In case you missed it, the final voyage for Star Wars: Galactic Starcruiser will take place September 28-30, 2023. This makes it one of the first cuts to be made and revealed before Disney’s new fiscal year starts on October 1, 2023. (Usually, these cost-cuts are announced a few weeks before the new fiscal year starts, but with the nature of Starcruiser, more advance notice was necessary.)
Walt Disney World has also eliminated discounts for the final few months of Star Wars: Galactic Starcruiser, removing the 30% off deals that were available for APs and Disney Visa Cardholders. This makes sense, as the final voyage sold out over the weekend, and it undoubtedly isn’t the only date that will book up as fans scramble to experience Starcruiser for the first time or say their fond farewells to the starship Halcyon.
The latest update comes from the 2023 JPMorgan Global Technology, Media & Communications Conference. During this event, Disney Parks Chairman Josh D’Amaro was interviewed by JPMorgan analyst Phil Cusick. During that wide-ranging session, D’Amaro said a lot, most of which was not noteworthy. He spoke again about expansion plans and about “aggressive” investments in the international parks, among other things.
One of his more interesting comments was a claim that the standoff with Governor DeSantis has not impacted Disney’s business results. This isn’t really a surprise to us. We’ve said repeatedly that average Americans are not heavily invested in culture wars; that’s more the domain of the chronically connected.
With that said, it’s also fair to point out that Walt Disney World has seen booming business due to pent-up demand, which has helped mask the negative consequences from all decisions they’ve made in the last few years. (We’ve also repeatedly pointed out that guest satisfaction took a big hit starting in Fall 2021.) But I digress.
Cusick also asked D’Amaro about Star Wars: Galactic Starcruiser, and how investors should think about the impact of that decision.
D’Amaro started his response by lavishing praise upon Starcruiser, calling it “stunning” and saying how Cast Members did an “exceptional job” in bringing it to life. He added that “Imagineers did an incredible job pulling it together and guests give it very high ratings.”
Despite that, D’Amaro conceded that Star Wars: Galactic Starcruiser “did not perform exactly how we wanted it to perform, so we decided that we’re going to sunset this in September.” D’Amaro added that it was “a never-before-seen type of experience, and I think it’s raised the bar from a creativity perspective on where we can go next.”
D’Amaro then turned to the financial impact of the Starcruiser’s closure and said, “I don’t think we’ve talked about this before, but in both Q3 and Q4 as we accelerate depreciation on that Starcruiser, we should expect about $100-150 million acceleration in depreciation.”
Cusick clarified that D’Amaro meant depreciation of $100 to $150 million in each of the quarters, rather than total. D’Amaro indicated that was “correct.” This signals that Walt Disney World expects to take a loss of between $200 million and $300 million on Star Wars: Galactic Starcruiser between now and the end of this fiscal year.
Turning to commentary, I’ll admit that I find the Starcruiser saga endlessly fascinating. Perhaps you disagree, viewing its closure as an inevitability that is altogether unsurprising. Honestly, same…but that is precisely why I find this so interesting!
From literally the day that this concept was announced, the Star Wars “hotel” was met a ton of fan skepticism. It’s not an exaggeration to say that each new detail released pre-opening reduced interest rather than expanded the interested audience. Everyone knew it was going to be astronomically expensive from the outset, but the clearer it became that this wasn’t a hotel, the more it lost fans of both Walt Disney World and Star Wars.
Documentaries will someday be made and books will be written about “what went wrong” with Star Wars: Galactic Starcruiser. At least from a business perspective, the short answer is everything.
You might see this as vindication or an obvious outcome and not be as interested in the saga, but that’s precisely the point and why this subject is so fascinating. If you look back through our old posts about Starcruiser, they almost read as prescient now. This is not to pat ourselves on the back–we were far from the only ones sharing such sentiment. Many, many commentators saw this coming a parsec away.
This is something we touched upon over the weekend in Cleaning Up Chapek’s Costly Catastrophes, but how did so many people on the outside see this coming, but not the company itself? There is no DTB market research division (yet!) and the long-term viability of this Starcruiser is something we’ve questioned since before it even opened.
(As we’ve said for years, fans overestimate the degree to which Walt Disney World leverages data and analytics. On top of that, much of their market research exists to confirm decisions they’ve already made. Starcruiser will be used as Exhibit A in support of that going forward.)
