Mouse in a hole as slump in tourism hits Euro Disney

The story of Mickey Mouse's emigration to Europe is beginning to take on all the thrills and spills of a cartoon. Euro Disney, at first a disaster, then a runaway success, has fallen on its face once again.

The company that owns Disneyland Paris - the most popular tourist attraction in Europe - has warned that it cannot honour its repayments on its €2.3bn (£1.6bn) debt because of a steep fall in its visitors and earnings. Shares in the company fell by 23 per cent at one stage yesterday.

Euro Disney, which owns two theme parks, two conference centres and seven hotels east of Paris, is the highest-profile casualty to date of a worldwide slump in tourism, caused by the economic downturn and the war in Iraq.

However, the company, 39 per cent owned by its American parent, the Walt Disney Corporation, is also paying for its own mistakes. A second big theme park opened next to Disneyland Paris last year - Disney Studios - but it has failed to attract the hundreds of thousands of new visitors the company had counted on.

The movie-making theme park, built at a cost of €600m, has fallen victim to the general slump in tourism in the past two years. It has also proved a disappointment to visitors and tour operators, who say that it lacks variety and thrills and, significantly, has only one true "white-knuckle" ride.

The rate of return visits to the Disney Studios - a statistic crucial to the economics of theme parks - is reported to be substantially below that of Disneyland Paris next door. At peak times, visitors have to pay separately to enter each park.

In its unexpectedly frank statement on Thursday, warning that it could not meet its debt payments to banks and the Walt Disney Corporation, Euro Disney blamed the overall slump in tourism and the extra problems caused by a string of transport strikes in France in recent months.

Tourist industry analysts said that Euro Disney was, itself, partly to blame. "The group is paying for a poor strategy evident in the failure of the second theme park," said Sebastien Valentin, of CDC Ixis Securities.

However, the immediate future of Euro Disney seems assured. The company said yesterday that there was no question of laying off staff. Commentators said that the French state, and local authorities at Marne-la-Vallée, had too big a financial and political stake in the survival of Euro Disney to allow it to fail.

Euro Disney said its turnover in the period from April to June had fallen by 7 per cent. It said that the number of visitors to both theme parks had fallen but it refused to say by how much. The company had originally hoped for 16 million visitors this year. Analysts said that the actual figure might be as much as 12 per cent down on last year's already disappointing total of 13 million visits. This was only marginally higher than 2001, when there was only one theme park.

The first Disneyland Paris park opened in 1992 after France won a frantic subsidy race between several European countries, including Britain. The park was, at first, controversial in France - accused by some of lowering the cultural tone of the country. In its first two or three years, it failed to attract as many visitors as expected and posted large losses.

From 1994 onwards, after a change of name from Euro Disney to Disneyland Paris, the park boomed, attracting the French and other Europeans in their hundreds of thousands.

Euro Disney insists that it is solvent and even profitable on a day-to-day basis. In its statement on Thursday night, it warned that it would not be able to make its debt payments to banks scheduled for this year and next and may not be able to meet a €168m repayment to the Walt Disney Corporation due next June. The American parent company has already agreed to waive royalties and management fees for 2003 and defer next year's royalty payments until 2005.

The company said that it issued the warning statement because it had a duty of "transparency" to its shareholders. Analysts suggested the company might be trying to put pressure on its creditor banks to reach a rapid agreement on rescheduling its debt.