Disney reaching plateau in its hotels' occupancy

[DDLand]

Interesting that Disney has been approached several times over the last 15 years to "spin off" their hotel operations to Wyndhamm and/or Marriott yet they have kept them, against the wishes of Wall Street who like to remind them they are an entertainment org and not a hotelier. They have repeatedly and steadfastly refused to go down that path, even when Starwood (who operate the poorly located Swan and Dolphin) wanted to be involved in more properties within WDW. Aluani has not been a good experience for their financials but a stand alone resort of that caliper is not the same as a property at WDW. DisneyQuest was pretty much an abject failure but they still have arcades on property. Their foray into designing and operating shopping malls outside their amusement parks was laughably bad yet they still are building Disney Springs. They seem to have executives who execute a plan at the parks that works and think they can simply copy that plan outside the parks, hasn't been a very successful pattern. They could easily off load a good deal of the risk of building new hotels by taking in partners but if you notice they aren't even doing that very much with movies anymore presumably because in addition to sharing the risk you also have to share the profits.

Yeah, and you lose control. Central to Disney's strategy is keeping guests on property. If those hotels were spun off they'd have as much loyalty to Disney as Marriott. That's a problem.

 

[DDLand]

It may be a success as a hotel itself but not DVC selling wise. It is consistently winning awards and things but they still have plenty of DVC availability. There was a DC resort planned and one more I believe.

The Saudi prince saved DLP? I think disney saved it themselves since they put the money back into it. The prince only owns like 10%. DLP will be revitalized come 2017.

The point prices are little prohibitively expensive for a none Disney destination. They're selling the entire property hard though.

Precisely, National Harbor.

Wrong crisis. You need to look back to the second great Euro Disney Crisis after WDS opened to understand his role.

 

[JohnDaleswife]

Well we stayed one night at Royal Pacific run by Loews hotels. And I was so much more impressed with them than I have ever been with any Disney hotel. (with the exception of the pool area at the Yacht/Beach Club) Anyone else felt as though Universal's hotels, are superior to Disney?

 

[rteetz]

The point prices are little prohibitively expensive for a none Disney destination. They're selling the entire property hard though.

Precisely, National Harbor.

Wrong crisis. You need to look back to the second great Euro Disney Crisis after WDS opened to understand his role.

Second crisis I thought the resort has been a crisis since it opened.

 

[DDLand]

Second crisis I thought the resort has been a crisis since it opened.

Lol. Yeah, you basically you nailed it. There have been greater crises within the crisis that is Euro Disney SCA.

 

[lockedoutlogic]

Large head counts aren't the problem. The problem presents itself when these employees are underutilized or they are not being efficiently put to work.

No offense...but large head countd are the problem. And have been for wdw operations since animal kingdom.

Not only do they not want to pay them... They honestly can't FIND them.

Who doesn't want a minimum wage-ish job in the sun to serve tourists that - by Disney's current tact - are required to have more money and all the things that go with that?

See...that's just it...not really anyone anymore.
For every "happy, retired" CM they can find...there are probably 4 that are young, or have family/Financial responsibilities that don't want to be put through the grind of the slow, somewhat unintelligent Disney labor meritocracy.

 

[DDLand]

No offense...but large head countd are the problem. And have been for wdw operations since animal kingdom.

Not only do they not want to pay them... They honestly can't FIND them.

Who doesn't want a minimum wage-ish job in the sun to serve tourists that - by Disney's current tact - are required to have more money and all the things that go with that?

See...that's just it...not really anyone anymore.
For every "happy, retired" CM they can find...there are probably 4 that are young, or have family/Financial responsibilities that don't want to be put through the grind of the slow, somewhat unintelligent Disney labor meritocracy.

Disney has proven that they honestly don't care if they put a college student with almost no hospitality training on the job at hotels that are impressively expensive. With that labor standard I feel like they have a large pool to draw from. Does that effect quality when the career employees are a dying breed? Yes, but that's just business.

 

[lockedoutlogic]

You're in my wheelhouse here...

You are correct that they're all just cogs...Disney de-skilled, de specialized their labor - intentionally - about 20 years ago.

But there is a limit to college program.

If you think they can hold the line with 50,000 cps...even at wdw - which I can tell you you'd have to almost sabotage the place to knock it off the tracks...then youre oversimplifying...

It's not that simple.

Are you familiar with what College program is? From a "boots on the ground" perspective?

 

[DDLand]

You're in my wheelhouse here...

You are correct that they're all just cogs...Disney de-skilled, de specialized their labor - intentionally - about 20 years ago.

