A possible recession or economic downturn could impact Walt Disney World, especially as pent-up demand fizzles out and travel slows as consumer confidence dips. In this post, we’ll answer the titular question based on history, past precedent, and our expectations. Plus, the company’s plan for an economic downturn and what “levers” they’ll pull, according to executives. (Updated November 9, 2022.)
We’ve been saying for months that there’s likely to be a spending slowdown in the not too distant future. Pent-up demand among domestic visitors could exhaust itself, inflation on necessities might result in reductions to discretionary spending, and the same could also happen due to depleted household savings and rising debt levels. Inflationary pressures and the rising cost of travel due to oil prices could bring the party to an end, too.
When some or all of that happens, consumers will return to being more cost-conscious and price sensitive, and things will normalize or more if the United States enters a recession. Our short and sweet answer as to what that means in this context is that Walt Disney World will end up offering better discounts, bringing back familiar fan favorites. If you want to be notified immediately when these deals are released, sign up here for our FREE Disney newsletter here. What follows is the why of that, with insight into the present and past.
Let’s start by addressing skepticism about the core premise of this post, as we recognize that it’s easy to dismiss this as wishful thinking. After all, it comes as the Walt Disney Company has repeatedly touted per guest spending increases of 40% as compared to pre-closure. Not only that, but the parks are packed and nothing seems to negatively impact demand. No matter what kind of consumer-unfriendly changes Walt Disney World makes, people keep coming.
While all of that is ostensibly true, there’s also the reality that fewer people are coming. Despite that sharp spending increase, reported revenue of theme parks has been down in most recent quarters versus 2019. This discrepancy is explained by capacity constraints, which are not by choice. Disney has been trying to staff up to accommodate more guests, but that process has been slow going (as covered in countless posts). The result of lower attendance limits coupled with pent-up demand has been greater pricing power.
It’s impossible to say how changing that equation–either by a decline in pent-up demand or an increase in capacity…or both–would impact Disney’s numbers. It’s safe to assume that per guest spending would start to decline as discounting became more necessary to fill hotel rooms or consumers tightened the purse strings.
November 9, 2022 Update: This isn’t just a question we have–it’s on the minds of Wall Street investors and analysts, too. During the Walt Disney Company’s fiscal fourth quarter 2022 earnings call, CEO Bob Chapek and CFO Christine McCarthy were asked about contingency plans to keep the company on track to meet its financial targets during a potential recession in 2023.
In response, they indicated that there are a number of “levers” they could pull in the event of economic downturn. McCarthy also indicated that the company is evaluating its cost base currently, and looking for meaningful efficiencies for both near-term savings and longer-term structural benefits, similar to what the parks implemented during the pandemic. She also stated that further updates will be provided as a plan is formulated.
With regard to sustaining growth and demand during a recession, one of Walt Disney World’s “levers” that McCarthy called “quite obvious” is discounting. She noted that this is something that the company have used in the past, and will continue to use because it is an effective lever for managing yield.
However, she also stated that Walt Disney World would not use discounting “to the extent to which we used it during the last recession.” As discussed in Disney Doesn’t Want Lower Crowds, the company’s executives stated for several years after the last recession that they’d scale back discounting…but never did. They talk a good game for Wall Street, but when push comes to shove, they’ll discount as much as necessary to hit occupancy targets.
Being able to release more reservations in real time, plus tiered pricing, and annual passes, all provide “flexibility” in a recession, according to McCarthy. Ironically, the notion that Disney will release more reservations to fill the parks undercuts their past claims that the purpose of park reservations is to “protect the guest experience” from overcrowding and “guarantee a great guest experience no matter when people come” Of course, we already explained that this is nonsense in Why Does Disney Really Use Park Reservations?
Finally, McCarthy pointed to “technology advancements” such as Mobile Ordering and contactless check-in on the expense side that are levers the company can pulled. “Hearkening back to the opportunity we took during the pandemic, we did permanently remove a significant amount of operating expense at the parks. And that better positions us right now as we go into an uncertain economic environment.”
