Advertisement
Advertisement
Disney
Get more with myNEWS
A personalised news feed of stories that matter to you
Learn more
Visitor numbers are down at Hong Kong Disneyland. Photo: Dickson Lee

Hong Kong Disneyland on roller-coaster ride amid expansion plans

Analysts question whether the US theme park remains a worthwhile investment for the city after it reports a loss for the second consecutive year

Disney

It would hardly be an exaggeration to say that Mickey Mouse had a roller-coaster ride in Hong Kong last year.

The Lantau-based Disneyland theme park ended the Year of the Monkey with a loss of HK$171 million due to dwindling visitor numbers from the mainland.
This comes as the park is planning a controversial HK$10.9 billion expansion project, of which more than half will be footed by taxpayers.

While Disneyland’s management is expected to come before the city’s Legislative Council with a funding request for HK$5.8 billion in the coming months, a question is left hanging in the air: is the US theme park still a worthwhile investment for Hong Kong?

The park operator is optimistic. “I am confident that the government, Disney and the Hong Kong community will support and continue to invest in this park,” Disneyland managing director Samuel Lau Wing-kei said at its annual results press conference on Monday, adding that the park was a major tourism infrastructure project to attract world visitors to the city.

First negotiated in 1998 when Hong Kong was desperate to recover from a financial crisis, the theme park, which opened in 2005, has blossomed alongside the city’s decade-long tourism boom.

But 12 years on, with fierce competition from the mainland and the region as well as a bleak business performance due to declining visitor numbers, it seems the Magic Kingdom will have to overcome a number of obstacles.

The Hong Kong government, which owns 53 per cent of the park, has not lost faith in the venture, strongly believing that the six-year facelift will bring substantial benefits to the community.

“Governments are willing to inject public money into theme park projects if they can generate additional tourist traffic, create new direct and indirect jobs, and also tax revenue if the park becomes profitable one day,” said Pascal Martin, partner at OC&C Strategy Consultants.

“In that sense, Disneyland in Hong Kong so far has not been very convincing,” he added.

Disneyland has been promoting the theme park, as in this Lunar New Year float. Photo: Dickson Lee

Remote, isolated, too small and offering ageing rides. These are the factors that have stopped Hong Kong Disneyland from copying the success of its Tokyo and US counterparts, Martin said.

This is despite substantial amounts of public money being ploughed into the park.

The government injected HK$3.25 billion for construction alone. Prior to that, HK$13.6 billion was spent on infrastructure and land development.

Disneyland now hopes to convince taxpayers that fresh investment is needed to turn its business around and bring benefits to the city.

But the park’s balance sheets do not seem convincing. The park recorded losses in eight out of 11 years. It dipped into the red again in 2015 and last year after three consecutive years of profit.

But experts said financial returns were usually not the priority of governments involved in the development of theme parks, as many cities around the world were still eager to house an internationally renowned facility despite the exceptionally long payback period.

“The governments look at a package of benefits from the park, not just tax revenue, [such as] improving the attractiveness of the city and attracting synergistic businesses and activities around the park,” Martin said.

He drew a comparison with convention centres, which might be money losers while bringing huge economic benefits to the likes of restaurants, hotels and transport.

To achieve this synergy, the industry expert said renovation of the park alone would not be sufficient if the plan was not part of a bigger scheme beyond the amusement park itself.

“A decade since its opening, [Hong Kong Disneyland] is still a small park and there is not much else to do around it,” Martin said. “The government may not have done the right level of urban planning around it to make it a long-term success.”

Universal Studios has become a major theme park player in Singapore. Photo: Handout

By comparison, the city’s rival, Singapore, appears to have done a better job in developing Sentosa, an island off the southern coast of the city state.

With the support of the local government, private companies have developed a host of attractions including Universal Studios Singapore, aquariums, hotels, shopping areas and casinos within an integrated resort on the island.

“That has made the trip a very rich and diverse tourist experience,” Martin said.

Visitor numbers to the resort reached a record high of two million in the third quarter of last year, according to the latest financial data.

Tourism receipts in Singapore bucked regional weakness, rising 13.9 per cent to an all-time high of S$24.8 billion (HK$136 billion) last year, the government there reported. International visitor arrivals grew 7.7 per cent to a record 16.4 million last year.

Hong Kong Disneyland will face even more competition from the region, with a host of theme parks opening in Japan, South Korea, Indonesia and Malaysia in the next few years, according to a recent research report compiled by the Legislative Council.

Whether Disneyland can fend off competition from the region remains to be seen, but the risks for Hong Kong taxpayers are not insubstantial.

Tadayuki Hara, associate dean of the University of Central Florida’s Rosen College of Hospitality Management, said in a research paper that a failing government-led theme park would “force the local authorities to consider direct injection to support its operation”, because the consequences of potential closure would be too much to bear.

A Japanese regional government had to step in to help the Huis Ten Bosch theme park. Photo: Bloomberg

Such a scenario was witnessed at Japan’s Huis Ten Bosch, a Netherlands-themed park. The regional government there offered a package of extraordinary relief measures to halt the slide after its operator went bankrupt in 2003. They included a full waiver of property tax for 10 years and preferential policies on the park’s facilities.

These measures helped the park survive long enough to be purchased by the current owner.