But there is a limit to college program.

If you think they can hold the line with 50,000 cps...even at wdw - which I can tell you you'd have to almost sabotage the place to knock it off the tracks...then youre oversimplifying...

It's not that simple.

Are you familiar with what College program is? From a "boots on the ground" perspective?

Yep, I'm just saying that they'll pretty shamelessly sell a product for a price similar to that of 5 star hotels with a staff under qualified to do the job. Whether college students or some other group to fill the position, the career guys aren't a priority anymore and they'll just be replaced by someone new. I think where you see desperation for workers I see lack of care and selection. The workforce degradation at Walt Disney World is probably one of the most disturbing things that happened during the 2000's.

Yea, they're a pain. We had the joy of going in September when all the new recruits came in. It was not pretty. For our entire stay it was a series of terrible waiters, awkward staff, and misinformation from CPs. As they go on they do get better, but basically no matter when you go the CP guys don't hold a candle to real CMs.

Apart from crappy guest relations, they also make for awkward employee relations. Disney can try all they want to talk about how much they love CMs even as they're spitting in the face of career people who love what they do. It's insulting...

It's business...

 

[clsteve]

Large head counts aren't the problem. The problem presents itself when these employees are underutilized or they are not being efficiently put to work. The benefit increases are in the shadow of ticket price increases that more then make up for those types of expenditures. Does Disney like the trend? Probably not, but if these employees are driving gains in other areas it should be fine.

DDLand, you're better than the above.

They're the biggest fish in the resource pool that is the Orlando job market. A market they can't expand out of. It's the only pool they have and they aren't paying reloc to fill it unless you're wearing a tie. It's a big deal with an inverse relationship of risk to economic indicators.

Disney's not the only one in the area who benefits from a strengthening economy. Competition increases hourly, salary and benefit pressure. Not to mention future liabilities. You see, benefits aren't just an expense line, they're also a long term liability. Look through the last several years of 10K's at huge amount of proactive (and expensive) work they've done to decrease those liabilities (esp. pension, company-wide).

And I doubt underutilized is an adjective much used right now with their workforce

Disney has proven that they honestly don't care if they put a college student with almost no hospitality training on the job at hotels that are impressively expensive. With that labor standard I feel like they have a large pool to draw from. Does that effect quality when the career employees are a dying breed? Yes, but that's just business.

So you're saying CP's can run a 300 to 1000 room Resort Property?

You're focused on guest-facing smiley's with name tags that have where they're from engraved on them. How about HVAC, Electricians, Plumbers, Security, etc., in a 365 day, 24/7, have to do shift work, environment? Can't outsource all of it. And that's not even getting into the white collar needs.

And that's beyond the requisite uptick in all of the (mostly) centralized acctg, HR, support infra.

You are underselling the complexity and risk inherent in running an always open, never closed, 24 hour, Resort Facility, with pool complexes, food courts, restaurants,exercise rms, etc.,- not to mention the breadth and depth of the skill sets.

 

[lockedoutlogic]

300 to 1000?

You're in the upscale places...

The heavy hitters have 1500-2800

 

[clsteve]

300 to 1000?

You're in the upscale places...

The heavy hitters have 1500-2800

I've one requirement for staying in a heavy hitter that's big like that - green felt tables in the lobby, or maybe red - you know - someplace where you might see Barry Manilow on the big marquis outside, or the 2 guys who play with tigers...

 

[DDLand]

DDLand, you're better than the above.

They're the biggest fish in the resource pool that is the Orlando job market. A market they can't expand out of. It's the only pool they have and they aren't paying reloc to fill it unless you're wearing a tie. It's a big deal with an inverse relationship of risk to economic indicators.

Disney's not the only one in the area who benefits from a strengthening economy. Competition increases hourly, salary and benefit pressure. Not to mention future liabilities. You see, benefits aren't just an expense line, they're also a long term liability. Look through the last several years of 10K's at huge amount of proactive (and expensive) work they've done to decrease those liabilities (esp. pension, company-wide).

And I doubt underutilized is an adjective much used right now with their workforce



So you're saying CP's can run a 300 to 1000 room Resort Property?

You're focused on guest-facing smiley's with name tags that have where they're from engraved on them. How about HVAC, Electricians, Plumbers, Security, etc., in a 365 day, 24/7, have to do shift work, environment? Can't outsource all of it. And that's not even getting into the white collar needs.

And that's beyond the requisite uptick in all of the (mostly) centralized acctg, HR, support infra.

