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Report: Jim Hunt and Jay Rasulo Smith Barney Citigroup 2003 Tutorial Series Presentation
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by Benji Breitbart
April 15, 2003
Benji reports on an April 10th presentation by Jim Hunt and Jay Rasulo as part of the Smith Barney Citigroup 2003 Tutorial Series

On Thursday, April 10th Jim Hunt, CFO and Jay Rasulo, President of Walt Disney Parks and Resorts made a presentation as part of the Smith Barney Citigroup 2003 Tutorial Series. Parks and Resorts comprised 41 percent of The Walt Disney Company’s operating income last year and are an integral part of the company’s financial performance. Jay and Jim were invited to discuss the fundamentals of the theme parks business. Jim started off by showing attendance figures complied from Amusement Business magazine. The Walt Disney Company does not disclose attendance figures but used the AB numbers in their presentation. According to AB, attendance at Disney theme parks comprised half of the attendance among the top five players in the business. Disney has the top 7 parks in the top 10 theme parks in the world.

One of the statistics that is used in the theme park business world are Current Trip Individuals which means how many people are on that trip. Another stat is how many times a person visits a particular theme park. This is called VPG (Visits per Guest). If a guest uses a park hopper ticket, the park that first gets the guest gets credit for the visit. Parks that the guest "hops" to, do not. This is the standard that Disney uses, but it may not be used by others that operate in a multi-park environment.

In the recent past, most of the Disney destinations operated in a single park environment. In such a scenario the typical VPG is around 2. In a multi-park environment the VPG average is 2.5. While Disney realizes VPG won’t grow forever, they realized that by adding second gates and additional entertainment offerings the VPG will increase. Another key to increasing VPG is by offering great service and making magical memories that the guest will want to experience again.

Currently at Walt Disney World, the four day ticket is four times the price of a one day ticket. While there is no economic incentive to purchase a four day ticket, the park hopping feature of the four day pass encourages guests to purchase it in lieu of a one day ticket. The five day passport does have an economic incentive. The reason why Walt Disney World does not offer a 2 or 3 day park hopper ticket, according to Jim, is that guests would not be able to experience the resort in a few days and they also want to maintain as much of each guest’s vacation time as possible. Since most tickets don’t expire guests could return at a latter time to use the remainder of their ticket.

Research shows that guests drop things from their itinerary once they arrive instead of adding experiences to their vacation. Because of this, it is important to Disney that guests purchase their experiences from home. Guests that purchase from home average around 4 VPG, guest that don’t average 2. Local guests are being lured by other parks recent deep discounting. Jim used the example of Sea World, where for the price of a one day ticket, you can return all year. This is another example of why Disney wants guests to be sold before they enter the market where they can be attracted to competitors because of discounts. Disney is a premium product, and they want to maintain that message, but Disney created advance purchase savings in order to encourage guests to purchase their ticket media before they arrive to the resort. Half of admission is sold on a pre-arrived basis, which is up from 1/3 in the mid 90’s. One way this has been accomplished is by increasing the presence at Disney Stores. Using new technology, Disney Stores are able to carry tickets that do not have value assigned to them until they are purchased. This eliminated the problem of the stores having to carry a variety of tickets, and being out of stock of the ticket media the guest wishes to purchase.

When a guest visits, they spend for several reasons: admission, food and beverage, stores, and miscellaneous items. Admission is the most profitable form of per capita spending; it makes up 60 percent of the per capita spending. Merchandise is supposed to be Resort specific in order to encourage per capita spending. Merchandise makes up 20 percent of the total per capita. Food and beverage is a diversified business that also makes up about 20 percent of the total per capita spending. Miscellaneous includes things such as parking and stroller rental.

Hotel economics is driven by the cost of the room and per room spending on food and merchandise. There is now a greater variety of hotels on property that range from budget to deluxe. 70% of the total per room spending is spent on the hotel room rate. This leaves 30% being spent on things such as merchandise, food, and admission. Guests that stay on-property have a higher VPG than guests that stay off-property. Therefore, the hotels are lucrative for the entire Resort business.

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