Hara said the case of Huis Ten Bosch demonstrated a vicious spiral in which deteriorating economic conditions would lead to declining capital formation, which in turn would restrict the ability of the park to inject capital for regular upgrades to maintain attractiveness and prevent management from retaining high-quality staff, which would eventually lead to a spiralling decline of visitors and cash flow.

The Hong Kong government is projecting a 5 per cent internal return rate on Disneyland’s six-year expansion – an increase it considers to be “financially viable”.

But some industry analysts said the estimated return was rather low compared with other theme parks, while accountancy sector lawmaker Kenneth Leung argued it was not bad given the current economic situation.

Chris Yoshii, global director in the leisure department at consultancy AECOM, said the financial return for international theme parks tended to be around 10 to 15 per cent.

“[The return for Hong Kong Disneyland’s expansion] sounds like a rather conservative assessment,” he said.

Despite some calls for the government to halt investment to stop the bleeding, Yoshii insisted the government’s long-term commitment was necessary to build a successful theme park.

“Theme parks must continually add features, new attractions and entertainment to generate repeat visits. It is a fundamental part of the business. Both Ocean Park and Hong Kong Disneyland have not had anything new for a few years. The decline is also associated with the lack of new attractions,” he said.

Unlike private investors who seek quick returns, the government could endure lower investment returns before the facilities become profitable, he added.

Though theme parks are described as a kind of “tourism infrastructure” by the government, Professor Brian King, associate dean at Polytechnic University’s School of Hotel and Tourism Management, highlighted their value to local residents.

He said theme parks were recreational facilities seen by governments as a way to enhance the quality of life for residents.

In 2015, about 40 per cent of visitors to the city’s two theme parks were locals.

Mike Wong Ka-fai from Chinese University’s School of Journalism and Communication said intangible benefits for local communities should not be underestimated.

Wong said Disneyland provided a place for families to spend time together, especially in cities like Hong Kong with a large population and little land. “It is a space to create memories,” he said.

“The fact that Hong Kong houses a brand name with international popularity tells a lot about the importance of our city,” he said, while adding some fun elements to the city as a whole.

Despite having to face greater competition from other amusement parks, Hong Kong should not underestimate the dominance of the Disney brand, its length of time in the market and the quality of its service, according to Allen Adamson, founder of BrandSimple Consulting.

“What can you do if your kids keep asking you [to go to Disneyland] at the breakfast table?” he asked.

THEME PARKS: THE HIGHS AND LOWS

Universal Studios Singapore

Opened in 2010, Universal Studios Singapore’s visitor numbers hit a record high of 1.2 million for the third quarter in 2016, despite overall economic weakness.

Unlike the isolated Hong Kong Disneyland, Universal Studios Singapore is located within an integrated resort on the island of Sentosa, off the southern coast of the city state. Resorts World Sentosa, which includes a host of themed attractions such as SEA Aquarium and Adventure Cove Waterpark, doubled its EBITDA in the third quarter, and its hotels are able to maintain strong occupancy rates of over 92 per cent.

Tokyo Disneyland, Japan

Opened in 1983, it is considered one of the most competitive theme parks in the world and welcomed 16.6 million visitors in 2015, ranking at No 3 globally.

The Kanto-based theme park has benefited from its ideal location, as some 30 million high-income people live within a 100km radius and JR Maihama station is right in front of its main entrance,

Unlike many theme parks developed by joint ventures between international brands and local authorities, Tokyo Disneyland is owned and managed by locally-listed Oriental Land. .

The firm has been investing in the theme park to refresh its facilities since it opened..

Paris Disneyland, France

Following the success of Tokyo Disneyland, Walt Disney opened its first European resort in 1992. It now covers two theme parks, many resort hotels and a shopping, dining, and entertainment complex.

Despite the majority share Walt Disney took in the Paris-based park, it did not repeat the magic seen in Tokyo. The resort is still struggling to turn a profit a quarter century after it first launched, recording losses in 17 of its 24 years even though 13.4 million people visited it in 2016, placing it in the top 10 in the world.

The park has been criticised for introducing unhealthy American consumerism to the historical city. It also suffered from the prolonged economic downturn in Europe and terrorist attacks in Paris.

As its biggest 85.7 per cent shareholder, Walt Disney had to bail out the ailing resort and waived two years of royalties and management fees starting in 2016.

Huis Ten Bosch, Sasebo, Japan

The Dutch-themed Huis Ten Bosch amusement park was built on a site similar to that used for Tokyo Disneyland along the Nagasaki coast in 1992. Led by the local government with an initial investment of 225 billion yen (HK$15.5 billion) – even more than the cost of Tokyo Disneyland (180 billion yen ) – the Sasebo-based theme park attracted 4.25 million visitors at its peak in 1996 before the figure shrank to 1.87 million 2008.

The operator declared bankruptcy with debts of 220 billion yen in 2003. Critics called the project one of the government-led “white elephants” after authorities and banks helped build too many parks in the 1980s and 90s based on overoptimistic economic forecasts.

However, threatened by the prospect of substantial damage to the local economy if the park closed, the regional government offered a series of relief measures, including a full waiver of its property tax for 10 years.

The troubled theme park was able to survive long enough to be bought by HIS, Japan’s largest discounted travel agency, in 2010. The firm invested two billion yen in the park. After an overhaul, it found its feet again, making a pretax profit of 10 billion yen in 2015.

This article appeared in the South China Morning Post print edition as: R o ller coaster r IDE
Post