After a long and grueling hiatus, Walt Disney's (DIS 3.30%) California theme parks will be reopening on April 30. Disney closed the turnstiles in March of last year in response to the outbreak of COVID-19. California has been one of the hardest-hit states throughout the pandemic, and consequently has put in place some of the strictest business restrictions in all the United States.
The House of Mouse has been lobbying the state for the right to reopen. Pointing to the successful and safe reopening of its parks in Florida, it argued it could follow the same protocols for its parks in California. Fortunately for shareholders and fans, the parks will be opening their doors at the end of the month. Pent-up demand from Californians who have been cooped up indoors for almost a year could make tickets for admission a hot commodity.
Disney theme park tickets are likely to be sold out
Interestingly, even though its theme parks have been closed in California, Disney's downtown district was allowed to reopen several months ago. The sprawling shopping and dining area has experienced incredible demand. The few times I took my family to visit, we had to wait over 90 minutes to gain entry.
Moreover, Disney introduced "A Touch of Magic," an exclusive shopping and dining experience inside its California Adventure park that cost $75 per person; tickets sold out within hours. Such is the pent-up demand in the region for visiting Disney's properties. It's a testament to the faith in Disney to provide a safe environment that demand is so far outstripping availability.
When Disney's California parks reopen on April 30, they will likely be restricted to allowing guests only up to 25% of capacity. Given the fans' enthusiasm and the restricted attendance capacity, tickets for the parks could sell out quickly after being offered to the public. Even though doors will open, good luck finding a ticket unless you're willing to pay a pretty penny for the privilege.
An opportunity for Disney to increase prices?
The supply-and-demand dynamics appear to be strongly in favor of Disney. That could be an opportunity to raise prices on tickets, parking, hotels, and merchandise. In the past, Disney has been hesitant to raise prices too quickly because of the negative publicity it would get in response. However, given that it was forced to shut its doors through no fault of its own and suffer significant financial consequences, this could give it the cover it needs to exercise some of its pricing power. After all, its operating income from the segment that includes its theme parks fell from $6.7 billion in 2019 to a loss of $81 million in 2020.
Shareholders could benefit as Disney regains its footing, inching closer to operating at full strength. Over 50,000 people in the U.S. are still testing positive for the coronavirus each day, and while vaccine rollout is accelerating in the U.S. and a few other countries, we are nowhere near the point of calling an end to the pandemic. But Disney is resilient: Its properties continue to be popular, and in the aftermath of the virus, its parks are likely to be just as full as they were before.