Disney Cruise Line Unveils Exciting Plans for New Fleet Expansion

Oriental Land is spending $2.1bn on a cruise ship based on the Disney Wish (Photo by Hauke-Christian Dittrich/picture alliance via Getty Images)

The operator of Disney’s cruise line in Japan has revealed plans to expand its fleet if its first ship is a success.

Earlier this month Disney announced that its cruise line will venture into the Japanese market for the first time in its 26-year history. It has a natural home as the cruise terminal on the outskirts of Tokyo is just a 12 minute drive from a Disney resort with two theme parks and six hotels.

It is the world’s only Disney-branded resort which isn’t owned or operated by the media giant. Disney receives a royalty on its sales and is contracted to design the attractions in the resort which is run by Oriental Land Company (OLC), a specialist leisure operator listed on the Nikkei exchange. OLC is now dipping its toes in cruises too.

Following the same model as its theme parks, OLC is spending $2.1 billion (¥330 billion) to build a 1,250-room cruise ship based on the Disney Wish which launched in 2022 and was the Mouse’s first new ship in a decade.

Like the four other ships in Disney’s fleet, the Wish has an Art Deco atmosphere, resembling the regal ocean liners from the golden age of cruising. There are photo opportunities with cuddly characters on-board as well as Broadway-caliber shows based on Disney’s classic cartoons. Its unique selling point is an innovative water slide with 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.

Starting in 2029 it will sail on two to four night cruises from the Tokyo area and Disney will get a royalty on the sales. It is set to make a splash.

Guests will be able to combine their cruise with a visit to Tokyo Disney Resort.

OLC is forecasting annual net sales of $650 million (¥100 billion) within the first few years with an approximate operating margin of 26.7% yielding profits of around $174 million. That’s just the start.

Buried deep in OLC’s filings is the revelation that if the first ship is a success, “operating multiple ships will be expected in future.” It stresses that although OLC is “looking to operate a fleet of several ships in the future, we will initially focus on getting our first ship on track.” It has the wind in its sails.

The filings claim that “the number of cruise passengers is increasing every year in Japan, with further growth expected” and this is no exaggeration.

Since cruising emerged from the stormy waters of the pandemic it has gone from strength to strength as it offers cost-effective vacations often with food and drinks included. A recent report from the investment bank J.P. Morgan noted that “cruise voyages – which often work out cheaper than land-based vacations – are growing in popularity.”

It added that the appeal of cruising is set to swell amidst an increasingly cautious climate of consumer spending. This reflects the findings of the Cruise Lines International Association (CLIA) which expects the global number of cruise passengers to reach 34.7 million this year, up 17% from 2019.

It is being fueled by travelers who haven’t been on a cruise before. During its first-quarter earnings call, Carnival Cruise Line noted there was a healthy mix of “new-to-cruise” customers in its 2025 bookings to date, with the group increasing by more than 30% compared to a year ago. There is good reason for this.

According to J.P. Morgan Research’s recent Cost of Living survey, only 29% of respondents still have excess savings, and 45% expect to spend less in discretionary categories over the next 12 months. The tighter their purse strings become, the more they are drawn to cruising as a cost-effective way to vacation. J.P. Morgan Research estimates the cruise industry will capture around 3.8% of the $1.9 trillion global vacation market by 2028 and Disney is on the crest of this wave.

Disney’s filings in the United States don’t disclose the results of all of the businesses it owns and only give general guidance on its cruise line. However, its fleet of five ships is run by Disney’s Magical Cruise Company subsidiary in the United Kingdom where it files annual financial statements. They lift the lid on its performance as we recently revealed in British business newspaper City A.M.

Its latest financial statements reveal that in the year to September 30, 2023, Disney’s cruise line sailed past the $2 billion revenue mark for the first time in its history. Demand surged as the pandemic receded and the Disney Wish entered its first full year of operation.

