Disney increases theme park prices despite drop in revenues

Disney has increased prices at Walt Disney World despite experiencing a drop in revenues last quarter. In its earnings reported July 30, the company had this to say about operating income: “Lower operating income at the Walt Disney World Resort was primarily due to decreased guest spending and lower corporate alliance income recognition, partially offset by lower costs. Decreased guest spending was driven by lower average daily hotel room rates and lower average ticket prices, which included the impact of promotional programs such as our Buy 4, Get 3 Free program.”

So, how can Disney raise prices right after experiencing these kinds of declines in customer spending? Clearly, the company has a lot of confidence in its branding and large mind share when it comes to family entertainment at theme parks. In fact president and CEO Robert A. Iger said as much: “While a tough global economy impacted our performance in the quarter, we remain encouraged by the relative strength of our business…That strength is the result of Disney’s combination of strong brands, consistent business strategy and the steps we’ve taken to make our businesses more efficient without sacrificing quality.”

More importantly, I suspect that Disney discovered that their promotions did not significantly increase foot traffic into the theme park. In other words, demand for Disney World remains relatively inelastic, even in this recession. It appears that Disney will be better served getting more revenue out of the core group of consumers who attend its theme park for many more reasons beyond price.

Disney’s stock dropped 4% on the day in response to the poor earnings and revenue report. I will be checking in again next quarter to review the impact of these price increases.