The Latest Trends in Japan's Railroad Business: Management Strategies to Strengthen the "De-rail" Business

By Akito Okabe

Introduction

Japan's railroad business is currently undergoing a major transition.

Although the COVID-19 pandemic has calmed down and railroad operators are making steady progress in recovering their business performance, the trend of teleworking remains unchanged and ridership has not returned to pre-pandemic levels. The rail ridership in Japan is generally at 70-80% of its pre-pandemic level, with a particularly sharp decline in commuter pass users. In addition, the future outlook is that ridership is not expected to return to its pre-pandemic level, and an aging and declining population is also expected. 

Under these circumstances, many railroad companies are struggling to establish a new revenue base by strengthening their non-railway businesses, and this article will introduce some initiatives thatJapanese railroad companies are currently doing.

Real Estate Business

Japanese railroad companies and the real estate business have had a close relationship since before the pandemic. Many railroad companies have built hotels, apartments, office buildings, and shopping centers near their lines to generate revenue. By increasing the attractiveness of towns through development along their lines, they also aim to increase the population along their lines and increase their rail ridership in the future.

Tokyu, a leading company in the real estate business, is further accelerating its efforts after the pandemic. It has identified "Shibuya," its development hub, as its biggest growth strategy, and plans to invest a cumulative 450 billion yen (about $3.2 billion USD) in real estate-related activities by 2030. (This amount is approximately three times this year's EBITDA.)

JR East, Japan's largest railroad company, also plans to focus on redeveloping the area around Takanawa Gateway Station, which opened in 2020. It plans to build a luxury hotel, offices, and one of the largest halls in Tokyo on the former railcar depot site, and expects the total project cost to be approximately 58 billion yen (about $4.2 billion USD).

Image of the station area after redevelopment

(Image Source: https://tokyoyard.com/)

New Business

In addition to the real estate business, a number of unique new businesses are being considered, which we would like to introduce below.

• Tokyo Metro

Tokyo Metro, which operates subways in the Tokyo area, has opened a training gym for "e-sports" video game competitions in 2021, utilizing vacant buildings near its lines. (Co-operated with startup Gecipe※1).

In addition to monthly memberships to use the gym store, the company offers an optional service that allows users to take lessons from professional e-sports players in the store or online. The concept of the gym is "a bright and healthy e-sports facility that is easy for anyone to enter," and the company aims to "create a world where anyone can seriously enjoy e-sports at any time.”

Image of Interior view of training gym

(Image Source: https://esportsgym.tokyo/register-lp)

Tokyo Metro is also developing other new businesses, such as yoga classes with bouldering and robot programming classes. 

• Osaka Metro

Osaka Metro, which operates subways mainly in Osaka Prefecture, plans to launch a matching service in the spring of 2023 to connect land owners with businesses that wish to open food trucks (mobile vending vehicles for food and beverages). Under this service, Osaka Metro will act as an intermediary, receiving a fee from food and beverage operators for opening stalls and paying rent to landowners. In addition to the brokerage service, Osaka Metro plans to open food trucks under its direct management.

Food trucks

(Image Source: https://subway.osakametro.co.jp/news/news_release/20210930_foodtruck_kakudai.php)

　By the end of FY2023, the company aims to enter the healthcare service business, which supports the health improvement of railroad users through a proprietary app.

Conclusion

As JR East President Fukasawa stated, "We need to stand on the premise that the number of rail ridership will not return to pre-pandemic levels.", and the business environment is expected to remain severe for railway companies.

Given this situation, Japanese railroad operators are aiming to diversify their revenue sources through real estate and unique new businesses, and this trend is expected to continue. We will monitor this trend closely, as the initiatives of railroad companies focusing on businesses other than the railroad itself are unique to Japan and could serve as a useful reference for other countries.

References

※1 https://gecipe.co.jp/