While she didn’t say so directly, much of this discussion of the expense side and near-term savings likely relates to reducing staffing. In particular, that’s what references to mobile order and check-in would signal to investors, as those types of efficiency enhancers go hand-in-hand with lower levels of Cast Members.
Other sectors of the economy are already starting to experience exactly this. After a couple years of limited inventory due to supply chain disruptions coupled with increased consumer spending on goods, retailers like Walmart and Target now have warehouses of unwanted merchandise as spending sharply shifted from goods to services (like travel). Following scant sales the last couple of years, many retailers have now warned of weaker-than-expected revenue outlooks for the second half of the year and prepared investors for lower profits as they mark-down unwanted items to get rid of surplus inventory.
At present, that shift has been benefitting Walt Disney World, as one such provider of services. Consumers continue to make up for lost vacations, with TSA reporting new 2-year highs on a regular basis (despite air travel disruptions). However, the same macroeconomic factors that have led to a slowdown in other types of spending will likely catch up to services soon. This holiday season could be the last hurrah for the ongoing travel boom.
If or when it does, Walt Disney World will react accordingly. The company is not somehow magically immune to economic conditions. We’ve addressed this countless times in the past, but to reiterate: Disney charges what the market will bear. They don’t hold off on price increases as a nice gesture to guests. Conversely, the company cannot simply choose to charge more to “recoup” money lost during the closure.
When Disney increases prices, the company does so not at the rate of inflation or because its costs are increasing at a commensurate level, but because they can. When they offer discounts, it’s out of necessity, not corporate benevolence. Walt Disney World is an extremely savvy and sophisticated business—they maximize profits to the greatest degree economically feasible.
Not to go off on too much of a tangent, but this is actually observable in recent food price increases at Walt Disney World—and not in the way you might think. Snack prices have shot up and the company has played other games with portion sizes, product quality, and suppliers.
However, table service entrees–even meats and other dishes that have seen their input costs skyrocket–have not increased in tandem with inflation. We’ve speculated that this is because Disney already pushed those prices up so much in the last several years, and there’s trepidation that going even higher would cause consumers to balk.
Similarly, it’s not as if Walt Disney World has ever dropped prices when attendance was high and increased prices when attendance was low as a result of its per guest costs decreasing. To the contrary, Disney charges the highest prices when demand is up (e.g. Christmas and New Year’s) and drops them when attendance is low (e.g. September).
Simply put, if the company could have freely increased prices without seeing a corresponding lack of demand, they already would have.
While there’s a widespread belief that a lot of the recent trends are a result of recovering from losses during the closure, that’s not accurate. Today’s pricing phenomenon is occurring industry wide, and is a result of consumer demand far outpacing available travel bandwidth. Consumers were stuck at home, and there’s a desire to make up for lost time as a result.
Similarly, household balance sheets are (or were, until the last few months) stronger than ever, meaning that Americans had more money to spend on travel than ever. Travel providers, Disney included, observed this degree of inelasticity of demand and took advantage. That same dynamic almost certainly will not exist a year from now–or maybe even in a few months.
This might be difficult for some Walt Disney World fans to accept for a couple of reasons. The first is precedent. With a few brief exceptions, prices have only gone up during the post-Great Recession recovery. There has been a decade-plus run of costs consistently going up like clockwork as Disney has benefited from economic expansion and favorable demographics (e.g. nostalgic millennials having kids, more international tourists, etc).
Diehard fans also have a fundamentally different view of the parks than the vast majority of guests. For many of us, vacation means visiting Walt Disney World. There is no “substitute good” for what Disney offers. To be sure, a large swath of the general public views the parks the same way. There’s an emotional component to the calculation for that “rite of passage” vacation, but most people are not willing to pay any amount that Disney tells them is the cost. They do have a balking point or price ceiling.