You are underselling the complexity and risk inherent in running an always open, never closed, 24 hour, Resort Facility, with pool complexes, food courts, restaurants,exercise rms, etc.,- not to mention the breadth and depth of the skill sets.

These are two distinct business strategies we've described.

One is for a mature company that is trying to optimize and squeeze out every dollar.

The other is one that is willing to forgo short term efficencies for long term gains and more rapid expansion.

I've looked at some of your pieces talking about your view of which side of the phenomena you see Disney falling on. (Well written and reasoned by the way)

I think TDO has had the mandate over the last years to optimize, cut costs, and increase profits. It's been guilty of exactly what you're saying. However a shift is beginning to occur.

Does a mature Company spend more then a billion dollars bringing in new rides and attractions to a stable theme park? Does a mature company reorient a theme park to compete for time periods that they already have existing properties handling? I feel like Walt Disney World is breaking the historical norm they've set, and preparing to surprise us.

That doesn't mean that they won't continue to cut costs and optimize their work force, but I don't think the labor will stop them. As you pointed out they've been aggressively putting forth contracts that boost short term labor costs but in the long term keep those from expanding in the longterm. It seems like labor is going for it. Big mistake.

As for a completely CP labor force? Heck no! Lol

I wrote above to Logic

Yep, I'm just saying that they'll pretty shamelessly sell a product for a price similar to that of 5 star hotels with a staff under qualified to do the job. Whether college students or some other group to fill the position, the career guys aren't a priority anymore and they'll just be replaced by someone new.

My main point is careers employees are no longer valued and are replaced by those who aren't nearly qualified like the CP's for employees with sometimes decades of experience. This culture is disturbing because instead of treating the employees like the most valuable asset Disney has (which is true) they know they're highly replaceable. Cast members don't have to be really good at what they do to get a job anymore. These low standards make it easier to find labor. Is it up to the Disney Difference? Nope. Hey, at least they can higher anyone off the street.

You can see more about my feelings for CPs and these none career guys above.

The hotels are just one example of Disney not caring about quality of cast in order to cut costs. I feel like the same holds true for retail, ride operators, as well as crowd management.

 

[lockedoutlogic]

I think your mistake here...highlighted above...is that you are applying business principles created in the abstract...which normally is an academic approach I would share...

But as clsteve has shown numerous times...this is not an abstract subject.

It is wdw and central Florida. That is a very "known beast" to many...most definitely to the Walt Disney company and the Orlando metro area.
They can't "choose their strategy" with much freedom...they must work within the confines of the situation that has unfolded since a sleepy, swampy morning in 1964.

And labor is a big part of that. They are locked into a pool that they were about 75% - maybe higher - the cause of creating.

Florida, Orlando, wdw are all married. And there's no divorce.

If you understand the animal...outsourcing, leasing, reduction of labor is really the only play that makes sense...honestly.

 

[DDLand]

I think your mistake here...highlighted above...is that you are applying business principles created in the abstract...which normally is an academic approach I would share...

But as clsteve has shown numerous times...this is not an abstract subject.

It is wdw and central Florida. That is a very "known beast" to many...most definitely to the Walt Disney company and the Orlando metro area.
They can't "choose their strategy" with much freedom...they must work within the confines of the situation that has unfolded since a sleepy, swampy morning in 1964.

And labor is a big part of that. They are locked into a pool that they were about 75% - maybe higher - the cause of creating.

Florida, Orlando, wdw are all married. And there's no divorce.

If you understand the animal...outsourcing, leasing, reduction of labor is really the only play that makes sense...honestly.

You're right about business theories having to be checked on local basis. I'll readily say I'm not much of an expert on the Orlando area never having lived there. Unemployment is actually pretty low (though the labor force doesn't have full participation from eligible population) which would back up what you two are saying. I seem to be off base with recruiting... Interesting.

 

[clsteve]

Florida, Orlando, wdw are all married. And there's no divorce.

If you understand the animal...outsourcing, leasing, reduction of labor is really the only play that makes sense...honestly.

You're right about business theories having to be checked on local basis. I'll readily say I'm not much of an expert on the Orlando area never having lived there. Unemployment is actually pretty low (though the labor force doesn't have full participation from eligible population) which would back up what you two are saying. I seem to be off base with recruiting... Interesting.

It's why everything new is starting to come with a price tag of no net increase in what's behind the curtain.

We'll continue to see the heavy outsourcing of IT, acctg, etc. - any skill set that doesn't have to physically be present in Orlando. Along with all of those major headcount cutting initiatives like NextGen and direct-to-room. DVC conversion also has the side benefit of long term staff reduction (no daily mousekeeping, laundry svce, etc.).

