The Walt Disney Co. is in dire straits. Worldwide, the entertainment Goliath’s resorts and theme parks are closed, production of upcoming releases is on hold, and advertising revenues have plunged as the coronavirus pandemic takes its toll.
According to the company’s earnings for the fiscal second quarter, announced Tuesday, COVID-19 cost Disney $1.4 billion in operating income. But a bright spot is emerging in China where Shanghai Disney Resort—the latest of Disney’s properties—is preparing to reopen.
“We are seeing encouraging signs of a gradual return to some semblance of normalcy in China,” CEO Bob Chapek said on a conference call with investors Tuesday, announcing that the Disney resort in Shanghai will reopen on May 11, after more than three months of closure.
The happiest place on Earth
As China’s official count of new coronavirus cases remains low, the government is actively encouraging a return to normalcy. Authorities, who initially spurred workers to return to factories in March, are now urging consumers to return to shops and tourist sites, too. Cities in more than two-thirds of China’s provinces have issued cash vouchers to residents to spend on consumer goods and “cultural activities.”
Notably, Shanghai has yet to deploy a voucher scheme, so the reopening of its flagship theme park is a bet that consumers are ready to resume spending even without incentives.
Unlike the Shanghai resort’s grand opening in 2016, when crowds of tourists mobbed the park, Shanghai’s pandemic-era reopening will be a timid affair.
In keeping with government regulations, visitors will have to wear masks, submit to temperature checks, and present the ubiquitous health code apps before entering the park. Local authorities have told the park it can only operate at 30% capacity, too.
According to Chapek, normal attendance at Disneyland Shanghai reached 80,000 guests per day. Under the new restrictions, that number would drop to 24,000, but Chapek says the park will initially target an even lower number, gradually increasing attendance to the 30% threshold.
“We will take a phased approach with limits on attendance, using an advanced reservation and entry system, controlled guest density using social distancing, and strict government-required health and prevention procedures,” Chapek said.
It’s a small world, after all
The reopening of Disneyland Shanghai could be a test run for Disney’s other resorts, all of which remain shut. Disneyland Hong Kong closed its doors a day after Shanghai on Jan. 26. Tokyo Disneyland held out until February, while in the U.S., Disney parks remained open until mid-March.
Hong Kong’s loss-making Disneyland—the smallest of the conglomerate’s six “castle lands”—has reportedly conducted test runs of how social distance queueing would work at the park. The official task force in charge of organizing a return to normal in Orange County, Fla., also issued guidelines on how Walt Disney World could reopen, but when remains a mystery.
Disney’s theme parks fall under the company’s Parks, Experiences, and Consumer Products division. The unit was Disney’s fastest-growing profit segment until park closures caused revenue to crash 10% in the second quarter. Disney estimates it lost $1 billion in operating income from the segment alone.
To offset its losses, Disney has furloughed over 100,000 workers, cut executive pay by up to 30%, and is forgoing its July dividend, which in itself could save the company $1.6 billion. Reopening parks could be a much-needed shot in the arm.
However, after months of sheltering in place for fear of the coronavirus, the real learning point from Disneyland Shanghai’s rerun will be whether consumers still have an appetite for adventure.
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