Earlier this month Disney announced sparkling results for its latest quarter buoyed by the box office success of Inside Out 2 and Deadpool & Wolverine. However, buried right at the very bottom of the list of key points on its earnings report was the revelation that a dark cloud is hanging over its theme park division.
Disney’s theme parks, cruise lines and consumer products are grouped under into its Experiences segment and over the three months to September 28, 2024 it generated $1.7 billion of operating income on $8.2 billion of revenue. It’s operating income was 5.7% down on the same period the previous year and was also the division’s lowest quarterly result of the past two years.
It was a different story when the world emerged from the pandemic. When lockdown ended, consumers had tremendous pent-up demand to travel and were flush with furlough cash so they could pay a premium in order to visit theme parks. Disney took advantage of this and increased ticket prices whilst scrapping previously free frills at its flagship Walt Disney World theme park complex in Orlando, Florida.
Free buses from the airport to its on-site hotels came to an end along with contactless room keys which came in the form of wristbands. However, perhaps the most transformative change across all of Disney’s theme parks has been scrapping the queue-cutting passes which were previously a complimentary privilege with each entrance ticket. They now come at a cost and, according to a recent data hack, reported by the Wall Street Journal, they generated more than $724 million in pre-tax revenue between October 2021 and June 2024 at Walt Disney World alone.
The price rises combined with the cost cuts was a magic formula for Disney as they increased both revenue and profit. In turn, Disney’s Experiences division accounted for just over a third of its $88.9 billion revenue and more than two thirds of its $12.9 billion operating income in the year to September 30, 2023. Then the clouds began to gather.
Disney declined to comment for this report and it didn’t need to as its filings do the talking.
The first indication that a dark spell had been cast on Disney’s Experiences segment came during its second quarter 2024 earnings call in May. Its chief financial officer Hugh Johnston warned of a softening in theme park attendance due to “a global moderation from peak post‐Covid travel”. In short, the furlough money has been spent and the travelers who wanted to visit theme parks have now done so. That’s just the start as the cost of the tickets has become so high that it is putting off new visitors.
A report by CNBC in September revealed that, according to Wolfe Research, the price of a one-day ticket to Walt Disney World has risen by 56% to $154 over the past decade, outpacing the US national inflation rate by 24 percentage points. It didn’t stop there.
The following month Disney announced that it is introducing higher tiers of queue-cutting passes with the most expensive prices for these so-called Lightning Lane Premier Passes rising up to an extraordinary $478.19 (after tax) per person per day. Around the same time, Disney World’s annual passes rose by as much as $100 to $1,549.
It was a similar story at Disneyland in California where most daily ticket prices increased by about 6% while the top-tier Magic Key pass rose by a whopping 20%. It too far outstripped the rate of inflation and reportedly pushed Disneyland tickets over the $200 mark for the first time. It caused industry experts to question the wisdom of this strategy.
“This price increase couldn’t have come at a worse time when people feel pressured and Disneyland is a option – not a need,” said Jim Shull, a former Disney theme park designer who is one of the world’s leading lights in his field.
His view was reflected in the results of a 2023 survey by price-comparison website LendingTree which found that 60% of people who have never been to a Disney park said that cost was the main reason. Worryingly, the survey also concluded that the average amount of debt that Americans get to visit Disney parks comes to $1,690 and 41% of them regretted taking it out.
Prices of food favorites at Disney World have risen even more than the tickets according to a recent report by financial advice website Financebuzz which found that they have gone up by 61% on average over the past decade.
It has led to furious fans slamming Disney on social media. In March, longtime Disney fan Jake Williams and his partner did just that when they explained that Disney World charged them $886 for one day at the Magic Kingdom as well as a night at the mid-tier Port Orleans hotel and meals in average restaurants.
Given these high prices it is little wonder Johnston said in May that “relative to the post‐Covid highs, things are tending to normalize.” After crunching the numbers, Brandon Nispel of KeyBanc Capital Markets added that Disney’s domestic park business “will be pressured for the rest of 2024” and it was no exaggeration.
