Japan’s Railways: A Source of Pride, Part 4 – How Rail Became a Profit Engine

In the last article, we talked about the ‘railway business,’ but we finished abruptly, so I want to continue with the rest of the story.

Globally, railway operations are typically run by state-owned or national entities, and in most countries, they are considered unprofitable ventures. However, Japan is unique because it features a dense concentration of four major listed JR companies and sixteen major private railways—and these companies are all generating solid profits. This is an unusual situation globally.
How can they generate so much profit? The answer is simple! They aren’t trying to make money *only* from the railway business itself. Instead, they start with buses, and then expand into diverse businesses such as station buildings, shopping centers, hotels, real estate, leisure activities, advertising, dining, and travel. For example, ‘Hankyu’ was one of the first companies to establish this model before the war. They built ‘Hankyu Department Store’ in the terminal stations, created ‘Takarazuka Revue’ in the suburbs, established ‘Hankyu Hotels’ (which is now Hankyu Hanshin Dai-ichi Hotel), developed residential areas along the lines, and run ‘Hankyu Bus,’ while ‘Hankyu Real Estate’ handles sales, and if you want to travel, there’s ‘Hankyu Transportation.’ The residents living along these lines are completely wrapped up in this ecosystem. It’s no exaggeration to say they are dependent on it. Hanshin even started cultivating lettuce in the unused space beneath elevated tracks! Perhaps ‘Hankyu’ in the west and ‘Tokyu’ in the east are prime examples of this success. For both of these major groups, rail revenue accounts for only about 30% of their total sales. By the way, JR Kyushu’s railway business has been running at a deficit since privatization. In recent years, damage from natural disasters has made turning a profit even more distant. However, they are generating massive profits through other group businesses, which allowed them to achieve solid profitability and list on the stock exchange. Conversely, it could be said that their core railway operations are being supported by the profits generated from their diverse group ventures.

Sometimes there is discussion about whether high-speed trains (Shinkansen) or airplanes are used more often. Are you familiar with terms like the “four-hour wall” or the “700km wall”? People often say that “if it’s under four hours, Shinkansen wins,” or “if it exceeds 700km, flying is better.” While there is debate over whether this rule is accurate, for a distance like Tokyo to Hiroshima (around 700km), flying might be faster, while the Shinkansen trip from Tokyo to Shin-Osaka (2 hours and 21 minutes) shows the train’s clear advantage. We previously mentioned that Japan leads in the number of times people use rail transport, but the distance covered per trip is short. This means you can choose between flying, Shinkansen, or local lines/cars depending on the distance and time required. For long distances, planes; for medium distances, Shinkansen; and for short distances, local lines or cars. Furthermore, choosing rail over a car even for short trips is a uniquely Japanese tendency. This ability was only possible because of the massive railway network operated by JR companies, private railways, and subways.

I originally planned to keep this article to three parts, but it grew longer as I wrote. We covered the amazing aspects of Japanese railways from three perspectives: ‘delays,’ ‘passenger numbers,’ and the ‘railway business.’ However, there are still countless fascinating details. This might get a little niche, but please continue to follow along with an open mind.

See you next time!