Disney’s Parks Need a Cure - The Wall Street Journal

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Hong Kong Disneyland opened its doors to visitors on June 18 for the first time... — Hong Kong Disneyland opened its doors to visitors on June 18 for the first time in nearly five months.
Photo: Kin Cheung/Associated Press

June 26, 2020 6:30 am ET

Disney looks in for a rougher summer. But getting its theme park business back on track was always going to take more than face masks and favorable spreadsheets.

The entertainment giant was on course to reopen its U.S.-based parks next month, but rising cases of Covid-19 across the country have thrown a wrench in those plans. The company delayed the opening of its Disneyland theme park in California late Wednesday, giving no new date. As of late Thursday, the Disney World park in Florida still maintains a reopening date of July 11 on its website. But even that looks questionable at this point given the pandemic’s recent upward trend in that state. Apple said Thursday it is closing most of its recently reopened stores in Florida.

Disney’s share price slipped a bit Thursday and is down 6% over the last five sessions, as the pandemic’s renewed spread has cooled the market’s widespread faith in a quick recovery. Disney had been a prime beneficiary of that sentiment, given its strong exposure to businesses that rely on crowds. The stock jumped 48% from its low point in late March to a new three-month high earlier this month.

But whenever the company does manage to open its U.S. parks, it will be some time before they can return to their role as one of its largest profit drivers. The domestic parks are expected to reopen at sharply reduced capacity; Shanghai Disney reopened last month at 30% capacity. Disney Chief Executive Officer Bob Chapek has maintained that the company wouldn’t reopen a park without at least the ability to cover its variable costs, but analysts expect more will be needed to get parks fully back into the black. Bernstein analyst Todd Juenger estimates Disney’s parks would need to be at 60% of their “normal run-rate attendance” to reach break-even on a pretax basis.

Break-even, of course, ultimately isn’t sufficient for a business that produced $4.4 billion in operating profit last year. But to get there, Disney may have to rely on the wonders of modern medicine. On Thursday, UBS reported results of a survey of 2,000 U.S. consumers conducted earlier this month. In that survey, among the respondents who had cited worries about social distancing as keeping them from visiting, nearly two-thirds said they would only consider attending a Disney park once a vaccine is available.

UBS analyst John Hodulik concluded that a vaccine will be key for Disney to get its parks back to full capacity. For some problems, loads of hand sanitizer just aren’t enough.