Reexamination of Universal Studios Florida Feasibility
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University of Central Florida STARS Harrison "Buzz" Price Papers Digital Collections 9-1-1983 Reexamination of Universal Studios Florida Feasibility SRI International Part of the Tourism and Travel Commons Find similar works at: https://stars.library.ucf.edu/buzzprice University of Central Florida Libraries http://library.ucf.edu This Report is brought to you for free and open access by the Digital Collections at STARS. It has been accepted for inclusion in Harrison "Buzz" Price Papers by an authorized administrator of STARS. For more information, please contact [email protected]. Recommended Citation SRI International, "Reexamination of Universal Studios Florida Feasibility" (1983). Harrison "Buzz" Price Papers. 128. https://stars.library.ucf.edu/buzzprice/128 ( I CLIENT PRIVATE I REEXAMINATION OF UNIVERSAL STUDIOS FLORIDA FEASIBILITY r Final Report September 1983 Prepared for: MCA RECREATION SERVICES, INC. Uf'liversal City, California SRI International 333 Ravenswood Avenue Menlo Park, California 94025 ( 415) 326-6200 TWX: 910-373-2046 Telex: 334486 •• CLIENT PRIVATE I @ CLIENT PRIVATE REEXAMINATION OF ?:~ ~ UNIVERSAL STUDIOS © FLORIDA FEASIBILITY 01 ~ @ Final Report September 1983 ~~ ~ b @ ~ Prepared by: Robert M. Burke ~ James S. Vas Dias Prepared for: MCA RECREATION SERVICES, INC. Universal City, California CLIENT PRIVATE CONTENTS LIST OF ILLUSTRATIONS • v LIST OF TABLES vi I INTRODUCTION. • 1 II SUMMARY AND CONCLUSIONS • 2 Tourism Constraints ••• 2 Energy Outlook. • • • • 3 Competitive Environment • • • • • • 3 Attendance and Financial Results. 4 III TOURISM CONSTRAINTS • 6 Orlando International Airport • • 6 Hotel/Motel Accommodations •••• 9 Housing • • • • • • • • • • • • 12 Road and Highway Infrastructure 14 Labor Supply • • • • • 15 IV ENERGY SUPPLY AND DEMAND 19 Recent Trends • • 19 Outlook ••••• 23 Impact on Orlando Tourism • 26 V ORLANDO TOURISM • 28 Mode of Travel, Size of Party, and Length of Stay • 28 Number of Out-of-State Tourists •••• 30 Central Florida Attractions ••••••••• 34 VI ATTRACTION ATTENDANCE MODEL • 51 De-c-ision Analysis ••••• 51 Method to Estimate Attraction Attendance 52 Attendance Model Variables •••••••• 54 Attendance Model: Construction and Results 61 VII MARKET SHARE AND ATTENDANCE • 64 Market Share Model • • • • 64 USF Attendance Results 68 Central Florida Attraction Attendance Scenario 71 iii CONTENTS (Continued) VIII FINANCIAL EVALUATION 72 USF Financial Model • 72 The Complete Financial Model 76 Sensitivity Analysis 77 Generation of Scenarios • • • 79 Three Specific Scenarios 79 Final Results • • • • 82 Appendix A: PRO FORMA CASH FLOW STATEMENTS iv ILLUSTRATIONS 1. Total Enplaned and Deplaned Passengers at Orlando International Airport • • • • • • • • • • • • • • 7 2. Hotel/Motel Average Annual Occupancy Rate in Orlando 11 3. U.S. Primary Energy Consumption ••• 20 4. U.S. Petroleum Consumption and Supply 21 5. Response of U.S. Gasoline Demand to Increases in Gasoline Prices • • • • • • • • • • • 22 6. Response of World Oil Consumption to Oil Price 24 ~ 7. World Demand for Primary Energy and for Oil • 25 8. Total Attraction Attendance • 35 9. Busch Tampa Weekly Attendance Trends 40 10. Sea World Weekly Attendance Trends 41 11. Example of Probability: Histogram for Orlando Tourists 55 12. Frequency of Distribution of Orlando Attractions Attended, 1983 ••••••••••••• 58 13. Estimated Frequency of Orlando Attractions Tourists Will Attend in 1988 • • • • • • • • • • 59 14. Influence Diagram of Attendance Model • 62 15. Expected Orlando Major Attraction Attendance, 1988 63 16. USF Market Share Model Influence Diagram 65 17. Estimated USF Market Share Probability Distribution, 1988 67 18. USF Attendance Model Influence Diagram 69 19. USF Attendance Probability Distribution, 1988 • 70 20. Input Variables in the Financial Model 78 21. Net Present Value Probability Distribution 83 v TABLES 1. Orlando International Airport: Enplaned and Deplaned Passengers since Opening of EPCOT • • • • ••• 8 2. Hotel/Motel Inventory: Orlando Metropolitan Area 10 3. Hotel/Motel Occupancy Rates since Opening of EPCOT 10 4. Total Nonagricultural Employment: Orlando SMSA 17 5. Forecasted Employment by Profession for Orlando Area 18 6. Auto versus Air Tourist Market Share in the Orlando Area: 1976-1982 • • • • • • • • • • • • • • • • 29 ~ 7. Average Party Size for Tourists in the Orlando Area: 1976-1982 • • • • • • • • • • • • • • • • • • • • 30 8. Estimated Interstate Tourism to Orlando: 1980-1995 33 9. Estimated Number of Out-of-State Tourists: 1977-1983 33 10. Attendance at Central Florida's Major Attractions: 1972-1983 • • • • • • • • • • • • • • • • • • 36 11. Market Share of Major Central Florida Attractions: 1972-1983 • • • • • • • • • • • • • • • • • • • 