In its last quarterly earnings call, Disney was already feeling the impact of the COVID-19 virus, which had closed its Chinese theme parks.
Three months later, and with all Disney theme parks and resorts closed around the world, the company is facing an unprecedented disruption in one of its signature business segments.
Disney’s Parks, Experiences and Products division — which includes not only Disney parks and hotels but also Disney Cruise Line and Adventures by Disney — saw a 58 percent drop in operating income compared to the same quarter in 2019, falling by $639 million.
“There is limited visibility into the timing of reopening and the conditions under which we can reopen the rest of our parks and resorts, cruise ships and Disney stores,” Disney chief financial officer Christine McCarthy said. “However, we believe the strength of our brands and our unwavering commitment to the guest experience are valuable assets that will serve us and our guests well, once we reopen.”
The pandemic has affected many of Disney’s revenue streams, with theatrical releases either delayed (including blockbusters like “Black Widow” and Pixar’s “Soul”) or moved to the Disney+ streaming service (as the case with “Artemis Fowl”), future productions on hold and ESPN lacking any live sports to broadcast.
The financial impact has led to significant cost cutting. More than 100,000 employees across the company have been furloughed, including tens of thousands at Disney World. Top executives have taken cuts to their salaries, though they’ll still be eligible for bonuses that make up the bulk of their compensation. McCarthy announced one more cost-saving move on the earnings call, saying the company will not pay its semiannual dividend scheduled for July, which is expected to save $1.6 billion.
The axe has also fallen on projects within Disney parks. McCarthy said the company’s total spending on capital expenditures for its fiscal year to be $900 million lower than expected, “driven primarily by paused construction and refurbishment due to the temporary closing of our parks.”
Disney CEO Bob Chapek — participating in his first earnings call since being named as chief executive — did not offer specifics on what parks projects would be cut or delayed.
“Imagineers over at our theme parks, where the majority of our capital goes, have done such a tremendous job of planning out future experiences for our guests, that we’re just going to go ahead and take a slightly finer tooth comb, if you will, through those expenditures, but essentially plan on investing behind those businesses, like we always have,” Chapek said.
Amid all the grim financial news, there was one glimmer of hope for Disney theme park fans. Shanghai Disneyland will become the first of its parks to reopen on May 11, but with many restrictions in place with COVID-19 remaining a threat. Chapek said the park’s maximum capacity of 80,000 people — marking a rare moment where Disney publicly acknowledged a park’s capacity limits — will be restricted to 24,000, or 30 percent of its maximum.
“We’re going to actually open up far below that just to have our training wheels on with our new procedures and processes, to make sure we don’t have any lines backing up as guests enter into the park or as they wait through the park,” Chapek said.
Other restrictions will include: date-based tickets, social distancing, hand sanitizing stations throughout the park and requirements for guests to wear masks. Visitors will also need to have their temperature checked, though that safety measure won’t detect people infected with the COVID-19 virus that are either asymptomatic or presymptomatic.
Chapek did not offer any signal as to when Disney World parks may reopen, but when other parks do welcome guests again, he predicted the company won’t have trouble filling up reduced capacity levels — which may also mean furloughed staff isn’t all welcomed back at once — which may also mean furloughed staff isn’t all welcomed back at once, but rather the workforce will ramp up based on attendance restrictions.
“Our hypothesis is because of pent up demand, that if we open up with something less than 50 percent of our standard capacity, that we’re probably not going to have trouble filling that,” Chapek said. “Whatever level we stake that at, whether it’s 10 percent, 25 percent, or 50 percent of typical crowds, that’s what we’ll be able to have at our park. Therefore, we’ll staff accordingly to that type of level.”
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