Some people were surprised by the news that Disney had to
bail out Euro Disney. Why would a
company need to bail itself out? That
line of thinking exposes one of the biggest misconceptions about Euro Disney.
There are a number of reasons Disney had to bail out Euro
Disney. The first reason is simple. Disney can’t really afford to let it
fold. They can’t let it fold because Disney
does not own Euro Disney. In reality,
Disney only owns a 40% stake in Euro Disney.
If Disney wanted to fold the operation, they’d have to buy out the other
60%. The 1.25 billion Euros is far less
than the cost of buying out all of Euro Disney.
In the end, Disney could still find itself owning all of Euro Disney if
investors force their hand or are willing to take pennies on the dollar to get
out.
Beyond that, what is wrong with Euro Disney? There are a number of things.
1 – The economic collapse is still crushing Euro
Disney. Their occupancy drops as low as
75%. I wouldn’t be surprised if at times
it goes even lower. Most resorts that
can only muster 75% lose money. 75% might sound like a lot, but all resorts
aim for above 100%. How do you do
that? Dual occupancy in all rooms is
considered 100%. By adding more adults
or kids into a room, it pushes the occupancy beyond 100%. That’s why a resort can hit 100% occupancy
and still have rooms available.
2 – The Exchange rate.
Despite Europe’s economic woes, the Euro is still worth a good amount
more than the dollar. This results in
sticker shock for Americans. Most
American’s cannot afford to go to Euro Disney.
Between the airfare and exchange rate, it’s far cheaper to go to Disney
Land or Disney World.
The exchange rate means something else too. It means Europeans can go to Disney World for
not much more than it costs them to go to Euro Disney. That kills Euro Disney, since Disney World
is a much better resort.
3 – Location – Euro Disney is roughly forty minutes outside
of Paris. That might not sound like
much, but most tourists outside of France or nearby countries, are not going to
drive. This means you are facing a 40
minute bus ride, a train ride, or the large expense of renting a car, if you
want to stay in Paris and visit Euro Disney.
That leads to another issue.
Unless you are fairly affluent, the odds of you being able
to visit Europe on a regular basis are fairly small. For the cost of Euro Disney vacations, you
could see Paris and take the train to London to see that too. I think it’s safe to say that a Paris /
London trip is on more bucket lists than Euro Disney is.
Hopefully this gives you an idea of why Euro Disney has
always had its share of economic problems.
There is no easy fix to the
problems. Even if Disney had total
control and no investors to worry about, they’d still have issues. They’d be eating more of the losses than they
are now. That would drag down their
stock value. Now maybe you see what
Disney is in a catch 22 when it comes to Euro Disney.
