***Disney has since denied any plans to start an airline, however, I am keeping this post active because the ideas explored (should they start an airline) remain valid if they were to start an airline. In the introduction, I mentioned “it’s been reported” or “announced” which remains correct. I also wrote “if true” as Disney had not yet confirmed it publicly.***
It’s been reported that Disney will soon launch their own airline. If true, is this the best or the worst idea they’ve had in recent memory?
Disney Airline Coming in 2021
It’s been reported that Disney will acquire small regional carriers to form their wholly-owned subsidiary airline. They intend to serve major hubs like Chicago, New York, LAX, and Detroit.
Disney has purported to indicate some aspects of the service they intend to operate. They intend to carry signature Disney catering items like Mickey Mouse shaped ice cream bars, warm churros, amongst others. Customers will be given an included checked bag if they have booked a Disney resort with a scheduled checkin within 48 hours.
”If You Want to Become a Millionaire…”
Richard Branson and Warren Buffet have terse words regarding the airline business, and both of them know a thing or two about business and trying to make money from flying tin.
“If you want to be a Millionaire, start with a billion dollars and launch a new airline.” – Richard Branson, 2001
Warren Buffett isn’t positive about the airline business either, in fact, his words are much stronger. While his business now owns substantial stakes in US carriers, he has been bearish on them in the past.
“Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”
The truth is that the airline business is hard and always has been. It’s so hard that when a CEO says the business will never lose money again, it’s cause for laughter. Why is Disney getting into a side of the business where it has, historically, been difficult to succeed?
Best Idea: Controlling the Experience
Everything within Disney parks is fairly well captured. Food and beverage, entertainment, toys and souvenirs, ticketing and even photography are all controlled and sold by Disney. This is particularly advantageous when it comes to hotels the brand owns by which they can extend the experience to breakfast with characters and special access to the park. Disney also charges a premium for such properties.
Airlines can fly from almost any dot on the map to Orlando and make money all year long. This isn’t solely due to Disney but it’s a big part of lasting success of routes to MCO.
Incentivize Slow Periods, Capitalize on High Season
By owning every segment of the customer experience (flights, hotels, parks, and restaurants) Disney can sell complete end-to-end experiences where they control the entire experience, pricing and consumer spend. This will give the brand the ability to market and sell flights profitably in busy seasons and cheaply in slower seasons.
Filling seats on airplanes during slow season will put heads in beds, and butts in seats on rides and in restaurants too. Not only will that lead to more control of the experience and pricing, but keep costs in-house instead of depending on airlines who are focusing elsewhere on their business.
Disney commands a premium for their products – not just the parks and hotels, but all their products. For example, take a look at the price of their movies sold on the iTunes store. A good sale is $10 each, but often they are priced at $20 and never really move.
Disney has done a great job of perfecting their experience and people have been conditioned to pay more for Disney. Being able to start the Disney experience earlier, and knowing the quality of product and services will lead customers to pay more for a complete experience.
Worst Idea: The Airline Business
Disney’s stock has been on a tear lately. I pay attention to it solely from an interest in business and that my parents gave my daughter some shares as an investment plan when she was born because they thought it’d be a brand she’d take interest in. This year it’s up 40%+ and has hit several all-time highs.
There’s nothing worse for a successful company than starting an airline and this idea is bad for a number of reasons.
The carrier is flying to hub cities for carriers that already bring in hundreds of travelers every year. Those travelers already have many direct options from their cities, lots of competition and would go seemingly unnoticed in the marketplace.
Take Chicago for example. Currently, customers have a choice of 11 Saturday non-stop flights from O’Hare on United (5), American (4), Spirit (1), and Frontier (1) on equipment as large as a 757-300 and no smaller than a 737-800. But that seems like child’s play to the near shuttle service Southwest operates out of Midway with their nine non-stop flights and three “direct flights.”
Without doing a separate search for the Los Angeles market (LAX, BUR, SNA) or the New York City market (LGA, JFK, EWR) it seems absolutely perplexing that the environment Disney would choose first would be the most saturated with seemingly insurmountable competition.
Even if Disney chose medium-sized markets with limited flights to Orlando, they’d still compete with price-conscious travelers that will connect in those same hubs with established carriers for presumably cheaper prices. Looking out in the near future (as of publication, less than one week notice, Friday, July 26th, 2019) non-stop roundtrips start at $282 in basic economy, $382 for standard economy.
As soon as August 14th (close-in, high season booking) you can snag seats for $99 roundtrip on Frontier. Even after adding in all the fees (checked bag for each family member, seat selection, etc.) families will still be able to stay under $200 per head.
And this is summer on short notice. Why on Earth would Disney want to join that market?
Buying regional carriers is vague but putting in some inference I would assume these will be struggling charter carriers that have already passed the hardest part, securing their commercial operating certificate. Assuming that to be the case, the equipment they’d buy would not likely be new aircraft. That means the Disney fleet will likely be full of older model 737s and A320s that will require higher maintenance and be less fuel-efficient than more recent models.
The Disney stock (DIS) is having its best year in recent history. They completed a merger with Fox and now own the Marvel franchise among others. They have a monster year of releases including Aladdin, Dumbo, Frozen 2, and Toy Story 4 among others. They opened twin park additions with Star Wars Galaxy Edge this year in Disney World and Disneyland. They have also worked on and are planning to soon launch a Disney streaming service – which we will add for our five-year-old without even knowing what it will cost or include.
Their hubris has gone a step too far. In a year where Disney can’t seem to lose, they are getting into a business that is notoriously difficult for experienced operators in excellent environments. Launching to highly competitive markets with low revenue, older planes and no experience seems like a recipe for disaster.
What do you think? Would a Disney airline a great fit or a terrible business move? Would you pay more to fly a Disney airline for the added experience?