HK Disney falls short on promises
Problems continue to plague Hong Kong Disneyland, whose low attendance numbers fell even more this quarter toward levels that will see the Disney company break performance promises with its lenders.
The company said the Hong Kong park drew fewer visitors from October to December 2006 than in the same period the previous year amid otherwise stellar first-quarter fiscal year 2007 results. Attendance and sales at the park also fell short of projections.
"If these trends do not significantly improve," Hong Kong Disneyland will not meet performance promises it made to bank lenders, Disney said in a filing with the US securities regulator.
Disney will then be forced to refinance the US$294 million (HK$2.29 million) in debt taken out for the park.
"The early going in Hong Kong has been more challenging than we had hoped," Disney chief financial officer Tom Staggs told analysts gathered at Walt Disney World in Florida for the company's 2007 investor conference.
"The decreases at Hong Kong Disneyland … were primarily due to lower attendance and guest spending," the company said in its report.
Disney executives in California and Disneyland representatives in Hong Kong have long insisted that the park was doing well. But during an investors' meeting to discuss the first-quarter results, the company admitted changes are necessary.
"Hong Kong Disneyland is developing a little more slowly than we expected in 1999 when the deal was put together," Walt Disney Parks and Resorts chairman Jay Rasulo said.
"We identified some challenges to be addressed in the near term, particularly in sales and marketing and in the seasonality that the resort is experiencing," Rasulo said.
Disney announced Wednesday that first-quarter profits more than doubled after two of its studio's releases, Pirates of the Caribbean: Dead Man's Chest and Cars, became the two biggest DVD sellers of 2006.
The company's net income for the quarter rose to US$1.7 billion, from US$734 million the previous year.
Theme parks posted a profit of US$405 million, up 8 percent from a year ago. Revenue from all of Disney's parks rose 4 percent to US$2.49 billion.
Walt Disney sees the Hong Kong theme park – which they refer to as "our flagship in China" – as a leading example of the company's top-priority effort to expand internationally. It has been hoping to use the Hong Kong experience to gain Chinese government approval for a theme park in Shanghai.
Hong Kong Disneyland is operated by Hong Kong International Theme Park, a joint venture between Walt Disney and the SAR government.
Hong Kong Disneyland vice president for public affairs BC Lo said in an emailed statement that the management of the park is taking "a number of steps to address challenges" and is also considering future opportunities to expand the park, which many say is too small.
"It is important to remember that a significant amount of Hong Kong Disneyland's business will come in the third and fourth quarter as it does in all Disney Parks around the world," Lo said.
In preparation for the upcoming Lunar New Year holiday, Hong Kong Disneyland launched a marketing campaign on February 2 that sees traditional Disney characters Mickey, Goofy and Donald Duck frolicking around the park in traditional Chinese clothing. The park has also been decked with red and gold decorations said to invite prosperity and good fortune.
And the beleaguered park may need the luck it can get.
Last year, the park did not adequately prepare for the annual holiday, which sees millions of mainlanders flooding into Hong Kong attractions. Droves of visitors with valid tickets were turned away from an overcrowded park.
This year to ensure a similar situation does not recur, the park designated February 17-24 as so-called `Special Days' and only people holding date- specific tickets will be allowed entry.
"The government sees Hong Kong Disneyland as a long-term investment," a Tourism Commission spokeswoman said. "We cannot jump to conclusions from the early poor performance."