Seasonal Pricing At Disney’s Theme Parks: Can This Drive Higher Revenues?

Walt Disney (NYSE:DIS) recently announced that it will adopt seasonal pricing for 1-day tickets to help spread out visitation. Each month will be divided into value, regular and peak days and tickets will be priced higher during peak days. The company is looking at ways to manage visitation as it works to open several new attractions (or “experiences”, as it terms them) in its parks during 2016, including a Frozen inspired musical experience, Soarin Around The World, as well as the new  Star Wars experience.  As per our estimates, Park and Resorts is the most important division for Disney, accounting for more than 30% of its valuation. The new pricing policy should improve revenues of this division by attracting visitors during lean times and generating higher revenues during peak times.

New Pricing Policy Should Optimize Use Of Park Capacity

In Q1 FY2016, Disney’s revenues from Parks and Resorts witnessed a 9% increase  compared to the same period in the previous year. During the holiday season of 2015, the company had to shut its gates when the park reached maximum capacity, turning down visitors. As the U.S. economy improves and low gasoline prices lead to higher disposable income, higher traffic in Disney’s U.S. parks and resorts is likely in 2016. A seasonal pricing policy should enable the company to optimize its park capacity utilization by attracting higher traffic during lean periods and reducing instances of refusing admittance to eager visitors. We expect the number of visitors in Disney’s domestic parks to increase at a steady rate and reach 110 million by the end of our forecast period.

With the tickets costing $20 more during peak seasons, the average per capita spend in Disney Parks should increase, leading to higher revenues. We expect per capita spend in Disney’s U.S. theme parks to increase at a steady rate from $145 in 2016 to $194 by the end of our forecast period.

We believe Disney should be able to justify its higher ticket prices with the new attractions to its parks in the U.S.  A seasonal pricing policy will enable the company to manage crowds better and generate higher revenues both in lean and peak periods.  We believe this strategy should drive revenues for the company and benefit its shareholders in the long run.

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