Is Disney Lost in Hawaii?

Hawaii has been good to Disney (NYSE: DIS  ) over the years.

The tropical state of islands served as the backdrop for the blockbuster Lilo & Stitch animated feature, and it inspired Disney's Polynesian Resort -- one of the three marquee Florida hotels on Disney's exclusive monorail track. Hawaii is also where the show Lost was filmed, which Disney milked for six plot-twisting seasons on ABC.

The island giveth, but it also taketh away.

Janney Capital Markets analyst Tony Wible is concerned that Disney's losing its magical touch with a Hawaiian timeshare resort where projected operating costs are spiraling out of control.

Disney's Aulani Resort makes perfect sense as the latest beachfront addition to its Disney Vacation Club, the family leisure giant's upscale fractional travel offering. However, the Orlando Sentinel reported last week that new sales have been halted since last month and that several executives have been fired because the annual dues that they will be charging apparently won't be enough to cover the project's operating costs.

Ouch.

Did mouse-eared bean counters blow it, or is Disney simply trying to move luxury travel at any cost during a very iffy economic climate? Either way, isn't Disney simply shooting the messenger by firing executives who have helped oversee a product that has transformed Disney into a lifestyle travel juggernaut?

Timeshares are no longer seedy, but this is still a difficult industry. Marriott (NYSE: MAR  ) is in the process of spinning off its premium timeshare business, presumably to emphasize the healthier margins in its flagship lodging stronghold.

It isn't easy to tie travelers to long-term travel commitments, even with Interval Leisure Group (Nasdaq: IILG  ) giving buyers an easy way to swap timeshare weeks for getaways at different vacation properties.

On the higher end of the travel spectrum, several destination clubs have gone kaput. The popularity of HomeAway (Nasdaq: AWAY  ) -- a fast-growing alternative to upscale vacation properties where travelers book vacation properties directly from the owners -- also has to be eating at current pace of timeshare sales.

These are the uncertainties that should make Six Flags (NYSE: SIX  ) and Cedar Fair (NYSE: FUN  ) investors feel lucky that the regional amusement park operators have never gone beyond modest adjacent hotels.

As for Disney, "aloha" isn't the only thing that can go both ways when it comes to Hawaii.

This isn't the only budgetary lapse at Disney, which recently shelved its Lone Ranger theatrical production over spirally costs. Stay on top of the latest Disney news -- earning your ears along the way -- by adding Walt Disney to My Watchlist.

Motley Fool newsletter services have recommended buying shares of Walt Disney and HomeAway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.  

Longtime Fool contributor Rick Munarriz can usually be found at Walt Disney World. Not today, though. He does own shares in Disney. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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  • Report this Comment On August 24, 2011, at 10:53 AM, FutureMonkey wrote:

    Brand strength should give Disney and advantage over competitors in this area. There are many adults that grew up Disney and continue to book Disney vacations/cruises even after kids are grown. The target demographic however is very narrow, but the network effect with massive Disney consumer base should allow Disney to harvest this demographic efficiently.

    East Coast residents will still prefer the Florida and Caribean locations. West Coasters are loathe to spend an entire day traveling to Disney's mature destination resorts/cruises, especially those with children. While very familiar with the theme park experience, west coast populations are just developing their familiarity with other Disney vacation products, including the recently introduced Pacific Disney Cruises. As long as they don't stumble on quality or customer service there are plenty of wealthy Seattle, Vancover, and Portland residents that will love to get some winter sun in the Aulani Resort.

    Besides with Disney's diverse revenue streams, as an investor, we can be patient with the new Pacific developments while continuing to rake cash from ESPN.

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