Orlando Sentinel
By Jason Garcia
Sentinel Staff Writer
September 21, 2009


Disney's guided-tour business catches its breath

Amid the global economic downturn, the Walt Disney Co. is rethinking Adventures By Disney, the guided-tour business that executives hope can develop into a valuable niche in the company's theme-parks division.

For the first time since Adventures' inception, Disney is scaling it back. The company has cut scores of trips from Adventures' 2010 schedule and has dropped a handful of destinations — including Spain, Austria and the Czech Republic — entirely.

Analysts say the pullback reflects the difficulties even brand icons such as Disney face selling premium vacations — such as $6,500-a-person safaris through South Africa — in the midst of the worst economy since the Great Depression.

Adventures By Disney, said Sanford C. Bernstein & Co. stock analyst Michael Nathanson, "is being affected by intense pressure on the more-expensive family trip options."

Disney acknowledges that Adventures has been squeezed. "When you think about the economy, it's hard not to think of any business, in any industry sector, that hasn't been impacted," said Karl Holz, president of Disney Cruise Line and New Vacation Operations, which includes Adventures.

But the company says the reduced schedule is primarily the result of a strategic shift in which Adventures will offer fewer trips up front and add more later on if demand warrants. Boosters say the new approach will make the operation more flexible, more efficient and, ultimately, a better experience for guests.

Disney says it remains bullish about the future of Adventures By Disney. Company executives view their tour business — like their expanding cruise line and the stand-alone resorts planned in Hawaii and Washington, D.C. — as a way to diversify Disney's vacation offerings "outside the berm" of their signature theme-park resorts.

"You have to take a look at this business as an exceptionally young business. This business is really in its infancy," Holz said. "It's just giving our guests that trust and love Disney options away from our traditional destinations."

Disney tiptoed into the tour industry in 2005, offering only a limited number of summer trips to Hawaii and Wyoming.

But Adventures By Disney grew rapidly from there. This year's schedule includes more than 400 trips to 17 countries, with sights ranging from the lost Incan city of Machu Picchu and the 19th century Bavarian castle that inspired Sleeping Beauty's Castle at Disneyland to a Chinese giant-panda preserve.

The guided-tour industry appeals to Disney for a variety of reasons. Most important, it offers Disney — which has built a reputation for detailed customer service and storytelling in its theme parks — a chance to tap into the billions of dollars that families spend every year on nonpark vacations.

With sprawling theme-park resorts in Orlando, California, Paris, Tokyo and Hong Kong — and another in mainland China on the horizon — Disney dominates the theme-park business. But theme parks account for only a fraction of total leisure travel: Only about 6 percent of vacations include theme park visits, according to the most recent research by the U.S. Travel Association.

The same rationale is driving two of Walt Disney Parks and Resorts' biggest capital projects right now: The expansion of Disney Cruise Line, with two new 4,000-passenger ships; and the construction of an 830-room Hawaiian resort, with a mix of hotel rooms and Disney Vacation Club time shares.

"You know, a lot of people who visit our parks don't come back, and yet they continue to take family vacations," Disney Co. Chief Executive Officer Bob Iger said last year, after being asked about Adventures By Disney at a conference. "We would like to capture a little bit more of that spend with an experience that has all the brand attributes of the experience they might have when they go to our parks."

In addition, Disney says ventures such as Adventures By Disney help stimulate demand for the company's other products by introducing its brands to consumers in new markets. And Adventures' tours require little capital investment — Disney contracts out for services during its tours, rather than building its own infrastructure — so it generates relatively high returns.

Not everyone is convinced that Adventures can become a significant growth engine.

"Adventures By Disney is too small to be considered a major growth driver for the company," Nathanson said. "At best it is a nice brand extension that reinforces the qualities and attributes of Disney."

It certainly looks like it will be smaller next year. The 2010 schedule has 272 trips, down nearly 40 percent from the 429 scheduled this year. The number of itineraries has been reduced from 22 to 19.

Disney says some changes are the result of the usual vagaries of the tour business, in which some itineraries are often put "on hiatus" for a year or two while new ones are introduced. But it says the reductions are in large part driven by its new approach to scheduling.

Instead of scheduling large numbers of tours at the start of the year — and giving consumers more dates to choose from — Disney is now focusing on fewer tours around the dates that have proven to be most popular in the past. It can then add extra trips if there is sufficient demand.

Steering travelers into a condensed number of trips should make each Adventures tour more profitable for Disney and help blunt continued fallout from the sagging economy. But Disney says the move also benefits guests because it will lessen the chances that Disney will have to cancel trips that only small numbers of guests have booked, which forces those guests to reschedule their vacations.

Holz said the shift brings Disney's fledgling tour business more in line with how other operators schedule.