Disney aims to wring more revenue from new ship

From the Orlando Sentinel....


Arguably the most innovative new feature on the Walt Disney Co.'s Disney Dream cruise ship is the "magical porthole." Installed in all of the 4,000-passenger ship's windowless interior cabins, the round, high-definition video screens offer real-time views of the sea — and occasional surprise visits from Peach, the starfish from Finding Nemo, or Mickey Mouse as "Steamboat Willie."

That addition has allowed Disney to command significantly higher rates for its interior cabins, which are typically the cheapest rooms on a ship. According to researchers at the investment firm Goldman Sachs, interior rooms on the Disney Dream are selling for 60 percent more than similar cabins on Royal Caribbean International's Freedom of the Seas and 78 percent more than Carnival Cruise Lines' Carnival Dream — both of which, like the Disney Dream, are based at Port Canaveral.

The Dream's pricier Verandah rooms, by contrast, are selling for a 25 percent premium over Royal Caribbean's and a 66 percent premium over Carnival's.

"It has made what are some of the least desirable rooms on the ship into some of the most desirable rooms," Disney Cruise Line President Karl Holz said.

The "magical portholes" are among scores of adjustments and improvements Disney has made with its newest cruise ship as it aims to maximize nightly room rates and onboard-spending levels, the two key drivers of cruise-ship revenue. Boosting such spending will be vital if Disney is to recoup its more than $1.8 billion investment in the Dream, which departs on its maiden voyage Wednesday, and the Disney Fantasy, which will set sail early next year.

Disney executives, who say the Dream's new features were based on requests made by guests, are confident the ship will perform as well as the company's first two cruise ships, the Disney Magic and Disney Wonder, which have exceeded expectations since they debuted in the late 1990s. Analysts, too, are optimistic.

"I would expect the new ships would be even more profitable for them," said Assia Georgieva, a principal with Infinity Research, an investment-research firm in Boca Raton.

The Disney Dream is not only larger than the Magic and Wonder — which company executives, anxious to avoid perceptions that the older ships are outdated, now refer to as their "classic" ships — it is also laid out more lucratively.

For example, 1,100 of the Dream's 1,250 staterooms — or 88 percent — are outside cabins offering occupants views of the ocean. That's up from a little more than 70 percent of the rooms aboard the Magic and Wonder, each of which has a total of 877 cabins.

More significantly, 72 percent of the Dream's rooms have verandas, compared with just 41 percent on Disney's first two ships. Rooms with private balconies are the most coveted on a cruise ship; they typically garner rates 50 percent to 60 percent higher than interior rooms.

Thanks in large part to the improved cabin mix, the Dream is commanding an average nightly rate of $233, according to Goldman Sachs' research. That's 24 percent more than the $187-a-night average on the Magic.

Disney is following in the footsteps of larger cruise lines, which have all been designing new ships to maximize the number of exterior and balcony rooms.

"Everyone has been actively trying to reduce the number of inside cabins," Georgieva said. She noted that Disney's "magical portholes" are similar to advances Royal Caribbean has made with its gigantic, 2,706-room "Oasis"-class ships, which feature interior cabins with balconies overlooking a park.

Like other cruise lines, Disney has also taken steps with the Dream to get guests to spend more money onboard. Among the ship's features: Remy, a limited-seating French restaurant themed around the animated film "Ratatouille,"which will charge guests an extra $75 a person on top of their base cruise fare. The most exclusive eatery aboard Royal Caribbean's Oasis-class ships charges an extra $30 a person.

And Remy is in addition to Palo, the primary add-on-dining option aboard the Magic and Wonder. Travelers on the Dream will pay a $20-a-person premium to dine in that restaurant, which offers Northern Italian cuisine.

Such boutique experiences are especially important for Disney, which, unlike its cruise competitors, does not offer onboard casinos. Casinos are typically one of the two biggest drivers of onboard spending — beverage sales are the other — but Disney has deemed gambling incompatible with its family brand.

Analysts say Disney is able to make up for the absence of casinos because of better-than-average merchandise sales, driven by the popularity of Disney-branded products ranging from plush toys to DVDs. Sure enough: The Dream has more than twice as much retail space as the Magic or Wonder.

Although Disney will not provide detailed breakdowns, Holz said Disney Cruise Line's onboard revenue is "well-balanced" between merchandise sales, beverage sales and shore excursions.