Reopening of Shanghai Disneyland is a proving ground for pandemic-era theme parks

The park, and the larger China market, is one of Disney's few hopeful spots.

Reopening of Shanghai Disneyland is a proving ground for pandemic-era theme parks

The Walt Disney Company is in dire straits. Worldwide, the entertainment goliath’s resorts and theme parks are closed, production on upcoming releases are on hold, and advertising revenues have plunged as the coronavirus pandemic takes its toll.

According to the company’s earnings for the fiscal second quarter, announced Tuesday, COVID-19 cost Disney $1.4 billion in operating income. But a bright spot is emerging in China where Shanghai Disney Resort—the latest of Disney’s resorts—is preparing to reopen.

“We are seeing encouraging signs of a gradual return to some semblance of normalcy in China,” Chief Executive Officer Bob Chapek said on a conference call with investors Tuesday, announcing that the Disney resort in Shanghai will reopen on May 11, after more than three months of closure.

The happiest place on Earth

As China’s official count of new coronavirus cases remains low, the government is actively encouraging a return to normalcy. Authorities, who initially spurred workers to return to factories in March, are now urging consumers to return to shops and tourist sites, too. Cities in more than two-thirds of China’s provinces have issued cash vouchers to residents to spend on consumer goods and “cultural activities.”

Notably, Shanghai has yet to deploy a voucher scheme, so the reopening of its flagship theme park is a bet that consumers are ready to resume spending even without incentives.

Unlike the Shanghai resort’s grand opening in 2016, when crowds of tourists mobbed the park, Shanghai’s pandemic-era reopening will be a timid affair.

In line with government regulations, visitors will have to wear masks, submit to temperature checks and present the ubiquitous health code apps before entering the park. Local authorities have told the park it can only operate at 30% capacity, too.

According to Chapek, normal attendance at Disneyland Shanghai reached 80,000 guests per day. Under the new restrictions, that number would drop to 24,000, but Chapek says the park will initially target an even lower number, gradually increasing attendance to the 30% threshold.

“We will take a phased approach with limits on attendance, using an advanced reservation and entry system, controlled guest density using social distancing and strict government required health and prevention procedures,” Chapek said.

It’s a small world, after all

The reopening of Disneyland Shanghai could be a test run for Disney’s other resorts, all of which remain shut. Disneyland Hong Kong shut its doors a day after Shanghai on Jan. 26. Tokyo Disneyland held out until February while, in the U.S., Disney parks remained open until mid-March.

Hong Kong’s loss-making Disneyland—the smallest of the conglomerate’s six “castle lands”—has reportedly conducted test runs of how social distance queueing would work at the park. The official task force in charge of organizing a return to normal in Orange County, Florida, also issued guidelines on how Walt Disney World could reopen but when remains a mystery.

Disney’s theme parks fall under the company’s Parks, Experiences and Consumer Products division. The unit was Disney’s fastest growing profit segment until park closures caused revenue to crash 10% in the second quarter. Disney estimates it lost $1 billion in operating income from the segment alone.

To offset its losses, Disney has furloughed over 100,000 workers, cut executive pay by up to 30%, and is foregoing its July dividend which in itself could save the company $1.6 billion. Reopening parks could be a much needed shot in the arm.

However, after months of sheltering in place for fear of the coronavirus, the real learning point from Disneyland Shanghai’s re-run will be whether consumers still have an appetite for adventure.

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Forget earnings. Investors care about one thing right now: reopening

The U.S. futures are pointing to modest gains at the open, pushing the rally to a third straight day.

Forget earnings. Investors care about one thing right now: reopening

This is the web version of the Bull Sheet, Fortune’s no-BS daily newsletter on the markets. .

Good morning. Can we make it three days in a row? Stocks are mixed in Asia and Europe, but U.S. futures are showing strength, buoyed by President Trump’s vow to reopen the economy.

Let’s take a closer look.

