Disney might have solved 2 problems in 1 move
Walt disney (NYSE: DIS) has welcomed more and more guests to its theme parks after the coronavirus pandemic forced the company to temporarily close doors to visitors at various times over the past 18 months. These closures have cost the company billions in lost revenue.
As it tries to pull itself together financially, Disney is testing a new feature in its theme park in Paris. The company allows customers to purchase premium access passes that would allow them to skip the lines altogether. People can buy premium access to a ride they want to take at a specific time slot without waiting in the long queue. The move has the potential to solve two problems simultaneously.
Image source: Getty images.
1. Increase income to pre-pandemic levels
Priced between 8 and 15 euros per trip per guest, the skip-the-line pass could significantly increase the park’s revenue. It’s similar to the free Fast Pass feature that was available at Disney Parks before the pandemic, but it’s more convenient in that the paid version lets the user choose any time slot they want. People who use it regularly could easily spend more on Premier passes than on the price of admission. And excluding the cost of the technology to develop the capacity, the revenue from these passes will fall almost entirely into the bottom line.
If the program is successful in Paris, Disney could extend the functionality to the rest of its theme parks. This could play an important role in returning income to pre-pandemic levels. In fiscal 2020 alone, the segment which includes theme parks, experiences and products recorded a 37% decrease in revenue compared to the previous year.
The loss in revenue led to a sharp decline in segment operating income, from $ 6.7 billion in 2019 to a loss of $ 81 million in 2020.
2. Reduce complaints of long wait times
One of the most common complaints from guests visiting a Disney theme park is the long wait time to see attractions. Before the pandemic, it was getting harder and harder to find a time of day or day of the year when Disney theme parks weren’t filled to capacity. It was common to wait over an hour to access the most popular rides.
By offering a premium pass that allows customers to skip the lines altogether, Disney can reduce complaints of long wait times. If the program works as intended, customers who really want to experience an attraction without queuing can pay for the privilege (some restrictions still apply). This can serve as accountability for frustrated customers, who can now pay to improve their experience.
Not without risks
However, the move is not without risk. This could alienate repeat customers who are unwilling or unable to pay for premium access and may have to wait longer for rides. Or the demand can be so high for premium passes on some rides that not everyone who wants to buy one can. This may improve the experience for a few guests but make it worse for others and doesn’t really solve the overall problem.
It is therefore prudent for management to test the functionality in only one of its theme parks before rolling it out to the others. Hopefully this can resolve any issues that arise and determine whether the net effects of the feature are worth deploying.
The company continues its momentum, trying to maximize customer spending at theme parks. Experimenting with entry prices, annual passes, and features like premium passes will go a long way towards achieving the goal. Investors can rest assured that the parks will likely attract visitors for decades to come.
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Parkev Tatevosian owns shares in Walt Disney. The Motley Fool owns shares and recommends Walt Disney. The Motley Fool has a disclosure policy.
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