TOKYO -- Two of Japan's largest rail operators now expect to report their largest full-year net losses since their 1987 privatization, as the coronavirus pandemic brings a deep and potentially long-lasting slump in passenger traffic.
East Japan Railway on Wednesday released annual earnings projections showing a 418 billion yen ($3.96 billion) loss for fiscal 2020, compared with a 198.4 billion yen profit in fiscal 2019. West Japan Railway's estimate, announced the same day, shows a 240 billion yen loss, after an 89.3 billion yen profit the previous year. Both projections came in well below the average forecasts in a QUICK consensus survey of analysts.
Passengers have been slow to return since coronavirus cases spiked again in July, with revenue from rail operations at both companies slumping by half or more in August from a year earlier. And while ridership is expected to recover to some extent over the next year or two, trends including broader use of telecommuting and declining tourism are likely to weigh on business for some time.
"Returning to our prior ridership levels will probably be difficult," said Shoji Kurasaka, a senior managing executive officer at JR West.
The two companies see total annual revenue falling by well over a third from fiscal 2019, to 1.93 trillion yen at JR East and 920 billion yen at JR West. Both now plan to pay out annual dividends of 100 yen per share, representing cuts of 65 yen by JR East and 82.5 yen by JR West.
JR East expects rail revenue to return to 75% of normal by the end of the fiscal year in March. Kiwamu Sakai, an executive director, sees the impact lingering into fiscal 2021 and beyond, with revenues coming to "slightly above 80% of pre-coronavirus levels."
JR West sees income from commuter passes rebounding to around 80% to 90% of pre-pandemic levels by fiscal year-end but is less optimistic about other revenue sources, such as bullet train tickets, which are expected to reach less than 60% of previous levels over the same period. The railway has been hit especially hard due to its reliance on foreign tourism, which has all but disappeared amid restrictions on travel from abroad.
Both companies are rushing to mitigate the damage by scaling back the heavy fixed costs involved in rail operation.
JR West on Wednesday raised its fiscal 2020 cost savings target to 70 billion yen. It aims to cut fixed expenses through temporary furloughs and reduced spending on advertising and maintenance, as well as lower capital investment by 77 billion yen compared with initial estimates. JR East eyes total savings of 150 billion yen between operating costs and investment.
As a first step, both will move up departure times for their last trains starting next spring. JR East plans to shorten its timetable by half an hour -- a move expected to save billions of yen a year by providing more time for overnight maintenance and inspections -- and will start service later on some routes as well.
The two companies are also considering introducing different fares for peak and off-peak hours to spread out ridership, though this will likely take two to three years to implement given the need for permission from the transport ministry. Fare hikes are also an option if earnings remain in the red for an extended period.
But the numbers suggest that even with all these measures, returning to profitability will be a challenge. If JR East's rail revenue returns to just over 80% of pre-coronavirus levels as expected, parent-only operating income would come to about 1.7 trillion yen -- about the same as its fixed costs. The company would need 400 billion yen in cost cuts to bring operating profit on a par with fiscal 2018.
"It's hard to imagine that they'll reduce fixed costs by hundreds of billions of yen," said Ryota Himeno of JPMorgan Securities Japan. "Getting profits to recover will be tough without riders returning or fare hikes."