How Disney Sailed Off With $1.6 Billion From Its Cruise Line

Disney banked a total of $1.6 billion of dividends from its cruise line over its first 25 years in business according to detailed analysis of its financial statements.

The strength of Disney’s brand makes it a bellwether of the cruise industry but it wasn’t even a player just 25 years ago. The Mouse first dipped its toe in the water in the mid-1980s when it signed a partnership which allowed Premier Cruise Lines to sell combined cruise, hotel and theme park packages and offer on-board appearances from Disney characters. In 1993 Premier decided to partner with Warner Bros. instead and although it continued to offer land and sea packages with Disney’s parks, it also added Universal Studios as an option. The led Disney to approach Carnival and Royal Caribbean about becoming its exclusive sea partner but the talks sunk without a trace.

In 1998 Disney decided to take the plunge and launched its own ship, the Disney Magic. The 85,000-ton liner has 875 rooms and an Art Deco style which evokes the golden age of cruising. The experience on-board is much more modern with appearances by cuddly characters and theaters showing Disney musicals.

Disney founded the Magical Cruise Company to operate its fleet and chose to base the business in the UK which had a significant consequence. Disney’s filings in the United States don’t disclose the results of each of the individual businesses it owns but UK companies have to file documents which go into detail about their financial performance.

Trends in the Magical Cruise Company’s revenue closely reflect the number of ships in its fleet. In 1999, it added the Disney Wonder which shares a similar specification to its sister ship. It doubled Disney’s capacity and, crucially, allowed it to serve more markets.

In the company’s first five years it made a combined net loss of $102.6 million as start-up costs swelled. However, since then it has only made a loss five times with the first three falling between 2009 and 2011, another period of expansion.

In 2010 it finished the year $68.2 million in the red fueled by a 10.5% fall in revenue to $411.4 million just before its third ship, the Disney Dream, launched in January 2011.

The company’s financial statements reveal that the Dream cost $760 million and, at around 130,000-tons, the 1,250 room ship was bigger than its predecessors. It was the first in the world to feature a water coaster, a slide which uses powerful jets of water to send riders hurtling up and down a network of clear tubes. It has made a splash.

As the graph below shows, in 2011 the company’s net loss narrowed to $52 million as an increase in revenue outstripped rising costs. It turned the corner in 2012 when it launched its fourth ship, the Disney Fantasy. With a similar weight and room number to the Disney Dream, it only cost a little more at $810 million.

The fourth ship helped to boost revenue by 43.1% to $924.7 million in 2012 and although the company only made a $0.4 million net profit, the lowest in its history, it was back in the black after a hefty loss the previous year.

By 2013 it made a $44.6 million net profit and sailed full steam ahead until the pandemic. In fact, as shown on the graph below, the company’s revenue more than doubled in the five years after it launched its third ship in 2011.

Disney began to reap the rewards in 2017 when the Magical Cruise Company paid its parent a $205 million dividend followed by $970 million in 2018 and $400 million the following year. It brought Disney’s total dividend to $1.6 billion by 2019 when the cruise line’s revenue hit an all-time high of $1.6 billion. Buoyed by this success, Disney announced that it had ordered three new ships but these plans were blown off course by the coronavirus.

The pandemic grounded Disney’s fleet in March 2020 when the company was in the middle of its financial year. Accordingly, revenue from its cruise line only dipped by 54.4% in 2020 as we recently revealed in The Times of London. The biggest impact of the pandemic was felt in 2021 as sailings didn’t resume until three months before the end of the cruise line’s financial year. Disney’s ships returned to service in stages and they weren’t all on stream until October 2021 when the financial year was coming to a close.

“The company’s fleet ship occupancy for financial year 2021 was 44% when operating. During 2021, ship occupancy levels were significantly lower than normal,” says Magical Cruise Company director Tracy Wilson. “The company experienced increased cancellation and booking postponement requests which led to refunds, cruise credits of 125% of the reservation amount as well as future booking payment deferrals.”

As a result of this, the cruise line’s revenue dived by 86.5% to $98.7 million over the 12 months to 2 October 2021 according to its latest financial statements. However, its costs only fell by 27.3% to $732.6 million leaving it with a net loss which more than doubled to an all-time high of $629.5 million in 2021. The tide has turned since then.

“We have seen an increase in occupancy levels in FY22 to 55% as of June 2022,” says Wilson. Reflecting this, the financial statements reveal that cruise deposits rose 28.6% to $537.8 million in 2021 and that trend is continuing.

“In financial year 2023, occupancy is anticipated to continually increase and exceed the comparable actual financial year 2022 quarterly levels,” says Wilson.

She adds that Disney expects the cruise line to “return to profitability in financial year 2023 as the industry recovers from a prolonged impact of COVID 19 and the business benefits from expanded capacity with the introduction of the Disney Wish, the company’s fifth cruise ship.”

The Disney Wish launched in June last year and was Disney’s first new ship in a decade. It features the latest generation of Disney’s water slide which has screens set into the side of the tubes to tell a story about Mickey Mouse whilst riders rocket past on rafts propelled by powerful jets of water.

Built at Germany’s Meyer Werft shipyard, the Disney Wish has 1,254 rooms and is is valued in the financial statements at $1.4 billion, five times the amount that the Disney Magic is worth.

Disney will launch three more cruise ships over the next three years including one which will be the world’s largest by passenger capacity as it will accommodate 6,000 people. Disney acquired it in November for a reported $44 million after its previous owner, Genting Cruise Lines, fell into administration. The ship is still under construction and the accounts reveal that the cost of completing it is “anticipated to be less than our recent fleet additions”.

According to the financial statements, in 2021 the cruise line’s headcount fell by 30.5% to 2,970, its lowest level in more than a decade, though staff pay only dropped 20.3% to $153.7 million. Staff numbers are set to swell with the launch of the new ships and the opening in 2024 of Disney’s second private island in the Bahamas.

Despite this growth, Disney’s cruise line will still be a minnow of the industry. Data from industry monitor CruiseMarketWatch shows that in 2021 Disney had just 2.2% of the market for passengers and 2.7% of the total revenue. It is a far cry from industry leader Carnival, which has a 37.1% share of revenue and carries a whopping 42% of the passengers.