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Japan railways branching out as inbound tourism fades

Japan's private railways, like Sotetsu, no longer are enjoying robust business from foreigners visiting Japan.

TOKYO -- With hotel demand from foreign visitors having lost momentum, railway operators in Japan are exploring new avenues of growth.

Fourteen major railways had announced April-September earnings by Thursday. Seven, including Kintetsu Group Holdings, booked year-on-year operating profit growth -- a slowdown from a year earlier when all 14 secured profit increases.

Spending by foreigners visiting Japan was brisk a year ago but has petered out. The hotel businesses of railway operators enjoyed rapid expansion through last fiscal year.

"The approach of depending solely on inbound demand to increase profits is reaching its limits," says Ryota Himeno of Citigroup Global Markets Japan.

The trend is notable in guest room prices and occupancy rates. More foreigners are stopping by smaller localities rather than staying in big cities. At Sotetsu Holdings, the occupancy rate for the mainstay Yokohama Bay Sheraton Hotel & Towers slid 2 percentage points in the April-September half.

Keio and others are renovating facilities in a bid to raise room prices. Meanwhile, others are cultivating new sources of earnings.

Kintetsu, for instance, purchased the Osaka aquarium Kaiyukan. Even though its department stores are no longer benefiting from robust shopping sprees by Chinese visitors, its operating profit for the April-September period rose 1% to 32.2 billion yen ($301 million) thanks to the acquisition.

Tokyu enjoyed strong demand for lease space at its Futako Tamagawa Rise shopping and high-rise apartment complex. A movie theater there also fared well. Daily passengers using the nearby Futako-tamagawa Station increased by 10,000 from a year earlier. The company's operating profit fell 2% to 44.4 billion yen due to heavy depreciation charges in the railway business, but was still 7.4 billion yen higher than forecast.

Seibu Holdings, whose operating profit exceeded estimates by 1.9 billion yen, saw stronger-than-expected demand for home rentals at the Tokyo Garden Terrace Kioicho, which opened in full in July. Due to heavy opening costs, the profit figure was down 21% on the year.

Some railway operators are adjusting the focus of their mainstay train service businesses, such as by offering reserved seats to businesspeople during commuting hours.

Tobu Railway started operating the TJ Liner reserved-seat service in the spring during the morning rush and earned more income from non-commuter-pass fares.

Keikyu is also offering similar services, supplementing earnings from airport rail links still enjoying brisk demand from foreigners.

The companies' ability to cultivate potential demand in their respective areas of strength will be key to earnings going forward.


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