INTERVIEW: Economic Reality Reflected In Railroad Business

TOKYO (Nikkei)--Demand for railroads is likely to recover gradually toward the end of the year, said Satoshi Seino, president of East Japan Railway Co., or JR East, said in an interview with The Nikkei.

The Nikkei asked Seino, 61, about the economic reality as seen from the viewpoint of a railroad operator. Excerpts of the interview follow.

Q: The government has declared that the economy has bottomed out. If that is true, then the movements of people will become more active. Do you feel such changes?

A: (The performance of) railroads is an indicator that lags behind the general economic performance and we still cannot feel the economy bottoming out.

The financial crisis occurred in September last year, and operating revenue in our railroad business started to decline year on year in November. We have been experiencing unprecedented declines and the operating revenue in May this year declined 8.9% year on year.

Satoshi Seino, president of East Japan Railway

Q: What part of your railroad business is hit hardest?

A: Our revenue from train passes and business performance of short-distance lines such as the Yamanote line (a loop line in Tokyo) are solid. Meanwhile, our businesses in mid-distance travel, which are taken by many business people, are struggling.

For instance, sales of discount tickets for "shinkansen" bullet trains between Tokyo and Utsunomiya stations and Tokyo and Oyama stations have declined 20%. It appears that (firms in) the auto industry, which are clustered in the northern Kanto area, have been cutting the number of business trips as part of their cost reduction efforts.

Q: How did reductions in highway tolls and cases of new influenza influence your business?

A: It seems that the impact of the influenza has died down. School trips were suspended one after the other around the holidays (in early May) but I expect these school trips to return.

The impact of the reductions in highway tolls was quite large. Railroad operators are now forced to engage in price competition with cars owned by individuals. To respond to the reductions in highway tolls, we have in June started marketing a package which combines discount railroad tickets and 2,000 yen-a-day car rental. We would like our customers to take a train to a nearby station and then rent a car to visit points beyond. We also want to appeal that, by using train, one does not have to get stuck in a traffic jam and also can make environmental contributions.

In addition, the upcoming general elections will be a negative factor for our business because the movement of people will inevitably slow down during the election campaigns.

Q: What is your forecast for the summer holiday season that is about to start?

A: For the major holiday season in early May, we had harsh results even though we had felt solid responses when we were accepting reservations. It is difficult to predict sales of free-seating tickets sold on the day of travel, and it is also difficult to predict at this moment what the business will be like during the summer vacation.

In any case, we have to market attractive products and stimulate demand. We have to think hard to find ways to arouse desire (among potential customers) to visit places.

Q: What is your assessment for the solid performance of Lumine Co., a subsidiary of JR East that operates commercial buildings, even during the sluggish economy?

A: Lumine lined up attractive tenants and gained support from women in their 20s and 30s who tend to have more money that they can spend freely than other groups of people and they tend to be less affected in the decline of economy. Nonetheless, sales of Lumine started to decline on a year-on-year basis starting around April. These declines have not been as harsh as those experienced by department stores, but we have been feeling the impact of the deteriorating economy steadily.

Similarly, we have been facing difficulties in selling spaces to place advertisement at stations and to hung advertisements in commuter trains.

It is necessary to stimulate demand in this area as well. For instance, we are considering to use electronic displays in place for hanging advertisements in commuter trains so that we, for instance, would be able to display ads for coffee in the morning and ones for beer at nights.

Q: Are you saying that the overall situation is rather bleak?

A: Because of the severity of the current crisis, it will be difficult to see a V-shaped recovery and the recovery is likely to be U-shaped. The issue is how long the bottom part of the U will last. We have started hearing positive news such as inventories adjustments being over in the manufacturing sector, and I expect demand for railroad will recover gradually toward the end of this year.

--Interviewed by senior Nikkei staff writer Kunio Saijo.

(The Nikkei July 14 morning edition)