Briana Santaniello
October 16, 2013
Case Study: Euro Disney
As of 2013, Euro Disney is expected to announce reduced net losses due to a recent debt
refinancing deal made with the Walt Disney Company (TWDC). Previously TWDC owned
approximately 40% of Euro Disney; however this year the group considered buying out the
remaining 60% of shares owned by Saudi Prince al-Waleed bin Talal, individual investors, and
institutional investors. Doing so could afford Euro Disney a chance to turn the company around
and put an end to the thirteen annual losses which have occurred since the theme park opened in
1992.
Despite Euro Disney’s efforts to improve its position in France, it seems as if Euro
Disney has barely budged over the years. Refinancing strategies were used and slightly improved
Euro Disney’s financial situation; however such strategies merely masked the real problem at
hand—the same problem that landed Euro Disney in such dire straits years ago. This problem
began well before the park opened and can be attributed to a number of different factors,
including overconfidence in the success of the park in a new location and overcharging park
visitors under incorrect market demand assumptions. These were not the only mistakes made;
however they contributed greatly to Euro Disney’s past and current problems and require
mentioning in detail.
The Euro Disney case was written in 2005 and at that time Disneyland Paris was on the
verge of bankruptcy, yet the French government contributed approximately $500 million to
prevent this from occurring. A new Disneyland Paris CEO took over and made an effort to add
more low-cost airlines to the local airport, created a one-day pass which allowed visitors to
access both parks, rather than purchasing two separate tickets, and even planned to add new
rides, such as the Tower of Terror, to attract more visitors. Within three years Euro Disney saw
increases in park attendance, indicating that these techniques were improving the situation.
However such strategies were merely a bandage to cover up the problems which landed
Euro Disney in financial struggle. Park attendance was never a problem, but overconfidence and
overcharging visitors were. Disney executives placed too much trust in the success of Disney
theme parks in other countries and assumed such success extended to theme parks in Paris as
well. This was not the case, as seen by the repeat failures Euro Disney has faced since it opened.
Using past events to predict the outcome of carrying out similar projects today has been
shown to be problematic and was discussed in depth in How Good Data Leads to Bad Decisions
written by David Stauffer. Stauffer recommends never relying solely on precedent and also
suggests encouraging others to challenge one’s thinking. Had the executives at Euro Disney
challenged the thought that Disney’s success in other countries would be met and possibly
exceeded in France, perhaps Euro Disney would not be in its current situation. However the
group seemed overly enthusiastic and optimistic about Euro Disney’s success and placed far too
much trust in the company’s ability to succeed in a new country.
Executives also made incorrect assumptions regarding the market demand for pricing of
hotel stays, theme park admission, and souvenirs. Euro Disney used price skimming, rather than
penetration pricing, when setting prices. They assumed there was demand for Euro Disney visits
at higher prices than their other locations. However this was not the case, as executives learned.
Park visitors cut their trips short and used various strategies to keep their theme park-related
spending to a minimum. This left a dent in Euro Disney’s wallet and resulted in near bankruptcy.
Utilizing the GIOADA formula for problem solving would be useful in determining the
next steps Euro Disney should take. The goal should be to improve Euro Disney’s financial
situation in both the short-term and the long-term, and ideally pay back its debt to lenders.
Information gathered thus far includes information regarding what has been done in the past at
Euro Disney, as well as at other Disney theme parks in other countries. However additional
information is available through surveying the market and gathering critical information from
Euro Disney park visitors. Thus far the historical information of Euro Disney and its sister
parkers has not been of use. Market survey information would be more reliable because these
customers attend the park and can provide data surrounding the prices they are willing to pay and
what changes they would like to see made.
Options to solve the problem include both quick fixes and more laborious, but
sustainable, effective problem solving techniques. As seen by the current situation, Euro
Disney’s attempts to turn around the company worked initially, generating more park visitors;
however many of the strategies used since 2005 have only masked the problems. Prices were
slashed, new rides were added, and loans were refinanced, and yet the park continues to face
losses. Options must be realistic and creative. The price reductions, addition of new rides, and
loan refinancing were realistic, but not creative. However one enormous barrier exists: Euro
Disney has huge debt. All efforts being put forth to increase profit are working on the profit end,
but they are not solving the larger issue of debt. The GIOADA method should be targeted at
reaching the ultimate goal of eliminating their debt, so options should be focusing on how to
solve the debt, not on how to increase the number of visitors.
The analysis step requires evaluating the pros and cons of each option before rushing to
carry out the proposed action. If through analysis the action would not solve the ultimate
problem, the action should either not be carried out or should be reserved as a last-ditch effort.
The decision step should be taken seriously and steps should be taken to avoid Groupthink. If the
decision is realistic, virtually all sides of the argument have been presented, and the majority of
voters still deem this decision the most effective option, it should be implemented after careful
analysis has taken place.
Finally, action must be taken. Three actions (plan, do, and check) make up the action
element. Euro Disney executives must decide how they will execute their plan of eliminating
their debt, carry out the activities according to the proposed plan, and then monitor for
effectiveness or ineffectiveness. The barrier with the GIOADA model is that if the goal is
unclear or misguided, any efforts put forth may be useless or counterproductive because the
actual goal was not recognized. If Euro Disney executives continue to set a goal of improving
profits without recognizing that their true problem is being saddled with massive debt, their
company will be unable to turn itself around and bankruptcy is inevitable.
Euro Disney must look ahead to the coming years and set a realistic goal for a date when
the debt can be eliminated and how this can be achieved. Before building a third park, Euro
Disney must increase its hotel capacity, but charge realistic prices. Debt elimination likely will
not occur for at least a decade, but even this will require massive ongoing effort each year to
achieve this ultimate goal.