Disney World Reopening Falls Short as Parks Business Takes $3.5 Billion Hit
The reopening of Disney World, which kicked off last month amid a rush of excitement and a wave of criticism, has not boosted Disney’s bottom line.
Disney reopened the Orlando, Florida theme park-resort on July 11 under the belief that doing so would help ease the fiscal hit caused by the shutdowns of movie theaters and other revenue streams as a result of the coronavirus pandemic. Unfortunately, as Disney Chief Financial Officer Christine McCarthy said during the company’s quarterly conference call with Wall Street analysts on Tuesday, earnings from reopening Disney World fell well short of expectations.
“We’ve been able to achieve net contribution at current attendance levels,” McCarthy said during the call, which was live streamed. “But the upside we are seeing from reopening is less than we previously expected due to the continued rise of COVID cases in Florida.”
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The parks division lost out on $3.5 billion in operating income for the three months ending June 27, the company said. Overall, Disney’s parks business pulled in just $983 million during its third quarter, which was an 85% slide compared with the $6.6 billion in revenue the parks earned during the same period last year.
Parks in Shanghai, Hong Kong and Japan were able to reopen during the quarter, but most of Disney’s parks business comes from its U.S. locations. The Florida-based park opened after the quarter ended, and Disneyland in California has not yet set opened back up. Disneyland in Paris reopened in July.
Disney CEO Bob Chapek said in May that the company wouldn’t reopen the park simply to break even. The revenue would have to cover the cost of operating the park and contribute to the company’s overall earnings. However the same weekend in July that Disney World reopened, Florida broke a national record for new COVID-19 cases in one day.
Chapek said during the call Tuesday that roughly 50% of reservations — which are now required for all attendees — were made by people outside of Florida. But he and McCarthy acknowledged that the continued spread of the virus has made guests wary and will likely limit Disney World’s potential earnings. As a sign of that, Chapek said that a lot guests who made reservations in recent weeks have since canceled them.
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“This is obviously a highly uncertain time. We could tell from our reservations that we had ample demand… and then unfortunately COVID struck again and all the numbers started going up,” Chapek said. “This gave some trepidation to travelers who are anxious about long distance travel and hopping on a plane to travel to Disney World.”
B. Riley FBR analyst Eric Wold said last month that it wouldn’t matter if the parks were to reopen in June, July or August.
“We would expect these stocks to be valued on attendance rebound expectations for 2021 and 2022 as opposed to anything to come in Q3 or Q4,” Wold said.
Disney had planned to reopen Disneyland Resort in Anaheim, but was forced to postpone after a rise in cases statewide led Gov. Gavin Newsom to slow down the rate at which businesses were permitted to reopen in the state, and reinstate the ban on all indoor operations for restaurants, movie theaters, family entertainment, museums and bars.
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Despite the lower than expected earnings, Disney executives said there have been at least one win; guests who do visit the park appear to be spending more, which Disney said might be because they hadn’t visited the park in some time.
Keeping Disney World open during the pandemic has other challenges beyond the number of people who visit though. McCarthy noted that some 100,000 park employees, referred to in company jargon as “cast members,” were furloughed at the onset of the pandemic. As operations at the resort expand and those employees are brought back, operating costs will rise as well.
“Our research and our bookings indicate that we should be in good shape as soon as consumer confidence returns,” Chapek said. “But we’re very happy that we’re returning a positive net contribution because that was our goal in the first place while at the same time operating responsibly.”
As of July 20, there hasn’t been any new cases tied to the reopening of Disney World or Universal Orlando. Orange County Health Officer Raul Pino, however, noted that they couldn’t be certain. “It is self-reported. So someone could lie to us about where they were, where they live, or what the situation may be,” Pino said during a July press conference. “So having that in consideration, we haven’t seen any large amounts or numbers of positive cases coming with tags that identify them to any of the parks.”
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