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Flight-themed capsule hotel in Japan seeks bankruptcy protection

Lodging and restaurant operators risk exhausting cash in six months, report says

First Cabin put an upscale touch on capsule hotels. (Photo from company's Facebook account)

TOKYO -- Japanese capsule hotel operator First Cabin filed for bankruptcy protection Friday as the coronavirus pandemic hits an industry already struggling with surplus capacity.

The company operated about 25 hotels with aviation-themed rooms classified as first, business and economy class. Around 400 workers, including part-time staff, were let go. First Cabin and four affiliates carried 1.1 billion yen ($10.2 million) in liabilities upon filing with the Tokyo District Court.

The chain's room rates generally ranged between 4,000 yen and 6,000 yen, with pricier offerings of late in more upscale lodgings as the brand expanded. Economy class rooms were traditional stacked cubicles, with room for only a mattress. First class cabins offered full beds with a side table. "Experience first class on the ground!" touted the First Cabin website.

Yet rates dropped with the industry's supply of rooms increasing sharply in the lead-up to the Tokyo Olympics, originally scheduled for this summer. First Cabin had logged two straight years of net losses.

The outbreak of the novel coronavirus strained the company's finances further. Occupancy rates fell to 10% at times from late March through early April. Japan's declaration of a limited state of emergency in early April, expanded nationwide on April 16, resulted in the closure of some First Cabin hotels.

The bankruptcy filing comes as a government report warns that Japan's small hotels and restaurants may run out of cash in six months due to the economic impact of the coronavirus.

An empty bar in Tokyo on March 31: Smaller businesses tend to have less cash on hand, making them more vulnerable to the pandemic's impact.   © Reuters

Many hotels, restaurants and similar businesses have suspended operations as fewer Japanese leave their homes under the state of emergency.

But these smaller operators tend to have little cash on hand, and on average can pay fixed costs like rent and wages for only a few months without new income, said the 2020 White Paper on Small and Medium Enterprises in Japan, a report approved by the cabinet on Friday.

Japanese authorities received 300,000 inquiries from small and midsize companies by the end of March regarding cash flow problems. The largest share came from food and beverage service providers, accounting for almost 30% of the total.

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