Euro Disney Case Study

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case fourteen

Euro Disney: From Dream to Nightmare, 1987–94
Robert M. Grant
At the press conference announcing Euro Disneyland SCA’s financial results for the year ended September 30, 1994, CEO Philippe Bourguignon summed up the year in succinct terms: “The best thing about 1994 is that it’s over.” In fact, the results for the year were better than many of Euro Disneyland’s long-suffering shareholders had predicted. Although revenues were down 15 percent – the result of falling visitor numbers caused by widespread expectations that the park would be closed down – costs had been cut by 12 percent, resulting in a similar operating profit to that of the previous year. The bottom line still showed a substantial loss (net after-tax loss was FF 1.8bn); however, this was a big improvement on the previous year (FF 5.33bn loss). Tables 13.1 and 13.2 show details of the financial performance. Regarding the future, Bourguignon was decidedly upbeat. Following the FF 13bn restructuring agreed with creditor banks in June, Euro Disney was now on a much firmer financial footing. As a result of the restructuring, Euro Disneyland S.C.A was left with equity of about FF 5.5bn and total borrowings of FF 15.9bn – down by a quarter from the previous year. With the threat of closure lifted, Euro Disney was now in a much better position to attract visitors and corporate partners. Efforts to boost attendance figures included a new advertising campaign, a new FF 600m attraction (Space Mountain) which was due to open in June 1996, and changing the park’s name from Euro Disneyland to Disneyland Paris. In addition, Euro Disney had made large numbers of operational improvements. Mr Bourguignon reported that it had cut queuing times by 45 percent during the year through new attractions and the redesign of existing ones; hotel occupancy rates had risen from 55 percent in the previous year to 60 percent; and managers were to be given greater incentives. The net result, claimed Bourguignon, was that the company would reach break-even during 1996. The stock market responded positively to the results. In London, the shares of Euro Disneyland SCA rose 13p to 96p. However, this did not take the shares much above their alltime low. On November 6, 1989, the first day of trading after the Euro Disneyland initial public offering, the shares had traded at 880p. Since then, Euro Disneyland stock had been on a nearcontinuous downward trend (see figure 13.1). The Financial Times’ Lex column was also unenthusiastic: Still beset by high costs and low attendances, Euro Disney will find it hard to hit its target of breakeven by the end of September 1996. Costs in the year were reduced by FF 500m by introducing more flexible labor agreements (more part-timers, increased job sharing and the use of more students in the peak season) as well as outsourcing contracts in the hotel operation. But the company admits that the lion’s share of cost reductions has now been realized. Now it hopes attendances are rising...Getting people to spend more once they are at the park might be more difficult. Euro Disney is pinning its hopes on economic recovery in Europe. It’ll have to start paying interest, management fees and royalties again in five years’ time. Management will not say whether it’ll be able to cope then.1

Returning to his office at the end of the press conference, Bourgingnon sighed. Since taking over from the previous chief executive, Robert Fitzpatrick, in 1993, the 46-year-old had been engaged in a continuing battle to ensure the survival of Euro Disney. Now that survival was no longer an issue, Bourgingnon now faced his next challenge: could Euro Disneyland ever become profitable?

■ DISNEY THEME PARKS ■
Walt Disney pioneered the theme park concept. His goal was to create a unique entertainment experience that combined fantasy and history, adventure, and learning in which the guest would be a participant, as well as a spectator. Current Disney-designed theme...
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