The Walt Disney Company (DIS 0.92%) was devastated at the pandemic's onset mainly because it had to temporarily shut its turnstiles at its theme parks worldwide.
In normal times, the business is a lucrative one for The House of Mouse. The theme parks segment generated $26 billion in revenue and $6.7 billion in operating income in 2019, the final full year before the pandemic disrupted operations.
All its theme parks have since reopened, and the enhancements that management made to the business could make them more profitable than ever. Here are two reasons why.
Image source: Getty Images.
1. Higher guest spending
One central change management implemented during the pandemic is adding a digital reservation system for theme parks. This feature gives better insight into guest attendance during specific days and weeks.
In the past few years, Disney has also implemented dynamic pricing, which changes the price of tickets based on the day and time of year. For instance, during peak holiday periods, a ticket will cost more than one on a random Tuesday in October. Combining a digital reservation system and dynamic pricing will allow Disney to optimize theme park revenue in real time with changing consumer demand.
And Disney has added premium experiences for guests willing to spend more. Its Genie+ and Lightning Lane give folks the option to skip lines for a single ride (or several) for a fee. The service is catching on, and in the first quarter more than 33% of visitors purchased at least one of these options. But some might say the service hurts the experience for other guests, who will now have to wait in even longer lines.
Nevertheless, the result has been a notable increase in guest spending at the company's theme parks. In its most recent quarter, ended Jan. 2, folks spent 40% more at its parks than in the same quarter in 2019.
2. Reduced operating costs
Management also worked on the cost side of the equation during the pandemic, adding mobile ordering at restaurants and concession stands at the parks. Folks can now order meals and pay for them on an app from their phones. That helps profit margins because Disney can serve more guests with fewer employees. That advantage is especially vital amid widespread labor shortages and rising wages.
Disney extended the idea to the hotels and resorts surrounding the theme parks. Guests now get access to contactless check-ins. Both innovations certainly reduce costs for Disney, but they also improve the guest experience by reducing wait times.
The results are already showing
The moves are paying off already. The segment that includes theme parks generated $7.3 billion in revenue and $2.45 billion in operating income, producing an operating margin of 33.6%. In contrast, for all of 2019 the operating margin for the segment was 25.8%.
If Disney's theme parks are already showing rising profit margins despite a still-raging pandemic, it's evidence that the parks are likely to be more profitable in the aftermath.
Disney's stock has been down 16% in the past six months as the market worries about its streaming segment and ignores the improvements in the theme parks. It is an excellent time for long-term investors to add shares of Disney before it reaches full strength and is ignored no longer.
