Disney Resorts Occupancy Rates

[tjkraz]

Saw this article on Disney World's summertime performance:

http://www.fool.com/investing/2016/...er-an-2.aspx?source=isesitlnk0000001&mrr=0.50

Towards the end of the article, they mention occupancy rate at one the Epcot resorts was at 69% during a holiday weekend, while DVC bookings were north of 95%. What do you read into this?

High DVC occupancy should not be surprising. DVC sells 98% ownership in each resort so technically--if everyone is using their points with no banking or borrowing--every single resort should consistently be at 98% occupancy.

Periods of low Deluxe occupancy are not surprising, either. Via DVC, Disney has been selling discounted deluxe accommodations for 25 years now. Many guests have traded cash resort stays for DVC. And renting points becomes more mainstream with non-owners every passing day.

The Epcot resorts are convention destinations and Disney gets a lot of business from that. Biggest takeaway from one specific period of low occupancy is they probably didn't have a full slate of convention bookings. Disney still needs rooms for the majority of the year when they host groups.

Forgive my ignorance how does converting cash rooms to DVC units make Disney money? Apart from the initial cash injection as points are sold how do they make money moving forward? Wouldn't cash rack rate be a better money spinner?

In a vacuum, 50 years of revenue on a single hotel room is far greater than the DVC proceeds from selling that same room as a timeshare.

But that's assuming the hotel room is always occupied, which isn't the case. Nor are the guests always paying full rack rate. The first major conversion was Animal Kingdom Lodge. With (originally) 1500+ hotel rooms, occupancy was always an issue. Giving a portion of those rooms to DVC actually solved a problem for Disney; previously they either had rooms sitting empty or resorted to deep discounts to fill. Same appears to be the case with Wilderness Lodge.

Polynesian seemed to always have strong demand but reducing the number of hotel rooms emboldens Disney to charge higher rates. With similar demand, you charge even more for the remaining 600 rooms than when you have to fill 900 rooms.

Hotel rooms are also more costly to operate. Disney has to pay for more frequent refurbishment. Daily housekeeping. Advertising / promotional costs associated with filling the rooms. With DVC, Disney effectively washes its hands of all operating expenses, refurb costs and even property taxes.

 

[Disney Dad ADL]

Forgive my ignorance how does converting cash rooms to DVC units make Disney money? Apart from the initial cash injection as points are sold how do they make money moving forward? Wouldn't cash rack rate be a better money spinner?

I'm not a economist by any means, but there several reasons why Disney might prefer DVC over cash rooms.

1. As noted in the OP, DVC occupancy rates were > 95% vs hotel occupancy rates at 68%, you could charge less for DVC compared to hotel and still come out ahead.
2. DVC has lower overhead costs (less housekeeping, etc.), and the DVC owners pay for them anyway with their annual dues
3. Getting a lot of cash upfront is better for companies rather than getting money over time (which is why large companies often issue bonds). They can use the capital for investments or to use to upgrade the parks or resorts or whatever.
4. Even if the expected income is less for DVC vs hotel (though I'm not sure that it is), some companies may find that acceptable because it is more predictable income.
Edit: 5. DVC owners are basically locked into Disney vacations for 50 years, and they will be spending money on food, park tickets, merchandise, etc. You don't know if the someone who stays at WDW this year will necessarily come back next year.

You are right, though, that after the initial cash injection, they don't make much money (though it's a very large initial cash injection, billions of dollars). They do make money by buying contracts at lower prices and selling them for full price, and from money that DVC members spend during their vacations. But mainly they make money by building new DVC resorts and selling them. Also, starting in 2042, DVC contracts will start to expire, so they get all of those points back for free.

Thanks for your great explanation and information. How would I keep an eye on those cash res. you mention??
We've already decided to forgo the Not So Scary event(s) this year, but will think about planning ahead for next year.

Thanks

If you go to the Disneyworld website and try to book a room at SSR (or whatever other resort you're interested in), it will give a price if it's available, otherwise it will say "not available" or something similar.

Drilling down into your post...



So does that mean that WDW DVC resorts on any given night, on average, have 98% occupancy rates???
If so, the mouse will be making money on dining and souvenirs if not making profit on room rentals...

In theory, yes. As in the OP, DVC occupancy rate was > 95% for that particular time period.

Points can be removed from the system in the following ways:
1. Members allow their points to expire
2. Using points to book cruises or reservations at non-DVC Disney Hotels
3. Using points to exchange into RCI (it's a timeshare exchange)

But a vast majority of DVC points are used to book DVC rooms.

 

[_auroraborealis_]

Also, keep in mind that DVC rooms at deluxe resorts (VGF, Poly, CR, etc.) help pay for those resorts' amenities on a percentage basis, so by having a high occupancy rate plus the member fees, it supports the profit margins for the resort as a whole.

 

[Paula Sedley-Burke]

Thank you to everyone on your great explanations as to why Disney enjoy DVC conversions with hotels getting lower occupany rates. I notice that the dedicated DVC resorts like SSR and OKW DVC sell rooms at rack rate. Doimg the reverse of this. I don't know if that is revenue for Disney hotels or DVC. Interesting, but the more rooms occupied the better.

 

[tjkraz]

I notice that the dedicated DVC resorts like SSR and OKW DVC sell rooms at rack rate. Doimg the reverse of this. I don't know if that is revenue for Disney hotels or DVC.

