Why Disney Resort's Ridiculous Price Increase Makes Sense

Managing crowds isn’t the world’s largest theme park operator’s only angle.

Nicholas Rossolillo
Nicholas Rossolillo
Jan 12, 2019 at 12:03PM
Consumer Goods

Check out the latest Disney earnings call transcript.

In what's becoming an annual ritual, Disney (NYSE:DIS) just announced price increases for passes and parking at its California parks. A day pass will now cost as much as $149 and parking $25, a 10% and 25% increase, respectively.

With higher cost inevitably comes consumer outcry, and this round is no different. However, that hasn't deterred vacationers in the past. Disney enacted a similar increase in early 2018, but attendance was still up 4% on the year. The result was a 10% increase in parks and resorts revenues, and an 18% increase in that segment's operating income.

As unpalatable as inflation may be to consumers, Disney fans find a way to get into the Magic Kingdom no matter the cost. Paired with the recent move, if the crowds keep getting larger, Disney could be in for another record year in 2019 at its resorts. More than a simple cash grab, though, there are good reasons for Disney to raise its entrance fees.

Crowd control

Anyone who has braved a Disney park on a holiday or peak-season weekend can attest to the crowded lines and long waits for attractions. Overcrowding is bad for business. It could reduce visitor spending in-park, it raises operating costs on the busiest days, and it could lower the chances for a repeat visit.

Disney's price increases are an attempt to even things out. While peak-season and weekend pricing for tickets increased 10%, the cheapest single-day passes -- those that fall on non-holiday weekdays -- went up only 7%. That's a trend the company has been sticking with the past few years.

In addition, the theme parks have been rolling out date-based ticket purchases the past few years. Visitors can use an interactive calendar on Disney's resort websites to plan their vacation around the most cost-effective days. While planning trips around holidays and weekends might be the easiest for many, a simple nudge from the calendar tool might persuade some to arrange their trip on an off day and help even out the mass of humanity.

A bigger payday for employees

Over the summer and fall of 2018, Disney settled wage negotiations with its employees. For the California resorts, the new minimum wage jumped to $15 an hour on Jan. 1, compared with the state minimum wage of $12 an hour for big businesses. In Florida, Disney will shell out a dollar a year until it reaches $15 an hour in 2021, with the minimum jumping to $13 this coming September. That compares with Florida's minimum wage of just $8.46.

Wage increases can be a big drag on corporate profitability and cause investor angst. Striking a balance between taking care of employees and shareholders is a tall order, and Disney's payroll jump is sure to have an effect on the bottom line. Nevertheless, asking guests at the parks to foot the bill should help mitigate the problem. While no one is going to get rich on $15 an hour, pricier tickets mean employees get a much-needed cost-of-living boost, and investors won't feel as big an impact on profits.

An artist's illustration of the new Star Wars ride Smugglers Run at Star Wars Galaxy's Edge, which opens at Disneyland in summer 2019.

Disney will open Star Wars: Galaxy's Edge at Disneyland and Disney World in 2019. Image source: Disney.

Intellectual-property mania

Disney owns some of the most recognizable entertainment brands out there. Besides classic Disney characters, there's Pixar, the Marvel superhero universe, and Star Wars. Plus, once the acquisition of 21st Century Fox (NASDAQ:FOXA)(NASDAQ:FOX) is complete, Disney gets another chunk of the Marvel universe -- including the X-Men series -- as well as other Fox franchises such as Avatar. The company's parks have been adding themed attractions and costumed characters in recent years as they gain popularity at theaters, but 2019 could be one of the biggest new introductions to date.

That's because the new Star Wars: Galaxy's Edge expansions open in California and Florida later in the year. That in itself could clog up Disneyland and Disney World over the summer and fall months, but add to it the fact that the final installment in the Skywalker family story closes with the still-untitled Star Wars: Episode 9 in December? It could add up to an especially busy year for Disney park attendance.

I mentioned at the outset that the ticket increases weren't as much a cash grab as they were management of a busy schedule, but upping the cost ahead of a major new opening might actually be opportunistic on Disney's part. And why not? If cost is truly based on demand, and demand to get into Disney resorts is running high, too low a price tag could exacerbate the "too busy" problem. Thus, with long lines likely and higher pricing here, it looks as if Disney parks are set to have a big year.