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Japan-Update

Railway operator Odakyu seen reporting 2% 1st-half profit growth

Return of tourists to Hakone resort propels company to beat forecast

Odakyu resumed Hakone Ropeway service now that volcanic activity has settled.

TOKYO -- Odakyu Electric Railway appears to have beat its operating profit forecast for the April-September half, helped by increased customers for its Hakone rail services and hotels, as well as by strong department store sales.

Consolidated operating profit likely rose 2% on the year to 28 billion yen ($246 million), topping its 27.6 billion yen outlook. Operating revenue -- equivalent to sales -- likely edged up 1% to around 255 billion, nearly in line with guidance. 

Odakyu operates railways to the popular hot springs town of Hakone in Kanagawa Prefecture as well as the Hakone Ropeway, an aerial lift that runs to scenic Ashinoko Lake. Service for the cable car was temporarily suspended in May 2015 due to volcanic activity in the area, but resumed in July 2016. Since then, tourists have returned to the area, boosting local railway ridership.

The Tokyo-based company's Hakone hotels have also prospered from the rebound in tourism. Rooms were essentially fully booked in August, with an occupancy rate above 90%. 

Meanwhile, improved hiring across Japan boosted the number of commuters using the company's main Odawara Line and other routes. 

Fixed costs make up a high proportion of expenses for railway operators like Odakyu, meaning an increase in ridership easily translates into extra profit. The company's operating profit margin for the April-June quarter was 24%, higher than rivals Tokyu and Keikyu at 18% each, as well as Tobu Railway at 22%. An increase in long-distance riders from Tokyo and its environs to Hakone is also expected to hoist up profit. 

At Odakyu's flagship department store in Shinjuku, spending by foreign visitors to Japan has been noticeable as August sales surged 11% on the year, with cosmetics and everyday items selling well. The store also benefits from its location next to Shinjuku Station, one of the world's busiest. Profitability is also seen improving as reduced labor costs and other measures implemented in fiscal 2016 start to produce results. 

The company is unlikely to change its full-year forecast, which calls for operating profit to advance 1% from the previous year to 50.2 billion yen, and sales to flatline at 525.1 billion yen. 

(Nikkei)

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