Markets update

Asia

  • The major indices are mixed. Japan’s Nikkei was down while Hong Kong and Shanghai were holding on to gains.
  • China’s Labor Day holiday (it actually ran over five days this year) saw a dramatic drop-off in domestic travel. Tourism revenues sank nearly 60% y-o-y.
  • “This is still the first half of the marathon,” Singapore’s national development minister warns about its flattening-the-curve efforts. You may recall Singapore had what appeared to be a handle on COVID-19 contagions in March, only to see a powerful second wave.
  • Disney will reopen its Shanghai theme park on May 11, one of the few uplifting tidbits to come out of yesterday’s quarterly results.

Europe

  • European bourses were flat at the open, before ticking up. The benchmarked Stoxx Europe 600 began the day down 0.1% while London’s FTSE and Germany’s Dax were both trading higher.
  • The ECB struck a defiant tone Tuesday night saying it remains committed to its QE-style bond-buying program to nudge inflation higher.
  • That’s in response to yesterday’s bombshell German court ruling saying the central bank had overstepped its mandate in doing what central banks everywhere around the world do these days: load up their balance sheet with all manner of sovereign and corporate assets. The spread on Italian bonds ticked up on the decision, a sign of market uneasiness.
  • To corporate news now… BMW cut its profit forecast this morning and Italian lender UniCredit posted a €2.71 billion ($2.94 billion) loss.
  • Fresh off the presses, the European Commission has slashed its 2020 full-year eurozone growth rate forecast to -7.75%, point to “a recession of historic proportions.”

U.S.

  • The Dow, S&P 500 and Nasdaq futures all point to a positive open.
  • The indices closed in the green yesterday, a second straight day of gains. But all three sunk in the last hour of trade on Tuesday.
  • President Trump, on a rare trip outside of Washington D.C., yesterday vowed to reopen the economy, “and open soon.”
  • There are a lot of concerns that soon doesn’t turn into too soon.
  • “The economics of ending a lockdown depend on fear and confidence,” UBS’s Paul Donovan wrote in his morning note today. Come out too soon and inflict damage on consumer confidence, and “the economic downturn continues independent of the lockdown policy.”
  • Speaking of confidence…With the travel sector on life support, Airbnb announced it would cut 25% of its workforce.
  • Speaking of reopening… Fortune‘s crack reporting staff, from Hong Kong to San Francisco, are covering what the great reopening around the world will look like. It’s called “How to Reopen.”

Elsewhere

  • Gold is down, slightly.
  • The dollar is up, slightly.
  • Crude is climbing. WTI has had quite a run in the last week, topping $24/barrel.

The engine of the economy

A big factor in any turnaround calculus is the creditworthiness of Corporate America. With good reason. Bankruptcies and credit downgrades are decimating the retail, travel and energy sectors.

The American consumer may be in even worse shape, a dire sign for all industry sectors. The consumer is the engine of the U.S. economy. If she pulls back significantly, there will be no comeback.

That’s why yesterday’s data is so troubling. The New York Fed released its quarterly report on household debt. The numbers showed the American consumer is $14.3 trillion in the red, a new record, as today’s chart from the New York Fed shows.

The American consumer has looked pretty precarious for much of the past decade. Those red and blue lines trending up, up, up are not a good sign.

Interestingly, the global financial crisis, a decade ago, forced Americans to tighten their belts and step up savings. That didn’t last long. Over the past five years the trend has gone in the opposite direction. Fast forward to today and the American consumer has piled on a further $1.6 trillion debt since Q3, 2008. A surge in student loan, mortgage and auto loan debt is to blame for much of this debt burden. (Credit card debt has declined some, the Fed reports, a sign more of Americans’ income is shifting from spending to debt-servicing.)

It will be interesting to see if the coronavirus shock forces Americans to retrench, and turn more thrifty. That would be good for America’s household finances. But it would be bad for America’s comeback story.

***

Have a nice day everyone. I’ll see you here tomorrow.

Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com

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