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Tuesday, August 16, 2011
Disney Halts Sales at Aulani, Fires top Execs
By Selected News Articles @ 12:30 PM :: 10715 Views :: Energy, Environment, National News, Ethics

Disney halts sales and fires executives amid financial issues with Hawaiian resort

By Jason Garcia, Orlando Sentinel, August 15, 2011

Financial issues with a new Walt Disney Co. resort scheduled to open this month in Hawaii prompted the company to suspend all time-share sales for the project and force out three executives, including the president of its Celebration-based time-share business, according to several people familiar with the events.

Disney on Friday fired Jim Lewis, president of Disney Vacation Club, the company's time-share division. The company also dismissed Jim Heaney, senior vice president and chief financial officer of Disney Cruise Line and travel operations, and Lawrence Smith, a former director of finance for Disney Vacation Club who was most recently with food-and-beverage operations for Walt Disney World.

The dismissals followed an internal investigation into problems surrounding Aulani, an estimated $850 million hotel and time share scheduled to open Aug. 29 on the Hawaiian island of Oahu. Plans call for the resort to have 460 Disney Vacation Club time shares and 359 conventional hotel rooms.

Disney said Monday evening it had appointed Claire Bilby, a 23-year company veteran who had most recently been senior vice president of distribution marketing and Asia Pacific sales, to run its time-share business. Bilby's title will be senior vice president of Disney Vacation Club.

According to the people familiar with details of the investigation, it focused on the annual dues that Disney Vacation Club plans to charge buyers of Aulani time shares. Those yearly fees are used to cover ongoing expenses such as the resort's maintenance and repairs.

Those people said Disney concluded that Vacation Club executives had calculated dues amounts so low that they would not generate enough money to cover the cost of maintaining Aulani. The inadequate dues amounts were included in legal-disclosure documents submitted to the Hawaiian government.

Disney said Aulani's operating costs were underestimated, leading to the inadequate annual dues. It said the mistake was unintentional.

The low fees prompted concerns within the company that Aulani would eventually face a significant operating shortfall, the people familiar with the investigation said. The company also feared the possibility of a brand-damaging backlash from Hawaiian regulators or consumers should Disney attempt to significantly raise Aulani's annual dues in future years to plug any deficit.

All of the people familiar with the events spoke only on the condition that they not be identified because of the sensitivity of the issue.

Disney suspended Aulani sales on July 9, a little more than one year after it started selling the project to consumers. The company says it is accepting "deposit reservations" in the interim from buyers who wish to lock in current Aulani prices, though there is no penalty for consumers who cancel such reservations.

Rena Langley, a spokeswoman for Disney, said the company is now in the process of changing the registration materials submitted to the Hawaiian government and that it expects to file the updated documents this week. She said the changes involve "adjustments to our annual dues forecast for Aulani."

Disney's initial sales materials stated that the 2011 annual dues for Aulani would be $4.31 for every "point" purchased, or $689.60 a year based on 160 points, which Disney says is the minimum amount for new Vacation Club members. (Disney Vacation Club sells points, rather than specific time periods, which allows buyers to redeem them at various times and destinations.)

Langley said buyers who have already purchased points in Aulani will get a credit toward their annual dues equal to the difference between the original quoted amount and whatever higher price Disney sets now. She declined to say how many people have bought into Aulani so far.

All time-share developers face pressure to keep maintenance fees as low as possible in order to drive sales. While such fees may seem a trifling issue when compared with the upfront sticker price of a time share — which can cost $50,000 or more — they can nonetheless be a significant deterrent for buyers.

A 2009 survey for the American Resort Development Association, the time-share industry trade group, found that one in four recent time-share buyers cited annual maintenance fees as a top reason they had been hesitant about purchasing a time share.

Tammie Kaufman, a professor in the University of Central Florida's Rosen College of Hospitality Management, said many buyers are wary because dues are a recurring expense that can increase from year to year.

"It's because of the unknown. People have heard horror stories" about dues, Kaufman said.

Aulani's performance is being closely watched by Disney investors. The project is the first test of the company's strategy to build standalone hotels and niche parks in secondary markets away from its massive theme-park resorts in Orlando and Anaheim, Calif., as Disney's parks division searches for new sources of growth in North America.

None of the three executives fired Friday received a severance package, according to a person who spoke with one of the men.

The dismissal marks a shocking fall for Jim Lewis, once considered a rising star within Disney's executive ranks and a leading candidate to become president of Walt Disney World, the company's biggest and most profitable theme-park operation.

Lewis joined Disney in 1996 from PepsiCo as a director of planning and finance for Disney's sales unit. He was tapped to oversee Disney Vacation Club in 2003, and under his watch the unit became the fastest-growing business within Disney's global theme-park division. At its peak before the global recession, Disney Vacation Club generated an estimated $190 million a year in operating income.

Lewis did not return phone messages Monday.

Disney's decision to force Heaney out in addition to Lewis stunned several company followers. The finance executive was highly regarded both inside and outside of Disney; he had earned the nickname "The Brain" from some fellow executives.

"I am very proud of my accomplishments and how I conducted business during my 16-plus years with Disney," Heaney said. "Given this track record, I am bewildered by the company's decision."

Smith could not be reached for comment.

The Aulani paralysis has frustrated some Disney customers. William Montgomery, a 37-year-old business owner from Dallas, said he called Disney on July 27 planning to buy into Aulani — only to be told by the sales agent that he couldn't.

"And so I said, 'What's the deal?' He got real cryptic, real fast. … All he would say is there was something wrong in the documentation and that the Disney lawyers had stopped everything," said Montgomery, who also owns an interest in a Disney time share in Orlando. "It's the damndest thing. I mean, Disney won't take your money."

read Disney Halts Sales

OS: Sales veteran to run Disney time shares

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