Not so long ago Disney’s executives liked to boast that its Experiences division had delivered record profit and revenue for multiple quarters but now those days are gone. Further indication that the fairytale was over came in August when Disney reported that higher guest spending at Disney’s domestic parks and cruise lines, as well as increased spending per-room, drove up Experiences revenue by 2.3% to $8.4 billion. However, it was the lowest tally of the year so far and was a steep decline on the $9.1 billion of revenue that the division generated in the first quarter.
Worse still, the operating profit of Disney’s Experiences division declined by 3.3% to $2.2 billion in the third quarter compared to the same period last year. It was driven by costs climbing at Disney’s domestic parks as well as a lack of attendance growth and this wasn’t a flash in the pan.
During the results announcement, Johnston gave insight into the reasons for the decline at Disney’s domestic parks as he explained that “the lower-income consumer is feeling a little bit of stress. The high-income consumer is traveling internationally a bit more. I think you’re just going to see more of a continuation of those trends in terms of the top line.” He added that “we saw attendance flat in the quarter” with a “flattish revenue number” forecast for the fourth quarter and a slowdown expected for “a few quarters.”
Echoing this, Disney’s third quarter earnings statement added that “the demand moderation we saw in our domestic businesses in Q3 could impact the next few quarters. While we are actively monitoring attendance and guest spending and aggressively managing our cost base, we expect Q4 Experiences segment operating income to decline by mid single digits versus the prior year.”
It was bang on the money as the fourth quarter operating income of its Experiences division declined 5.7%. However, digging deeper into the reason for this revealed an even more concerning development.
Against the odds, revenue from Disney’s domestic parks rose a few percentage points in the fourth quarter compared to the previous year but this was more than offset by a 5% drop from its international parks. The softening of demand that Disney warned of back in May was to blame as its earnings report for the fourth quarter explained that its international parks experienced “lower volumes attributable to declines in attendance.” Despite the opening of a lavish new land themed to Disney’s Zootopia movie, the report noted a decline at “Shanghai Disney Resort driven by lower attendance.” It added that there was a drop at “Disneyland Paris reflecting the impact of the Olympics.”
These drops in attendance contributed to a staggering 32% drop in operating income from Disney’s international parks in the fourth quarter compared to the previous year. The earnings report explained that this was because of “an increase in costs primarily due to new guest offerings and higher depreciation” as well as “lower theme park per capita guest spending.” Given the increase in ticket prices, it’s perhaps no surprise that guests have got less money to spend in the parks and this isn’t just a problem for Disney’s international outposts.
As shown by the graph below, the operating income of Disney’s domestic parks fell by a massive 59.2% to $847 million between the first and fourth quarters of this year.
Although their revenue didn’t drop by as much it still fell 12.3% to $5.5 billion. It could take some time for the magic to come back.
During the fourth quarter earnings call earlier this month Johnston explained that the operating income for first quarter of 2025 will be “negatively impacted” by the two hurricanes which recently hit Florida as well as approximately $90 million of pre-launch costs for its new cruise liner, the Disney Treasure, which was christened in New York last week.
Accordingly, Johnston said that “Q1 will be negative. As we move through the course of the year, we’ll move to positive in Q2 and then see further strengthening over the course of the year.”
The new ship is expected to play a role in this growth and Johnston said that Disney “expect the consumer to gradually strengthen through the course of the year. We also know that the bookings that we have in the back half of the year are positive right now.” As a result of this, Disney forecasts “operating income growth for the Experiences segment to be in the 6% to 8% growth range compared to fiscal 2024.” However, it cautioned that this growth is “weighted to the second half of the year” and added that “high single digit percentage segment operating income growth” is predicted for 2026.
Time will tell whether the macroeconomic situation will enable such distant forecasts to stay on track or whether the dark spell on Disney’s parks will linger even longer.
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