The saga of Star Wars: Galactic Starcruiser is like a slow-motion trainwreck. Worse, actually. The more apt analogy would be the starting out on an unfinished railroad, everyone knowing that the track is incomplete, and the train chugging along anyway until going over a cliff. The risks here were knowable and known from day one, and not having a backup plan is just…incredible.
This actually reminds me a lot of Lightyear. Once the hype of the initial announcement wore off, each new detail raised more questions than it answered. That movie made the ‘bold’ decision to use a different performer and animation style, while abandoning the rest of the characters, adding a narrative conceit that made no sense and wasn’t explained by marketing, etc. It was a story that literally no one asked for, and the whole thing had big “bootleg Buzz” vibes. It was like they didn’t understand what made the original Toy Story franchise a success.
In both cases, there was an excessive amount of hubris on display by Disney. I guess that’s what happens when your phoned-in live action remakes generate billions at the box office despite being awful, and when seemingly every theme park decision–including price increases–only drives demand higher.
Over the last couple of years, I’ve heard some wild numbers thrown around about the “true cost” of Star Wars: Galactic Starcruiser. I always assumed there was hyperbole at play, as some of those numbers would have meant that the breakeven point on the 100-room experience would be decades into the future.
Well, $300 million is one such number. That amounts to at least $3 million per room in profit. Do you know how many thousands of voyages would’ve been necessary for Star Wars: Galactic Starcruiser to not lose money?
Keep in mind that this is profit, not revenue–so you cannot simply point to the high voyage rates for Star Wars: Galactic Starcruiser. As we’ve shared repeatedly, the operating expenses for Starcruiser were also astronomical due to its equity entertainment and cast-to-guest ratio. Staffing alone was a huge cost, but that’s not it. Starcruiser had far more ‘moving parts’ than a standard hotel, so maintenance and upkeep also would’ve been significant costs.
It’s also probable that $300 million does not represent the entire cost of Star Wars: Galactic Starcruiser. I want to preface the following by saying that I’m about the furthest thing possible from an accountant, so my knowledge of depreciation and amortization rules is remedial–to put it very charitably. (In other words, what follows could be mildly inaccurate or worse–I welcome actual CPAs to correct any or all of it.)
For one thing, this is not the first year that Star Wars: Galactic Starcruiser has been operational. Presumably, Walt Disney World would’ve depreciated a portion of the asset in the last fiscal year, since the ‘resort’ opened in March 2022. My assumption is that they would’ve depreciated Starcruiser consistent with other fixed assets on a straight line basis across a decade or 20 year useful life. That means ~$15 to $30 million has already been depreciated.
With Star Wars: Galactic Starcruiser, there are a couple different types of assets. One is the physical infrastructure–basically the building–that will be abandoned. In addition to that, there’s the tangible technology that was produced via Imagineering R&D. Things like that fancy new lightsaber, the Yoda effect (trying not to spoil it), and other showpieces.
To the extent possible, I would hazard a guess that the second bucket of costs will be rolled into the first for the sake of accelerating deprecation. For example, everything affixed to the atrium of the Halcyon that won’t be repurposed elsewhere is going to be depreciated this fiscal year.
I’ve heard anecdotes about some of these assets being particularly problematic, going way over budget, and Imagineering wanting nothing to do with them in the future as a result. If there’s no intention to reuse certain set pieces and props, it’s probably pretty easy to bundle that into the building and depreciate it all at once.
But what about the lightsaber and other more ‘portable’ effects that could find a home in Star Wars: Galaxy’s Edge or a future dinner show? It may not be possible or make sense to accelerate depreciation on all of that this fiscal year if there’s an intention to repurpose it.
Regardless of the exact numbers, it stands to reason that the actual price tag for Star Wars: Galactic Starcruiser was well above $300 million–probably in the neighborhood of $400 to $500 million. Not all of that is strictly “wasted” money, as the underlying technology, props, and pieces will find homes elsewhere in Star Wars: Galaxy’s Edge or beyond. (There’s an old adage that no good idea dies in Imagineering–and it’s true!)
As a slight aside, fully accelerating the depreciation also reinforces the notion that Walt Disney World does not have any current plans to repurpose the building itself. Although accelerating the asset’s depreciation doesn’t necessarily preclude that in the longer run, it also doesn’t comport with conventional accounting practices to do so now with a plan in mind for its future.
