The Disney Parks remain the Walt Disney Company’s most reliable source of revenue. Due to the overwhelming amount of news this past week, and really this past year, about Disney’s direct-to-consumer division, one would be forgiven for forgetting about the cash printing machines in Anaheim, Orlando, Paris, Hong Kong, Shanghai, and Tokyo. Especially after such a turbulent year with unprecedented division-wide shutdowns and capacity limitations at the parks. But investors have not forgotten and a major Wall Street analyst expects the theme parks will be break records by fiscal 2022 and 2023.
Due to Covid-19 the Disney parks have had to make some major changes to stop the bleeding from closed and restricted parks. The company has initiated major cost-cutting programs to help with the overhead during this down period. We’ve heard about many of them: cancelled expansion projects, scaled back projects, live entertainment being cut, among others. Many of these are temporary, such as a large portion of the cast member layoffs. Most of these positions will need to be filled once the parks can resume to full capacity. But many cuts are likely to stay in some form or another, such as limited fireworks, scaled back live shows, and fully cancelled projects. This means that the parks will be able to run day to day with much less expense for Disney.
This alone would not lead analysts to forecast record revenue, because cost-reduction during a crises is typically roughly equivalent to the reduction in guests due to the crisis. The idea being that if Disney’s parks see a 50% decline in guests due to a national crisis and they cut their expense by 50%, things sort of wash out in the end. Granted the operating income is lower, because less people are at the parks, but the reduction of expenses is equal to the reduction of income. However, this may not be the case in the next couple of years.
Analysts have done their research and they are finding that consumers are eager to get back into the parks. While we see that in continued bookings throughout Walt Disney World, the numbers are still a mere fraction of what they would be in a normal December. But analyst’s reports are indicating huge pent-up demand and a willingness to head back to the parks quickly after vaccines are widely available. This research is leading analysts to forecast a rapid recovery in park attendance, a recovery markedly quicker than post-9/11 and post 2018 financial collapse.
So Disney will have implemented all of these cost cutting measures, which reduce the expense to run these parks, and analysts are forecasting a rapid return to 2019 park attendance by 2022, increasing the money flowing into the company. These two factors are leading many investors, including Wells Fargo analysts Steven Cahall, to predict that 2022 and 2023 will provide record revenue for the Disney Parks division of The Walt Disney Company.
This all seems to logical and fairly reasonable, however, Disney Parks fans will be quick to point out that this gap between park expenses and park revenue will only last so long. Fans expect a certain level of heightened quality from Disney Parks and will only put up with cost-cutting measures for a short time after Covid-19 is put in the rearview mirror. Expansion projects, park maintenance, and improvements will need to return to high levels or the park attendance will suffer post-pandemic. The company will not be able to run the parks like they are during a pandemic, in a post-pandemic world. It might fly for a year or two, but they eventually will need to return to large scale investments.
A final note. As a news site we are often put in a situation where we need to report on the business of the Disney company. This includes discussing costs in a somewhat cold manner. We know full well that Cast Member’s are technically costs, all employees are costs within a company, and we know it can sound rather harsh when we throw around the idea of cutting costs or maintaining cost cuts. We do not mean to imply that Cast Members should be thought of strictly in terms of numbers on an expense report. They are an invaluable part of Disney’s parks and they are what makes the parks the undisputed leader in themed entertainment. We hope that when Disney sits down and looks at which expenses to take on once pandemic relief is occurring, they realize the most important investment the parks can make is in their Cast Members.
Stick with us as we will be reporting on the reopening plans and investor forecasts regarding the Disney Parks here at The DisInsider.