This is the fundamental fallacy with the common refrain that the company will always keep raising prices because fans will never stop visiting. Fans alone are not enough to sustain Walt Disney World. (Even then, fans are not a monolithic group–some think Disney can do no wrong; others have decades of experience visiting and hold the company to higher standards than does the general public.)
If middle class Americans considering a first-time trip–far and away Walt Disney World’s single largest demographic–go to price out a vacation on DisneyWorld.com and the package price is beyond their budget, that’s it. They’re out. They move on to the next-best alternative, whether that’s the local Six Flags or a road trip to see America’s National Parks.
With that said, there is a longstanding view of the parks as recession-proof. (In part, this led to the investments we are now seeing–Parks & Resorts was viewed as a stable and reliable business unit.) During the global financial crisis, attendance at Walt Disney World held relatively flat.
This was an impressive feat, but that doesn’t really tell the full story. Walt Disney World got incredibly aggressive and creative with discounts, promotions, and celebrations. The success of Disney’s theme parks during the downturn doesn’t prove their inherently recession-proof. Instead, it should be construed as a testament to leadership at the time.
For starters, the celebrations were spectacular. Anyone remember Limited Time Magic, Year of a Million Dreams, Summer Nightastic, What Will You Celebrate, or One More Disney Day? All of those year-long (or multi-year, in the case of Year of a Million Dreams) festivities put the World’s Most Magical Celebration to shame.
Just think, the blockbuster bash for 50 years of Walt Disney World was outdone by the celebration held in some meaningless (milestone-wise) year back in the late aughts. The point is that those events were a ton of fun, well-marketed, and had strong word of mouth as a result. None of that was by accident–people at Disney made that happen and that’s a big reason why the parks weathered that economic downturn so well.
Another big reason–probably the big reason why Walt Disney World outperformed during the Great Recession was discounts. The deals during and coming out of the financial crisis were crazy. We did several inexpensive stays at Pop Century and Saratoga Springs thanks to deep-discounts and stacking deals. Many newer fans probably wouldn’t believe the bargains. Suffice to say, we were able to visit Walt Disney World more than once per year with wages from our jobs in college.
It was a great time for Free Dining, along with other more novel discounts. We were also big fans of the “Buy 4, Get 3 Free” deal, which provided 3 free hotel nights and ticket days–plus a $200 gift card–when you booked 4 nights. That was without a doubt the best discount we’ve ever gotten at Walt Disney World, blowing away even the legacy version of Free Dining.
Speaking of the Free Disney Dining Plan Deal, that was the golden age of that particular promotion. Back in those good ole days, Free Dining meant the free regular Disney Dining Plan even at Value Resorts, and it included appetizers and tips back then.
To be sure, Free Dining can still be a great discount for some, but it was a sure thing back then. No doing the math or comparing to room-only discounts was necessary. It was unquestionably the superior discount.
Going back a bit further to the previous economic downturn, there were also some exceptionally good discounts post-9/11. People paid <$200 per night for Deluxe Resorts, Wilderness Lodge in the low $100s, with Value and Moderate Resorts in the $40-80 per night range.
I don’t think it’s worth fixating on that too much. For one thing, we’re two decades removed from 9/11, and both the world and Walt Disney World are fundamentally different. For another, Americans were collectively apprehensive of air travel back in late 2001 and 2002. By contrast, Americans very much want to continue traveling now, but finances might preclude that from happening.
We’d caution against salivating about the prospect of unprecedented or aggressive discounts given that generalized desire to travel and the evolution of Walt Disney World in the last 15 years. Personally, I’d be shocked if Walt Disney World offers anything like the 4/3 deal or anything on par with that.
