and macroeconomic predictions. Based on the evidence to date, the company
made a host of crucial mistakes in its forecasting. One mistake the company read-
ily admits: It did not anticipate the length and depth of the recession in Europe.
(However, the European slowdown was foreseen and predicted by most inter-
national forecasters.) The recession meant fewer visitors, less spending, and a
disastrous fall in real-estate prices.
Failed microeconomicforecasts also contributed to Euro Disney’s operating
problems. In envisioning the opening of Euro Disney, the company confi-
dently cited its previous experience in opening its Tokyo theme park. But the
reasons for the success of the Japanese park did not carry over to France.
Work rules, effective in Japan, did not suit the French labor environment.
The Japanese visitor, with a higher income than its European counterpart,
happily spent two to five days at the park. Europeans, accustomed to month-
long, extended vacations in Mediterranean climes, did not. Nor were Euro
Disney’s visitors as willing to wait in long lines. Also, French visitors insisted
on sit-down, high-quality meals. When it first opened, Euro Disney delivered
snack food and did not serve beer or wine. Not surprisingly, European visitors
preferred Parisian hotels 30 minutes away to Disney’s high-priced “fantasy”
accommodations.
In short, most of Disney’s problems stemmed from the company’s inabil-
ity to forecast fundamental demand for its services and products. Based on its
experience, the company has instituted many changes in Euro Disney’s oper-
ations. It has lowered ticket prices for the park and hotel rates, revamped its
restaurant service, loosened stringent employee work rules, and changed its
marketing campaign. In spite of these changes Euro Disney continued to strug-
gle. In 2004, Euro Disney reported record losses and entered negotiations
with creditors to avoid bankruptcy. Its losses in 2005 and 2006 averaged 100
million Euros before narrowing to some 40 million Euros in 2007. In 2008,
each Euro Disney share was trading at only about 7 percent of its equivalent
price in 1992.^10FORECASTING ACCURACY The forecast accuracy of a given equation or
model typically is measured by how closely its predictions match the actual real-
izations of the variable in question. Usually, such an evaluation is based on a
comparison of many forecasts and realizations. For instance, a frequently
quoted performance measure is the average absolute error (AAE):AAE
gƒQQ*ƒ
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164 Chapter 4 Estimating and Forecasting Demand(^10) This account is based on F. Norris, “Euro Disney,” The New York Times, Norris Blog(December 3,
2007); F. Norris, “Euro Disney Secures Plan to Ward Off Bankruptcy,” The New York Times
(September 29, 2004), p. C4; P. Prada, “Euro Disney Does Nicely. So Why are Investors Grumpy?”
The Wall Street Journal(September 6, 2000), p. A20; and other published reports.
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