Second-best attendance predicted for Disney

PUBLISHED : Saturday, 12 September, 2009, 12:00am
UPDATED : Saturday, 12 September, 2009, 12:00am

Attendance at Hong Kong Disneyland this year is expected to edge up slightly to about 4.5 million, its second-highest so far, despite the global downturn and swine flu fears, according to sources familiar with the theme park's operation.

Since the park opened four years ago, the number of visitors has see-sawed, reaching about 5.2 million in the first year, then dropping to 4.17 million before rebounding to 4.48 million in 2007-08.

From last October to May, 3.13 million people visited. But summer attendance, especially from the mainland, suffered because of fears of human swine flu.

'Attendance will probably be flat or up a little compared with last year,' the sources said. 'Even though we're still making a loss, we managed to improve our finances.'

Disney's financial period runs from October to September.

At rival Ocean Park, attendance fell about 5 per cent this year compared with last - from 5.03 million to about 4.78 million - but it was still the third-best year in its history.

According to the Hong Kong Tourism Board, the number of visitors to the city fell 13.4 per cent year on year in May, 15 per cent in June and 12.2 per cent in July. The number of mainland visitors was down 9.6 per cent in May, 11.6 per cent in June and 13.7 per cent in July.

Details about Hong Kong Disneyland's performance, including attendance, revenue, and costs and expenses, will be announced annually from the current financial year under a deal with the government to add more attractions. However, the figures must first be filed with the US Securities and Exchange Commission, meaning they will not be publicly disclosed until about five or six months later.

Expanding the Disney park is essential to boost attendance and the bottom line. Disney is especially keen to improve the return on its investment, since the amount of management fees it can collect is now linked to the park's performance.

Under the expansion deal negotiated with the government, the formula for its base management fee was changed from 2 per cent of gross revenue to 6.5 per cent of earnings before interest, taxes, depreciation, and amortisation, or ebitda.

The changes are significant. In the park's second year, for example, total revenue reached HK$2.36 billion, allowing Disney to collect a base management fee of 2 per cent, or about HK$47.28 million. Had the new formula been in place then, Disney would have received nothing, as ebitda amounted to a deficit of HK$272 million.

After deducting depreciation and interest expenses, the theme park recorded a net loss of more than HK$1.51 billion in the second year of operation, according to confidential documents.

Revenue is derived from selling tickets, food, merchandise and other goods and services. Disney can still benefit handsomely from a loss-making park as long as people spend money on food and merchandise, which is the revenue source it derives most of its royalties from.

In the third and fourth years of operations, Disney agreed to waive its management fees and defer royalties in a bid to shore up finances. Although the park will have to resume paying these fees from next month, the sources said the deferred royalties may not need to be paid if certain conditions are not met.

A HK$3.63 billion expansion will add three new themed areas, for a total of seven 'lands', and see the area of the park increase by about 23 per cent. To facilitate the expansion, Disney will inject new funds while the government will use previous loans to the park to buy more of its shares.

The changes will lower the government's stake from 57 per cent to 53.43 per cent and increase Disney's holding from 43 per cent to 46.56 per cent by the end of this month.

Not just Mickey Mouse

A HK$3.63 billion expansion will add three new themed areas

The area of the park will increase by: 23%