Why Disney World May Face Tougher Recovery Than Disneyland

Mariah Wild/Disney Parks via Getty Images
Disney World in Orlando, Florida.

More visitors to the Orlando park arrive from out of state or country than the Anaheim location, an analyst notes.

Walt Disney World may have a more difficult time bouncing back than Disneyland once major theme parks are allowed to reopen post-coronavirus pandemic, one veteran Wall Street analyst contends. 

When the parks closed in mid-March, The Walt Disney Co. hoped the Orlando and Anaheim destinations would be able to reopen within weeks, but as the pandemic rocked the nation, it became clear that would be impossible, thus it was announced the parks would be close indefinitely. Mass furloughs and pay cuts followed.

Since that time, there has been a large amount of speculation about when the parks may reopen and what it will look like when they do. Disney stock has taken a hit amid all the uncertainty, with shares down more than 30 percent year-to-date. S&P Global Ratings on Thursday lowered Disney's credit rating, noting, in part, that "theme parks won't likely return to normal capacity utilization at the same rate as the overall economy even after stay-at-home restrictions are eased and the theme parks are allowed to reopen."

David Miller, analyst with Imperial Capital, told The Hollywood Reporter Friday a large piece of the equation is being overlooked — and it impacts Disney World more. 

"By our estimation, 85 percent of the attendance base in Orlando — in a normalized environment, forget about the virus for a second — comes from out of state or out of country," Miller said. "Which means you pretty much have to fly there. So, it is a two-step process with getting consumers conformable with going back to the parks. You have to be comfortable No. 1 with getting on a plane ... and then you have to be comfortable actually going into the park and hope that it is a fairly sterile environment and that people will hopefully adhere to safe social distancing." 

American Airlines CEO Doug Parker said last week he did not have a sense of when the airline industry would begin to recover from the ongoing virus crisis. "It depends on when our country starts moving again. It depends on when people feel comfortable," he said. "It depends on when Disneyland opens and shelter-in-place restrictions are lifted, and corporate restrictions on travel are lifted."

Universal Studios Orlando may also have a much tougher go than Universal Studios Hollywood for the same reason. On April 20, research firm MoffettNathanson released a report forecasting Universal Studios faced a difficult near-term future. (For the moment, the Universal parks are closed through May 31.)

"One would be hard pressed to name a business more fundamentally ill-suited for a world in which social crowding is either (for now) forbidden or (later), well, scary," the MoffettNathanson report read. "It's not just that they are currently closed and are therefore generating zero revenue (while still burdened with prodigious fixed costs). It's that nobody has a clue when people will feel safe enough to go back in large enough numbers to cover fixed costs even after they reopen."

As for Disney, more will likely be mentioned on the May 5 earnings call. "How are they going to reopen parks on both coasts and ensure a virus-free environment? And are there going to be extra costs in doing so that we may not be thinking about?" Miller asked. "Are they going to have to limit volume to ensure safe social distancing?" Executive chairman Bob Iger previously said the parks may checks guests' temperature as one major change. 

"At least with theme parks, there's no secular threat in going to the theme park unless there is no cure for the virus," Miller said. "Eventually, there is going to be a vaccine. Eventually life will return to normal, but no one knows how quickly. Because of the reorganization of the [Disney] business line, the parks and experiences strategic business unit is now the largest unit. So when you close your largest unit, that's serious earnings power that gets extracted out of the model. The problem is, everyone is modeling different numbers because no one knows when these parks are going to reopen." 

It comes down to two models once the parks do reopen, Miller said. "There is the model of opening the parks for business and ensuring social distancing or opening the parks for business and you don't have to ensure social distancing because there's not going to be that many people who show up," he said. "People have to feel comfortable going to the theme parks, be comfortable being out in open air and trust that other people around them do not have this virus." 

Disney executives are no doubt running through all the possibilities of what may happen when the parks reopen, which some analysts (not Miller) have forecasted may not be until next year. 

"These guys are very good at gaging the overall demand curve for their theme parks," Miller told THR. "So if demand is high — this is my speculation — they're going to have to limit the amount of people who can go in at any one time. No different that what the grocery stores are doing right now. But if the demand curve moves to the left, and the demand is weak and they open up for business they have to hope the public will adhere to strict social distancing measures." 

Miller also addressed the optics on who is steering the Walt Disney Co. ship right now. "It is simply bad luck and bad timing that Bob [Iger] handed the reins over to Bob Chapek and then a week later the virus hit," Miller said. "There are some people out there, journalists, not analysts, who say that somehow Bob [Iger] wanted to go out on top with the stock price on top and the whole thing was a conspiracy theory. That's just ridiculous."

He continued, "Bob [Iger] had been very clear about his intention to step down from the CEO role after Disney+ had been established," Miller noted. "So I don't know why the press keeps reporting on, 'Oh my God, Bob Iger is stepping down.' Bob Chapek is going to do great."