Both groups benefit. It depends upon the origin of the specific room. In some cases, villas are made available to cash guests to facilitate those who have traded their points for a non-DVC destination (Disney cruise, non-DVC hotel stay, etc.) In that case, revenue from the cash guest is designed to offset the cost of the trade destination.

At resorts with unsold points (Poly and Aulani most commonly at this time), Disney still owns a significant portion of the timeshare rooms. So any monies from renting those to the general public is Disney's to keep.

In situations where DVC villas are left empty simply because there isn't enough demand from members wishing to use their points, proceeds from those transactions are returned to DVC members via a created on our annual dues (see "breakage.")

And this isn't just limited to SSR and OKW. It is very common to find cash availability at pretty much all of the DVC properties.

 

[Brian Noble]

Forgive my ignorance how does converting cash rooms to DVC units make Disney money? Apart from the initial cash injection as points are sold how do they make money moving forward? Wouldn't cash rack rate be a better money spinner?

Other people have chimed in on this, but I think the #1 reason Disney converted cash rooms to DVC was as a hedge against future travel demand uncertainty. And, I think the crash in travel demand post 9/11 was the precipitating event. Since that time, Disney has not started construction on a single cash room. True, AoA got underway in 2010, but that was after they had already laid the infrastructure for the resort and abandoned construction on the Legendary Years side of POP, so I'm not sure it counts as a "post 9/11" resort. During the same time, DVC has grown explosively, including moving cash rooms out of inventory. Furthermore, Disney has de-annexed land from RCID and sold/leased it to third-party operators: the Four Seasons on the east side, and Flamingo Crossings on the west.

Now, 9/11 is a black swan event, and it seems odd for a company to make capital allocations expecting another. But, there are other ways in which travel demand can falter. For example, there was reportedly a study done to see how high oil prices would have to get before Orlando became an unprofitable destination. The answer: something between $160 and $200 in 2007 dollars. So, by largely monetizing a resort within the first few years after construction, the future doesn't really matter as much---Disney has already recouped its profits on the resort investment. Timeshare owners are also more resilient to economic headwinds, because the room is "already paid for" so they are more likely to still visit even when things get tough. True, they might spend less while there, but at least they are there spending *something* vs. not coming at all.

 

[SpaceMountain77]

Haven't seen very many TV commercials to boost attendance.

Bill

Another site reported that Disney Parks pulled much of its summer marketing because of the alligator attack and nightclub incident.

 

[KAT4DISNEY]

Another site reported that Disney Parks pulled much of its summer marketing because of the alligator attack and nightclub incident.

I'm not really question that they did, but it would seem a bit contrary to the business need, at least assuming there have been vacation cancellations due to those incidents. You don't advertise if you're full. You advertise if you want to bring people in.

 

[Paula Sedley-Burke]

Other people have chimed in on this, but I think the #1 reason Disney converted cash rooms to DVC was as a hedge against future travel demand uncertainty. And, I think the crash in travel demand post 9/11 was the precipitating event. Since that time, Disney has not started construction on a single cash room. True, AoA got underway in 2010, but that was after they had already laid the infrastructure for the resort and abandoned construction on the Legendary Years side of POP, so I'm not sure it counts as a "post 9/11" resort. During the same time, DVC has grown explosively, including moving cash rooms out of inventory. Furthermore, Disney has de-annexed land from RCID and sold/leased it to third-party operators: the Four Seasons on the east side, and Flamingo Crossings on the west.

Now, 9/11 is a black swan event, and it seems odd for a company to make capital allocations expecting another. But, there are other ways in which travel demand can falter. For example, there was reportedly a study done to see how high oil prices would have to get before Orlando became an unprofitable destination. The answer: something between $160 and $200 in 2007 dollars. So, by largely monetizing a resort within the first few years after construction, the future doesn't really matter as much---Disney has already recouped its profits on the resort investment. Timeshare owners are also more resilient to economic headwinds, because the room is "already paid for" so they are more likely to still visit even when things get tough. True, they might spend less while there, but at least they are there spending *something* vs. not coming at all.

Thank you. Very helpful and useful. In the UK we say more bottoms on seats the better. I am thinking along those lines.

 

[DougEMG]

For example, there was reportedly a study done to see how high oil prices would have to get before Orlando became an unprofitable destination. The answer: something between $160 and $200 in 2007 dollars.

Being from the west coast and having to fly to WDW, wondering what the potential future cost of air travel to Orlando would be was definitely a consideration when we bought. I've now hedged my risk of being priced out of flying by buying oil stocks!

 

[Brian Noble]

It's worth noting that hydraulic fracturing changed the economics of oil extraction significantly, putting off that particular "Disney doomsday" scenario for at least a little while. However, the current OPEC strategy of dumping oil onto the market to bankrupt higher-cost providers in Russia, the US, and elsewhere may change that balance.

 

[_auroraborealis_]

I'm not really question that they did, but it would seem a bit contrary to the business need, at least assuming there have been vacation cancellations due to those incidents. You don't advertise if you're full. You advertise if you want to bring people in.

Almost all of the network advertising I saw for Disney World featured the Grand Floridian, though. So it may also be a problem with creative -- you need different spots to run, if you're going to run the ads, if you're stepping quietly in the wake of an incident.