It’s unlikely that Disney will throw good money after bad with further investments in the Halcyon building, meaning that it probably will not be repurposed any time soon. As we’ve said before, the most likely scenario is pulling a page from the Pop Century Legendary Years playbook–letting it sit there for a decade and possibly revisiting it down the road. Even that seems improbable given its unique style. It was custom-built for this and only this.
The timing is also really fascinating here. Walt Disney World had dipped its toes into the water of discounting Star Wars: Galactic Starcruiser. Walt Disney World had offered 50% off discounts for Cast Members, as well as 30% off discounts for Annual Passholders and Disney Visa Cardholders. There was also a special offer for $700 off Deluxe Resort stays booked as part of a Star Wars: Galactic Starcruiser vacation package.
These discounts were available for almost all voyages between now and mid-September 2023. Even after releasing those deals, Star Wars: Galactic Starcruiser had not been filling up all voyages–and had cut some as a result. Despite this, no discounts had been released to the general public (yet).
Less than one month ago at Star Wars Celebration, Imagineers Scott Trowbridge and Ann Morrow teased updates coming to Starcruiser. They spoke of bringing new stories to life, evolving the experience, and more. Some of this sounded like fluff or perhaps wishful thinking on their part, but those were definitely not the words and tone of people who thought Starcruiser’s future was in jeopardy.
Even during the most recent earnings call a couple weeks ago, CEO Bob Iger and CFO Christine McCarthy did not indicate or imply that Walt Disney World would see accelerated amortization this fiscal year. While such a disclosure would not have been required, it would’ve been the “perfect” thing to tease–at least, from an investor perspective–as an offset to the slower forward bookings McCarthy mentioned.
From the outside looking in (and with incomplete info), this suggests to me that the decision to close Star Wars: Galactic Starcruiser was an abrupt one. My guess would be that the team in Burbank looked at Starcruiser’s performance even after offering discounts, and concluded that it was beyond the point of no return. That it would’ve operated at a loss with general public discounts, and there was no easy pivot that would’ve made it economically viable. Better to cut losses than throw more money into a doomed concept.
In all likelihood, the decision was made quickly and decisively by Burbank, without much warning to Walt Disney World. Some of this is supported by details that have trickled out in the days since the news broke. It’s also generally supported by the circumstances and what Walt Disney World tried to steady the ship–and what they didn’t.
If the goal were to maximize revenue and profits on Star Wars: Galactic Starcruiser in the near-term, it seems likely that the announcement would’ve been made more methodically, with a greater amount of lead-time. For one thing, they had only opened voyages through the end of this calendar year. They could’ve kept those on the books and announced that Starcruiser was closing at the end of the calendar year.
That alone would’ve prevented Walt Disney World from having to offer 50% off discounts for displaced guests who booked between October and December, and had to be rebooked. For another thing, it would’ve created a sense of urgency for everyone else. With an end date established, Star Wars: Galactic Starcruiser will most likely sell out its remaining voyages between now and September. The same would’ve probably been true if that end date were December 31, 2023. Heck, a farewell season with a telegraphed end date would’ve probably made Starcruiser viable through mid-2024. And that’s without discounts.
It would thus seem like Disney just wanted to wash their hands of Star Wars: Galactic Starcruiser, take the write-offs this fiscal year, and move on. For whatever reason, those were more advantageous than letting it have a proper “farewell” season and trying to capture as much revenue that way. (Stated differently, taking a $300 million loss was deemed better than continuing to operate Starcruiser into the next fiscal year.)
At least, that’s my gut reaction based on the totality of the news and rumors about Star Wars: Galactic Starcruiser. I’m anxiously awaiting future developments in this saga–and will share them here so long as there’s reader interest. I’m truly curious about how things went off the rails so quickly and irreparably.
Thoughts on Walt Disney World permanently closing Star Wars: Galactic Starcruiser and taking a $300 million write off? What would you have preferred the company invest $300 to $500 million (assuming additional R&D costs not in the depreciation) on at Walt Disney World? (Just think, we could’ve had a new envelope-pushing Journey into Imagination at EPCOT or Cars Land at DHS!) Think the company will convert it to a regular resort, reopen it as something else, or abandon the building forever? Expect some of the tech to move over to Star Wars: Galaxy’s Edge? Do you agree or disagree with our assessments? Any questions we can help you answer? Hearing your feedback–even when you disagree with us–is both interesting to us and helpful to other readers, so please share your thoughts below in the comments!