Revenue rose 90.6% to a record $2.2 billion, leaving the five cruise liners with a total operating profit of $193.6 million, which is only 11.3% more than OLC expects to get from one ship. Nevertheless, Disney’s cruise line is still steaming ahead as its $180.5 million net profit was up from a $325.8 million loss the previous year. Occupancy hit 95% in 2023 and rose to 97% in December last year. The financial statements add that so far, “in fiscal 2024, the company has seen occupancy and booking levels continue to perform well, with occupancy exceeding the comparable 2023 financial period quarterly levels.”

Disney Cruise Line has been contacted for further comment and this report will be updated with any response. The financial statements forecast that the cruise line “will maintain profitability in 2024 due to favourable cruise industry demand coupled with the expanded capacity of the fleet.”

Data from market analyst CruiseMarketWatch shows that Disney carries 2.8% of cruise passengers and generates 4.2% of the total revenue. It is a minnow compared to the industry leader Carnival, which has a 37.3% share of the revenue and 42.9% of the passengers. However, in order to capitalize on the increasing interest in cruising, Disney has embarked on a wave of expansion.

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Last month Disney launched its second private island, Lookout Cay.

Last month it opened Lookout Cay, its second private island destination in the Bahamas, and will launch three new ships over the next 18 months. The first comes in December when its sixth ship, the Disney Treasure, sets sail. This will be followed next year by the Disney Destiny and the Disney Adventure which will be based in Singapore. The Adventure will able to hold 6,700 passengers making it one of the world’s largest ships by capacity.

It stands in stark contrast to the cutbacks in other divisions of Disney. Notably, its studio which is slashing spending on entertainment content by $4.5 billion to $25 billion in the current financial year after its Disney+ streaming platform burned up more than $11 billion of losses since it was launched in 2019.

Combined with a decline in cinema admissions, it has led to the dominance of Disney’s ‘Experiences’ division, which includes its theme parks and cruise line. Disney’s latest results show that in the second quarter, Experiences accounted for more than a third of its revenue and nearly 60% of its operating income.

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However, the company’s stock tumbled in May after Disney’s chief financial officer Hugh Johnston warned that its upcoming third quarter results will show an attendance drop in its theme parks due to “a global moderation from peak post‐COVID travel”.

Tremendous pent-up demand to travel built up during the pandemic and travelers were flush with furlough money. So when lockdown ended they were prepared to pay a premium and wait in long lines in order to go on theme park attractions. However, the furlough money has long since been spent and the travelers who wanted to visit parks have now done so which explains why Johnston said that “relative to the post‐COVID highs, things are tending to normalize.”

In a recent report, Brandon Nispel of KeyBanc Capital Markets forecast that Disney’s domestic park business “will be pressured for the rest of 2024.” This isn’t just due to the end of the post-pandemic boost but also because Disney’s parks in Florida and California got a bounce in recent years from anniversary celebrations.

Disney is also facing increasing competition from Comcast’s Universal, which is opening a major park in Orlando next year called Epic Universe. MoffettNathanson analysts expect it will cost nearby Disney World about one million visitors over the next two years. However, Disney isn’t dead in the water.

Laurent Yoon, an analyst at Bernstein, estimates that the trio of new Disney ships on the horizon will bring the cruise line’s revenue to more than $5.1 billion by the 2026 financial year compared with approximately $2.5 billion which he forecasts for 2024. “We expect the additional Cruise revenue to more than offset the Epic revenue impact,” Yoon wrote in a June 17 note to clients.

UBS analyst John Hodulik added that the growth of Disney’s cruise line could even help to offset the softness in the company’s domestic theme park business overall. In a report last month he said that “rapid expansion of cruise capacity helps de-risk the medium term outlook” for Disney’s parks business.

It remains to be seen if that will happen as the financial statements show that the cruise line’s net profit last year was less than half of its peak of $406.2 million in 2019. So although the business is in now calmer waters, it still doesn’t seem to be plain sailing.

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