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By Jason Garcia
Sentinel Staff Writer
July 24, 2009
The Walt Disney Co. has managed to keep its theme parks filled so far this year with a series of deep discounts that have helped lure travelers despite the global recession.
The question now, company watchers say, is how long will Disney have to continue using promotions to prop up attendance?
The booking window for Disney's current marquee offer free dining for guests who book five-night Walt Disney World vacations for travel from late August until Oct. 3 is set to expire this weekend. But Disney recently began contacting some customers with offers of free dining for travel as late as mid-December, prompting speculation that the resort is about to formally extend the promotion or replace it with a new offer.
With the battered economy showing few signs of an imminent rebound, some analysts say Disney has little choice but to continue discounting if it wants to keep its theme-park turnstiles clicking.
"Without an economic recovery in sight, we believe Disney cannot afford to let demand fall in the December quarter," Richard Greenfield, a stock analyst who covers Disney for Pali Capital, wrote earlier this month on the firm's research blog.
By continuing widespread discounts, however, Disney would be wielding a doubled-edged sword.
Further promotions would likely help Disney World and Disneyland in Anaheim, Calif., continue the resilience they have shown during the recession. Attendance at the parks has remained relatively flat with last year's levels, while rival operators such as NBC Universal have suffered double-digit percentage declines.
Disney executives have made sustaining attendance at their theme parks a top priority during the downturn, noting that the parks both depend on strong word of mouth from satisfied tourists to fuel future visits and serve as important brand builders for properties ranging from Toy Story to Tinker Bell.
But analysts say the longer the Disney parks use discounts to drive traffic, the greater the risk that the parks are simply cannibalizing future business. Promotions can wind up persuading vacationers who were planning to take trips later to travel immediately instead, leaving a hole in future demand.
That is one reason why everyone from company investors to tourism promoters will be listening closely for clues about future booking patterns when Disney reports its third-quarter earnings next week.
"Forward-booking insight will help investors determine whether demand has been 'pulled forward' or if Disney has balanced pricing and demand," Michael Morris, a media analyst for UBS Securities, wrote in a July 17 research note.
Morris thinks that attendance at Disney World where many current tourists are still benefiting from the seven-nights-for-the-price-of-four hotel package Disney offered earlier this year actually inched up 1 percent during the March-through-June period, which is the third quarter of Disney's fiscal year. But he predicts attendance will fall by 5percent from July through September, Disney's fiscal fourth quarter.
Another risk of lingering discounts is that tourists could come to expect a certain level of bargain in the future. Greenfield, of Pali Capital, said he thinks fear is partly why Disney is more likely to extend the free-dining promotion rather than bring back the seven-for-four hotel deal, even though Greenfield said he thinks the hotel offer "stimulated far more demand" than the free-dining packages.
"We suspect Disney is fearful of maintaining a promo for too long, as it will be hard to remove the discounting in the future if consumers come to expect a certain promotion," Greenfield wrote.
Disney executives say they have been mindful of the long-term effect of promotions. At a conference last month, Disney Co. Chief Financial Officer Tom Staggs said the management of Disney's Parks and Resorts division "is being very thoughtful and deliberate about the type of offer they put in the marketplace."
He pointed out that Disney has offered both the seven-for-four and free-dining packages in the past, though not necessarily for as long as they have this year.
"I think that our ability to price it appropriately from where the marketplace is will continue," Staggs said. "And by that I mean, as we see recovery, I think that we will have the opportunity to be less aggressive on promotions, when that point comes."
Sentinel Staff Writer
July 24, 2009
The Walt Disney Co. has managed to keep its theme parks filled so far this year with a series of deep discounts that have helped lure travelers despite the global recession.
The question now, company watchers say, is how long will Disney have to continue using promotions to prop up attendance?
The booking window for Disney's current marquee offer free dining for guests who book five-night Walt Disney World vacations for travel from late August until Oct. 3 is set to expire this weekend. But Disney recently began contacting some customers with offers of free dining for travel as late as mid-December, prompting speculation that the resort is about to formally extend the promotion or replace it with a new offer.
With the battered economy showing few signs of an imminent rebound, some analysts say Disney has little choice but to continue discounting if it wants to keep its theme-park turnstiles clicking.
"Without an economic recovery in sight, we believe Disney cannot afford to let demand fall in the December quarter," Richard Greenfield, a stock analyst who covers Disney for Pali Capital, wrote earlier this month on the firm's research blog.
By continuing widespread discounts, however, Disney would be wielding a doubled-edged sword.
Further promotions would likely help Disney World and Disneyland in Anaheim, Calif., continue the resilience they have shown during the recession. Attendance at the parks has remained relatively flat with last year's levels, while rival operators such as NBC Universal have suffered double-digit percentage declines.
Disney executives have made sustaining attendance at their theme parks a top priority during the downturn, noting that the parks both depend on strong word of mouth from satisfied tourists to fuel future visits and serve as important brand builders for properties ranging from Toy Story to Tinker Bell.
But analysts say the longer the Disney parks use discounts to drive traffic, the greater the risk that the parks are simply cannibalizing future business. Promotions can wind up persuading vacationers who were planning to take trips later to travel immediately instead, leaving a hole in future demand.
That is one reason why everyone from company investors to tourism promoters will be listening closely for clues about future booking patterns when Disney reports its third-quarter earnings next week.
"Forward-booking insight will help investors determine whether demand has been 'pulled forward' or if Disney has balanced pricing and demand," Michael Morris, a media analyst for UBS Securities, wrote in a July 17 research note.
Morris thinks that attendance at Disney World where many current tourists are still benefiting from the seven-nights-for-the-price-of-four hotel package Disney offered earlier this year actually inched up 1 percent during the March-through-June period, which is the third quarter of Disney's fiscal year. But he predicts attendance will fall by 5percent from July through September, Disney's fiscal fourth quarter.
Another risk of lingering discounts is that tourists could come to expect a certain level of bargain in the future. Greenfield, of Pali Capital, said he thinks fear is partly why Disney is more likely to extend the free-dining promotion rather than bring back the seven-for-four hotel deal, even though Greenfield said he thinks the hotel offer "stimulated far more demand" than the free-dining packages.
"We suspect Disney is fearful of maintaining a promo for too long, as it will be hard to remove the discounting in the future if consumers come to expect a certain promotion," Greenfield wrote.
Disney executives say they have been mindful of the long-term effect of promotions. At a conference last month, Disney Co. Chief Financial Officer Tom Staggs said the management of Disney's Parks and Resorts division "is being very thoughtful and deliberate about the type of offer they put in the marketplace."
He pointed out that Disney has offered both the seven-for-four and free-dining packages in the past, though not necessarily for as long as they have this year.
"I think that our ability to price it appropriately from where the marketplace is will continue," Staggs said. "And by that I mean, as we see recovery, I think that we will have the opportunity to be less aggressive on promotions, when that point comes."
