Disney’s Rationale behind Its Park Price Increases
Tickets up nearly 5%
Walt Disney (DIS) decided earlier this year to revise its US (SPY) theme park charges, with prices staying flat at some locations or rising nearly 5% at other locations. However, raising theme park prices has almost become an annual ritual at Disney.
In the recent price adjustment move, the company pushed up its three-tier single-day tickets at the Magic Kingdom to $107, $115, and $124, up from its respective previous prices of $105, $110, and $124. The single-day cost of visiting Disneyland now ranges from $97–$124. The company also pushed up its Walt Disney World annual Platinum Pass from $749 to $779.
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Would price hikes slow theme park traffic?
The Theme Park and Resorts business is Disney’s second-largest operation, contributing ~$17.0 billion to its top line in fiscal 2016.1 The company reported overall revenues of $55.6 billion for the fiscal year, increasing from $52.5 billion in fiscal 2015, as shown in the chart above.
Because theme parks are such an important source of revenues and profits for Disney, could these price increases dissuade customers and put one of the company’s most important operations in jeopardy?
While there is some risk in increasing theme park prices on a frequent basis, Disney seems to be in control of the situation. The entertainment giant is trying to manage traffic to its parks. The upward price review implies that demand is overwhelming in certain seasons and that the company is trying to spread it out.
What justifies the price hikes?
Other than the issue of managing demand, Disney’s theme park price hikes also seem to be an effort to accelerate the recapture the billions of dollars (UUP) the company has invested in its businesses. Incremental park revenues could help the company offset competition from Netflix (NFLX) and Amazon (AMZN) in its television business.
- fiscal year ended September 2016 ↩