Crowds have been descending on Disney's (DIS 0.70%) two domestic theme parks in what seem to be record numbers so far this young year, but with coronavirus fears intensifying, it's hard to fathom attendance levels holding up in the coming months. With all three Disney resorts in Asia currently closed in an effort to contain the spread of the virus, one has to wonder if a similar fate awaits Disneyland in California and Disney World in Florida.
The first two presumptive positive cases of COVID-19 in the state of Florida were announced on Sunday, and a steady trickle of instances has already been confirmed in California. It's not outlandish to think that we could eventually bump up against the world's leading theme park operator temporarily closing down its iconic theme parks on both coasts. Even if Disney doesn't resort to locking down its entrance turnstiles, the growing number of worrisome headlines will eventually weigh on travel plans. Disney World and Disneyland are suddenly vulnerable, and investors have every right to be worried.
Calling in sick
Disney's resort in Japan closed over the weekend. It's expected to remain shuttered through at least the next two weeks. Disneyland resorts in Hong Kong and Shanghai have remain closed since late January, with Disney expecting to take a $175 million charge during the current quarter just for the disruptions in China.
Disney only has a minority stake in its Hong Kong and Shanghai resorts; it merely collects licensing royalties from Tokyo Disney. The decision to close down the three resorts wasn't Disney's sole call to make, but it will be an issue in the U.S., where the media giant has full ownership of its gated attractions.
Disneyland and Disney World have closed their parks for brief moments in the past. Hurricanes in Florida and 9/11 have resulted in closures, but those outages have rarely extended beyond a day or two. Closing down one or both resorts to control the spread of coronavirus would likely span weeks if not months. Disney's theme parks segment has never had to face the level of forgone revenue and refunds it would face with this potential interruption, and building back momentum after a prolonged break will be just as challenging.
All eyes will be on Disney now. The Magic Kingdom at Disney World is the world's most-visited theme park. It's the only premium gated attraction on the planet that attracts more than 20 million visitors a year. Tourism is the reason coronavirus has spread so quickly outside of Wuhan, where it originated, and Disney parks are melting pots of worldwide leisure seekers. Disney is going to have a very big decision to make, and potentially soon.
There is never a good time for what would be a historic closure of its well-traveled theme parks, but the timing couldn't be worse for Disney. With the surprising resignation of Bob Iger as CEO last week, this leaves Bob Chapek as the freshly minted helmsman with a huge test out of the gate. Close the parks too soon, and the financial ramifications will ripple for several quarters. Close the parks too late, and Disney will be a head-shaking case study for putting money over safety. Investing in stocks is always going to have its fair share of risks, but right now, there's a lot riding on a single decision by Disney's brand-new CEO.