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Will Disney World Play Nice With its Biggest Fans?

By Rick Munarriz - Jul 21, 2020 at 11:07AM

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Annual passholders to the world's busiest theme park are playing third fiddle these days -- and they are not happy about it.

No brand can afford to burn its biggest fans, but that may what Walt Disney (DIS -2.09%) is doing. Both on social media and in mainstream media, the entertainment giant has been taking heavy criticism for reopening its Florida resorts and theme parks earlier this month. The common refrain is that it reopened the four Disney World theme parks there too soon, given that COVID-19 cases, hospitalizations, and deaths have rocketed higher in the state, making it one of the nation's worst hotspots. Since early June, the number of daily new coronavirus diagnoses in Florida has increased by a factor of 10.

Still, the company waited at least a month longer than its local rivals to reopen Disney World. It has checked off a lengthy list of precautions with the goal of making a day of escapism safer than a visit to the supermarket or your local green space. Critics don't seem to care. Disney operates the world's largest theme parks, and that makes it an easy target. In the eyes of many, it should still be keeping guests out of Disney World.

However, a potentially angrier group is upset that they're not getting into Disney World. Annual passholders for the Florida resort are having a harder time than others returning to it. When slots were opened up for the passholder park previews that took place nearly two weeks ago, they were scooped up in a matter of minutes, and many who were eligible weren't even notified.

More grating is that the new park reservations platform now in place to keep crowd sizes in check is favoring resort hotel guests and visitors buying day tickets over the legions of fans who have paid in advance for a year of access. There's no easy fix to the dilemma given the limits to daily visitor capacity that are required in order for Disney World's social distancing goals to be achievable. Sometimes, there's just no pixie dust that can magically make things right.

Cinderella walking back to the Magic Kingdom castle as the sun rises.

Image source: Disney.

The summer of their discontent

Disney World began a phased reopening of its four Florida theme parks on July 11, and it has been allocating reservations across three different groups. Folks staying at one of its on-property hotels have priority in reserving park passes for as many days as they are overnight guests at the resort. Visitors buying one-day or multi-day tickets can square away as many days in advance as they have purchased in the new platform. Then there are annual passholders, who can have just three day's worth of visits booked on the reservation system at a time.

There was naturally some grumbling about the new system among passholders, and the dissatisfaction grew louder after the reservations platform actually went into service. Customers staying at Disney hotels or buying daily admissions have had a lot more access to the parks than annual passholders -- and fans who thought they were at the top of the theme park operator's pecking order have learned otherwise as the slots available to them filled up quickly. 

The financial logic in Disney favoring its infrequent visitors is obvious at a time when cash flow is king. While annual passes aren't cheap -- those that are Disney World-specific run to between $369 to $1,295 -- -- they can, by design, rapidly become a much cheaper way to visit the parks for those who use them with any regularity.

By contrast, one-day tickets can cost as much as $159 per person. A family staying at a resort can spend thousands on lodging for a single week, and that's before factoring in park admission costs. Single-day visitors and resort guests also have historically spent more on food and merchandise per visit than regulars. With Disney limiting the number of people it's letting in through its high-tech turnstiles to reportedly between 20% to 30% of each park's normal capacity, it's easy to see why it's in the company's immediate financial interest to favor overnight guests and one-day visitors. But that doesn't mean passholders have to like the math that underlies Disney World's new normal. 

Disney initially fumbled its handling of the situation. It offered to extend passes by as long as 117 days to make up for the time the parks were closed. Those whose passes were due to expire during the shutdown had them extended by the number of days they had lost during the interruption. The process of getting refunds has also been confusing since those are reportedly being doled out based on usage rather than the actual number of days left on the passes.

Hoping for a fairy tale ending

Disney World recently sweetened the pot a bit by offering those who stick around an extra 30 days on their annual passes. It also made additional slots available to passholders at three of its four theme parks. Last week, it announced that they will also get a healthy 30% discount on merchandise purchases through mid-August. Things could have gone much easier for Disney if it had opened with these moves. 

The company also could've done right by more of its passholders if it had decided not to restart the clock on those annual passes while the restricted reservations system is in place. Under that scenario, it could have instead offered discounted single-day tickets to passholders who want to visit now, which would have helped with the cash flow situation and likely stemmed the flow of refund requests.

These are crazy times, and there was never going to be a perfect pandemic response for Disney to implement at its theme parks. The clock is now running for passholders even though they can't visit different parks in a single day the way they used to. The priciest passes include access to two water parks that are still closed. Right now, this botched response to passholders may not seem to matter much. Disney World parks are operating at a severely restricted capacity on admissions, so drumming up demand is on the back burner. 

But that will change. The company will increase the caps on park attendance, and likely at a faster rate than the broader travel industry will recover. At that point, Disney World will need its locals and its biggest fans, and many of them are fuming. The global and U.S. recessions are likely to get worse from here, which will make things that much more challenging for the House of Mouse. A lot of its passholders can't tap into Disney World's theme parks right now, but they are -- to all intents and purposes -- tapped out. 

Rick Munarriz owns shares of Walt Disney. The Motley Fool owns shares of and recommends Walt Disney and recommends the following options: long January 2021 $60 calls on Walt Disney and short October 2020 $125 calls on Walt Disney. The Motley Fool has a disclosure policy.

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