It's a Small World, After All

Nov 14, 2005
*Special to asia!

Hong Kong Disneyland is by far the tiniest of the dozen or so Disney theme parks around the world. Both Hong Kong and Disney officials have downplayed the size issue, saying extensions are on the way.

But they failed to tell the Hong Kong peoplewhose money paid for most of the parkthat size is crucial in theme parks. The bigger it is, the easier to make money. Below a certain size, theme parks find it hard to survive.

On October 19, Stephen Ip, Hong Kong’s Secretary for Economic Development and Labour, told the Legislative Council that the government "may be asked for funds to finance the proposed expansion of Hong Kong Disneyland". This would happen if "revenue from the theme park’s operations and alternative funding sources (read "contribution from Disney itself") are insufficient to meet the capital outlay," he said.

Expansion is essential to the survival of Hong Kong Disneyland. "Theme parks typically have relatively high fixed cost and low variable cost. As such, they need to quickly gear up to hit the break-even point. After that, every little increase in visitor numbers translates into high marginal profits", said John Gerner, managing director of Leisure Business Advisers, a consulting firm in Virginia, in an interview with CFO Europe.

Gerner, who had helped the Walt Disney Company evaluate potential foreign theme park locations in Latin America, explained this was known in the theme park, hotel and airline businesses as "operating leverage". This is why hotels always go for renovations and theme parks emphasise new rides and other attractions. They are needed to generate traffic. "When you can add 10% to your attendance (thanks to a new ride), a lot of that goes straight to the bottom line," he said.

At 126 hectares, Hong Kong Disneyland can only accommodate 5 million visitors a year. This is way too low compared with others: 12.5 million for Euro Disney, 16.7 million for Tokyo Disneyland, 44 million for the parks in Florida. Even the original Disneyland in California, which celebrates its 50th birthday this year, draws in 13 million a year.

The current size of Hong Kong Disneyland makes it difficult for the park to break even. It desperately needs to expand, but expansion costs money. Ip said both the Hong Kong government and Walt Disney have agreed "to keep up the momentum to develop the theme park and expand the number of rides and attractions" to bring in more visitors. Guess who will end up footing the bill.

lee han shihLee Han Shih is the founder, publisher and editor of asia! Magazine.


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