Gotta cut headcount before you add headcount.

DHS - gotta close things before you build new things.

Heck, even Avatar and the upcoming night time thing are as much about optimizing a currently underutilized headcount asset and asset norming across Parks in the evenings since the Park can be a ghost town late afternoons to evening....

I'm willing to go all in that, once Avatar and whatever they're doing in DHS come to fruition, Disney Springs is open, Poly DVC's are sold......not only will the WDW headcount remain flat - it might be less than it's current number......

 

[JZCubed]

I believe the initial Thread and reply post that suggested we have been wrong about Magic Bands.

Even with all the hotels rooms that were built - Disney is near full.

FP+ is maximized for those people staying on-site at Disney. Fewer people will stay off-site.

Magic Bands & corresponding FP+ will drive hotels to capacity increased profits.

But ya' can't keep building more hotel rooms without more floor space and Attractions. FantasyLand in MK, along with AvatarLand and other AK changes, and Anna & Elsa in Epcot's Norway are a start.....as we anxiously await Hollywood Studio news following the demolition of the Sorcerer's Hat.

 

[rteetz]

I believe the initial Thread and reply post that suggested we have been wrong about Magic Bands.

Even with all the hotels rooms that were built - Disney is near full.

FP+ is maximized for those people staying on-site at Disney. Fewer people will stay off-site.

Magic Bands & corresponding FP+ will drive hotels to capacity increased profits.

But ya' can't keep building more hotel rooms without more floor space and Attractions. FantasyLand in MK, along with AvatarLand and other AK changes, and Anna & Elsa in Epcot's Norway are a start.....as we anxiously await Hollywood Studio news following the demolition of the Sorcerer's Hat.

Frozen in Norway didn't add anything it's replacing something that closed. DHS has had numerous things close as well. So they aren't really adding floor space. That is what they should be doing tho.

 

[BigTigger]

It almost hurt to read the almost two pages of dialogue on staffing.

Disney is falling down the same rat hole on employees versus contract/outsource labor, reducing touch points to save a few bucks, removing the "family" aspect of having career employees that really care about the place, etc. as they have fallen down on chasing the bottom line for Wall St. at the expense of the brand.

Disney has a 1% problem not a 99% problem. They pay a very few number of officers, directors, and senior managers way too much compensation. They have cut benefits, pensions, and more within the 99% part of the employee pool. Disney still has one of the longest tenured employee groups of any large, public company. They will need that expertise as the boomers retire and they are removing that cushion now in order to add a few cents to the bottom line. A lot of companies have large retiree pension and medical obligation on the books. One of the ways to get through that bump is to have more people to absorb the bump and fund it, not to have less. Doesn't matter if you're a macro or micro economic type, both systems favor pyramid organizations and strong people asset growth as the best ways to grow a business.

Orlando has been mentioned many times as a curse to Disney in this thread. CA is more of a curse thanks to the rights and benefits for employees legislated in the People's Republic. Orlando is a low wage area with a reasonably educated workforce. This isn't 1965 Orlando with nary an instution of public higher education in sight. UCF, USF, and the state college system pump out plenty of educated grads into the market. Unlike CA, the northeast, or Chicago, you can live on $12-$14 an hour in Orlando. Maybe not like a Kardashian, but you can share an apartment and live OK out of school. Disney can't outsource technical and accounting jobs for $12-$14 an hour. The going rate is in the high $20's per hour with large offshore providers like Accenture, Wipro, Tata, etc. Call centers in the Phillipines cost in the low $20's per hour now. Sure they get no benefits, but when you add in the costs to manage a remote work force and integrate them into the company operations, those $40 to $60K per year outsourced jobs cost another $10-$20K a year to manage and that is the low estimate for companies with mature outsourcing operations. Disney is not mature in outsourcing yet as they still cling to keeping some roles in-house.

Part of what makes Disney a respected brand is the people, the overall experience in the parks and the resort hotels, and the perception of value - be it a unique and wow type experience or a depth of delivery of the experience that makes you want to see it again and again. Moving to a thinner, veneer type experience will dilute that brand and once the brand is perceived as not being as valuable, it will be tough to get it back. The entertainment world is littered with stories of once great companies that lost their way and no longer exist. I hope Disney can find leadership that can keep the value of the brand and find new and enlightened ways to deliver it.

 

[Josh Hendy]

Thanks, BigTig, great post.