Disney has also learned a lot about marketing in the years since. It’s more likely that they start small, and try offering more illusory discounts at first. It wouldn’t surprise me if they start with“Free Dining Lite” or “Half-Free Dining” and other gimmicks that trade on the name recognition of the Free Dining offer and tries to capture anxious guests who are eager for that to return. Disney dumping unsold room inventory onto blind-booking sites is another likely scenario.
As for timing of discounts, that largely depends upon internal projections of hotel occupancy and attendance. If they’re already starting to see a slowdown in bookings for 2023 or are behind trend, the deals are likely to start sooner.
My concern is that people within the company will initially overestimate the strength and resilience of the parks & resorts. Walt Disney World has enjoyed an era of unprecedented prosperity–a time during which it felt like the business segment’s leaders could do no wrong. Even unpopular decisions were begrudgingly accepted, and Disney reaped incredible financial results. A decade like the last one can give rise to delusions of invincibility, and a lack of appreciation for the fickleness of consumers.
In that scenario, it’s possible that crowds fall rather than prices. It’s possible that attendance decreases regardless (or holds flat but appears to fall based on improved capacity and efficiency), but that’s more difficult to predict. That really depends on how Disney reacts, to what extent consumers pull back on travel, and the duration and degree of economic downturn.
During other recent economic downturns, Walt Disney World also made operational changes. Some venues were mothballed and costs were cut to the greatest extent possible. With Disney already pretty lean as it’s been unable to fully recover from the closure, it doesn’t seem like much of that would need to occur. To the contrary, it could become easier to reopen more and staff up certain venues if the labor market isn’t as tight.
One potential operational change is shorter hours. Probably nothing on par with the post-reopening period when the parks were closing at around 7 pm nightly, but Magic Kingdom closing at 9 or 10 pm and later opening times for the other parks wouldn’t be a surprise.
Another possibility is that projects are paused, delayed, or simply not greenlit. Outside of EPCOT, there’s not much happening at this point, so “not greenlit” is the most likely scenario. It’ll be interesting to see what is or isn’t announced at the upcoming D23 Expo.
It’ll also be interesting to see what happens with Disney Vacation Club development. There are several projects simultaneously underway, plus Aulani and Riviera still aren’t sold out. On top of that, the number of contracts hitting the resale market has exploded lately, which could be a canary in the coal mine.
Even if there is a recession or economic downturn, there’s uncertainty about its depths and duration. Many economists believe it’ll be a short and shallow recession due to underlying fundamentals. If there’s only a brief downturn followed by another sustained period of growth, Walt Disney World may feel minimal impact and implement few changes. In that case, we may never see any aggressive discounts–it could be more like a normalization bringing the parks back in alignment with pre-closure discount trends and demand.
Ultimately, it’ll be interesting to see how things play out and whether shifting sentiment and macroeconomic conditions impact Walt Disney World. To be sure, we are not “rooting” for a recession. Quite the contrary, as the negative human consequences far outweigh whatever benefits might exist with discounting, lower crowds, or whatever else.
Our best case scenario is that the United States avoids entering a recession, but pent-up demand naturally exhausts itself and weakening sentiment alone causes consumers to become more cost-conscious and price sensitive. That in turn should result in better deals and an improved environment without all of the downsides.
Regardless, hopefully you found this speculation interesting or illuminating. It’s something I find fascinating, and have touched upon it briefly in other recent posts about discounts, resorts, etc. None of those really did full justice to the topic, so I decided to dive deeper here. Admittedly, this might’ve been too deep and rambling, but on the upside, I can start linking to this post rather than wading back into this in future posts. So even if you feel like your time was “wasted” with this, you’ll still come out ahead in the long run! 😉
Do you think Walt Disney World’s prices will rise or fall in the coming year? Are you anticipating discounts on hotels, tickets, or dining if the United States enters a recession? Think they’ll do anything else–like another big celebration (that’s actually good) or limited time entertainment? Will you be ready to pounce on deals–or will you wait for a full economic bounceback? Do you agree or disagree with our commentary? 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!