37 12. Attendance Trends at Sea World and Busch Gardens 39 13. Adult Admission Prices to Major Orlando Attractions in Central Florida: 1972-1983 •••• 43 14. Percentage of Total Attendance from Orlando Tourists: 1983 ••••••••••••• 60 15. USF Market Share Cumulative Probability: 1988 • 68 16. Estimated Attraction Attendance in Central Florida: 1988 71 17. Key Variable Assumptions for High, Medium, and Low Scenarios • • • • • • • • • • • • • • • • • 80 18. Financial Results of Specific Scenarios • 81 vi 1 INTRODUCTION In 1980, SRI International completed an extensive feasibility analysis of MCA's proposed Universal Studios attraction in Orlando, Florida. This year, MCA wanted to reevaluate the feasibility of this project because of the opening of EPCOT (October 1982) and the general decline of attendance in 1981 and 1982 at central Florida attractions. As a result, MCA retained SRI to update the analysis with specific attention to the more sensitive tourism constraints, the energy outlook and its impact on Orlando tourism, current Florida Division of Tourism (FDT) data, and the competitive environment. SRI would then run its attendance and financial models using this information and other attendance-related data to generate the possible profitability and financial risks of the proposed attraction. The project team of Dr. Bruce L. Beron, Mr. Robert M. Burke, and Mr. James S. Vas Dias wish to acknowledge the assistance and cooperation provided by MCA, especially Mr. Bernard Fisher and Mr. Peter Kingston. ·::., 1 II SUMMARY AND CONCLUSIONS Because this study is a reevaluation of our 1980 feasibility analysis of Universal Studios Florida (USF), readers may wish to refer to the original study. Although a number of changes have occurred since 1980, most notably the opening of EPCOT, SRI's assessment of these changes and the future of USF in Orlando has not changed significantly. Tourism Constraints Five potential constraints were reviewed--airport capacity, hotel/motel accommodations, supply of moderately priced housing, access to the USF site, and supply of service workers. During 1983 the Orlando International Airport has been operating at about 70% of the facility's design capacity. If the number of passen gers continues to grow as it did during the 1970s, design capacity will be reached by the end of this decade. Physically, the airport was built so that its existing capacity could easily be doubled. Moreover, the airport could accommodate more passengers than indicated by its design capacity if larger planes were used and they were spaced at closer intervals. Airport capacity is not expected to be a problem unless unusual external circumstances prevent necessary expansion from proceeding on schedule. The success of EPCOT caused hotel/motel occupancy rates to soar in late 1982 and 1983. Currently, about 5,000 rooms are under construction with another 7,000 rooms expected to be completed in 1985-86. In general, hotel room supply is responding to demand. Accommodation capacity is not expected to be a problem, except during peak holiday periods (Christmas and Easter). Demand for moderately priced rental housing in the Orlando area has continued to be strong. In fact, vacancy rates continue to be low with most vacancies occurring in units that are distant from service employment centers and in high-priced units. Although rents have been increasing at an average of 10%-20% annually during the past 4 years, the average level is still low compared to the rest of the United States. Rents, however, account for an increasing portion of total income, causing renters to double up to reduce this cost. Rents are expected to continue to escalate at two to three times the rate of inflation during the next 3 years. In addition, apartment construction should outpace demand, provided long-term interest rates are reasonably stable. In general, this situation will put more pressure on wage rates or major employers of service workers will decide to jointly increase the supply of moderately priced rental units for their employees. 2 Access to USF's site from the International Drive area will continue to be difficult, even after the Department of Transportation modifies the interchange at Sand Lake Road and I-4. Tram service to the area provided by USF would help alleviate the problem and serve as a marketing mechanism for the attraction. A light-rail transportation system that would connect the airport, major hotel concentrations, and major attractions is being proposed (the latest proposal shows a stop at USF) and its implementation is likely to alleviate the congestion from the International Drive area to USF. The supply of service workers (most of the jobs are low paying) has not been a problem in the Orlando area. Because of the opening of EPCOT, about 12,000 hotel rooms, plus