Walt Disney(NYSE:DIS) is raising prices at its popular theme parks once again but this time, with a twist.
Instead of an across-the-board rate hike, the House of Mouse is implementing a demand-based pricing system, charging more for admission on the most popular days of the year.
Tickets at Disneyland in California will go from $99 a day to a tiered plan of $95 on "value" days (Mondays to Thursdays when school is in session), $105 on "regular" days (most weekends and most weeks during the summer), and $119 on "peak" days (most of December, spring break weeks, and July weekends).
At Disney World's four theme parks in Florida, the price changes are complicated, but the structure is roughly the same. At the Magic Kingdom, tickets will stay at their original price, $105, on value days, increase to $110 on regular days, and hit $124 on peak days.
The parks have become so popular that the Magic Kingdom and Disneyland were even forced to close their gates temporarily after reaching capacity on Christmas the last two years, sending would-be guests home disappointed.The change comes as Disney's domestic parks have become increasingly overcrowded, especially on peak days. Attendance was up 10% at the U.S. parks over the past quarter to a record high, buoyed by new Star Wars-themed rides and activities.
That's one reason the new pricing system shouldn't come as a surprise. The other is that Disney already alluded to such a system when it raised the rates on its annual passes last October, including a cheaper option with blackout dates on peak days like Christmas. The idea in both cases is to alleviate excess demand on peak days that leads to long lines and disappointed guests.
Surge pricing catches on
Demand-based pricing is nothing new. Airlines have long practiced it, charging more for flights during higher-traffic periods, but the model's popularity has grown recently. Perhaps Uber has done more to popularize it than any other business by charging "surge" pricing when rides are wanted most, like on New Year's Eve or in bad weather. Those higher prices help cull the excess riders and act as an incentive for drivers to get out and work.
Americans are also seeing demand-based pricing more often in other corners of the entertainment industry. Most professional sports teams, for example, have gone from one flat rate for tickets to every game to a tiered model like Disney's. Now, some teams even use "dynamic pricing", under which prices change (often several times) according to demand, which could be affected by anything from weather to MLB pitching match-ups. The experience mirrors what ticket buyers see on secondary selling sites like StubHub, where prices change constantly based on supply and demand. Presumably, this practice wouldn't be proliferating among teams if it didn't work.
Closer to home for Disney is probably the pricing scheme at your favorite ski resort. Ski areas are slammed during vacation times when schools let out and families take their kids to the slopes, but the scene is much more serene on an ordinary Tuesday. Not surprisingly, ski resorts charge much higher rates during "peak" times.
At Vail Resorts, a ticket good for five mountains ranges from $142 to $165 for various days over the rest of the season, based on a brief search. That willingness to charge higher prices on the few peak days of the year helps those ski areas maximize revenue and profits, and gives skiers an incentive to come out on regular workdays.
Theme parks are more popular than ever
It's not just Disney that's seen a boom lately. Comcast's Universal Orlando theme park set an attendance record last year, and both Universal and Disney are spending big bucks to expand, a sign they expect demand to keep growing. Regional operators are seeing a rebound as well. Six Flags reported a 9% increase in attendance at its 18 parks last summer, driving record revenue after it filed for bankruptcy in 2009.
Cedar Fair, the owner of Cedar Point, among other regional parks, also saw a 5% uptick in visits last year, with record revenue to boot.
With gas prices under $2 a gallon in much of the country and unemployment under 5%, Americans are more flush with cash than they have been since before the recession, and they're happy to spend some of it on the kind of entertainment Disney specializes in. The parks have more demand than they can handle on the most popular days, and adjusting the prices accordingly just makes sense.
This change will almost certainly pay off for investors by helping to pad Disney's bottom line, and if it can convince a few fans to schedule their trips for non-peak days, the theme park visitors should benefit as well.
Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool recommends Vail Resorts. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.