7pm to midnight? My gut feel here is greatly reduced hours, back to the 9am to 5/6pm of the worst days of the last recession. Even those parks that usually stay open later (Epcot, looking at you) might close earlier, especially if restaurant dining and entertainment are cut back.

Pent Up Demand

After a 3 to 6 month closure there is a lot of pent up demand. All of those people had their vacations refunded. Sure, some will now to redirect those funds elsewhere, but many will just hold on to make a trip. Once social distancing ends, which could still be more than a year way , expect a flurry of demand. This will likely result in significant price hikes to try to maximise the returns from those guests. There is a potential for a lot of people who got a refund of X for their vacation who will find the same vacation costs 1.2 times X in 18 months time.

Delayed and Cancelled Projects

Remember the second half of Pop Century resort that was due to be the next big thing in 2001? Following 9/11 and the massive drop in travel it was mothballed for 10 years. When things recovered it was finally built into Art of Animation. Some projects are just too big and too far along for that (think Tron and Guardians) but others could well be paused (Star Wars Hotel, many components of Epcot Refurb). Cash is king in a downturn and anywhere costs can be cut in the short-term is powerful.

Some Positives Though

For most industries demand will come back which will put people back in work and money back in their pockets. This in turn means people take vacations and guests will be coming back.

All of this will happen in phases with the first phases being the most highly restrictive. As a major corporation Disney can wield some government relations might to help bend rules in its favour. With strong procedures in place it might be able to move faster than the average hotel or resort. Shareholders, bond holders and insurers will all be putting pressure on the board to get things started as soon as possible.

It is all a question of timing really. As everyone keeps saying it’s all about a vaccine. Let’s all hope that happens sooner rather than later!

To all of my friends who are affected in these uncertain times I send my love. I hope things resolve quickly and some of my predictions are overly pessimistic. You know me, I am not exactly Mr Optimism!. Faith, Trust, and you know the rest….

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