Innovative rail group keeps growth on track

You are the vice chairman of East Japan Railway Company, and also the president of the UITP. Could provide an outline of the UITP?

First of all, I would like to explain the history of the UITP. Public transport has adapted to social and technological changes since the advent of the omnibus more than two centuries ago. It was said that stagecoaches, which could be used by both the upper class as well as the ordinary citizen, started to run around the early 19th century in several European cities such as London and Paris. As time went on, the stagecoach evolved to use rail tracks. Its power source also changed, from horse to electricity, and eventually this formed the origin of the tramway. By 1885, this form of transport had grown so important that 50 tramway operators from Europe got together and set up one of the first international associations to advocate the development of public transport, which today is known as the International Association of Public Transport (UITP).

The mission of the UITP is to be working to enhance quality of life and economic wellbeing by supporting and promoting sustainable transport in urban areas worldwide. The UITP has 1,400 member companies including operators, industries, governments, research institutes and so on.

Fourteen regional and liaison offices and two Centres for Transport Excellence are located in the world. As a leader of international public transport organization, the UITP plays an important role to promote sustainable mobility.

Japan was the first country operating fast-speed trains and they are considered as a symbol of Japanese modernity. What is the role that, in your opinion, railways will play in the recovery of the Japanese economy?

First of all, the railroad is a very basic social infrastructure in Japan. In terms of the passenger kilometer, which is the number of passengers multiplied by the average distance of their trips, we account for 9% in the world. However, if we consider the percentage of people using railways, Japan, as a single country, accounts for 30% of the world share. The entire Europe, for instance, has a 32% (2014) share. This data shows how the railroad is a fundamental infrastructure in Japan.

As a social infrastructure in Japan, the railroad plays a very important role in the Japanese economy. Without it, Japanese businessmen could not commute, especially in the big cities. Railways are a fundamental engine for Japanese growth.

Secondly, I would like to put some emphasis on innovation, as in JR East we are constantly thinking of new ways to innovate mobility. We have to innovate in terms of safety energy efficiency, comfort and so on, regarding railroad transportation. We can also innovate in terms of the way of life associated with the surroundings of our stations.

Thirdly, we would like to be innovation leaders also in the tourism industry. Following the new goals set by our government, Japan has to double the number of inbound tourists, most of whom use the high-speed rail. We are facilitating the use of high-speed rail by offering special rail passes including unlimited rides during a certain period of staying time for a low price. These passes are only available to residents outside of Japan.

JR East was incorporated in April 1987 after being spun off from the government-run Japanese National Railways (JNR). The privatization was finally completed in 2002. Now, your network offers 1,660 stations and spans over 7,400km. What would you consider the main milestones that have been achieved by the company in the last 30 years?

Twenty-nine and a half years have already passed, and next April we will welcome the 30th anniversary of our company. In JR East, we consider that our first milestone was definitely 1987 itself when the change from the national railway to the JR group took place and we were founded.

Of course, before our foundation, the year 1964 was very important for the railroad industry in Japan as it was when the first high-speed railway in the world inaugurated operations. Normally, a railroad needs to be subsidized by the government. Thus, fares need to be complemented to ensure sound management. However, in Japan, we are completely independent and private right now.

After our privatization, the world learned that a railroad company could be independent and profitable. Before our privatization in 1987, we received an average of $6 billion in subsidies every year. However, at present, we are contributing $1.6 billion dollars per year as the tax to the government.

At the same time, we have been able to avoid raises in fares and charges. In the 1980s, our fares were the highest among railway operators in Tokyo, but because we have not raised them, we are now in the lower or the middle price range.

Thus, our results are in the numbers: for the past twenty-nine and a half years, we have not received any subsidies from the government and we have not raised any fares or charges (without tax increases). With these two successes, we have also been able to pay off half of the debt from the previous Japanese National Railways that we had inherited: a 6.4 trillion-yen debt. Our second main milestone as JR East was in 2002, when we became completely listed in the stock market. Today, 100% our shares are held by individuals or private companies only.

Your Research and Development Center plays a crucial role in supporting key aspects of your Group Management Vision V: Ever Onward, through which you strongly promote technological innovation with a particular emphasis on establishing energy and environmental strategies, utilizing ICT and operating Shinkansen at faster speeds. What services are you working on at this moment, and how will this contribute to improve travelers’ experiences?

Our fundamental business is to bring people from point A to point B. In this context, we are working to obtain higher levels of safety, comfort, speed and so on. We also entered in the lifestyle business. Furthermore, in 2004 we started micropayments service by Suica, a profitable instrument making commissions on each transaction.

In any case, innovation in technology is a concern. We are putting emphasis on three main areas: the first one is increasing our energy efficiency. The railroad is a fairly efficient mode of transportation in both energy usage and CO₂ emission. We have been trying to reduce our energy usage by improving train locomotives. We also own power plants, one is hydroelectric and another close to Tokyo is a thermal plant. This is why we do not need to buy any power from outside sources for the Tokyo greater area. By taking advantage of having our own power plants, we are also studying how to decrease losses totally in energy generating, transmission and consumption networks.

Our second innovation area is ICT, where we are working together with different companies in Silicon Valley. We have different innovation research lines regarding applications, big data, IoT and AI, and so on. In 1987, we had only three computer systems: one is used for our ticketing system, and the other two for the high-speed train rail system control. Today, we have almost 1,000 computer systems in our company. Thanks to this automation, we have been able to reduce the required workforce from 80,000 to 44,000 workers while at the same time improve the services and operation frequencies without raising the fares.

Today we are still surrounded by the exponential growth of IT technologies, which will continue to grow. We want to utilize the most advanced technologies at the right time and in the right place. In the past, the railroad industry was a closed industry, and although we did innovate, we did it by ourselves. Today, we need to continue open innovation with industries outside the sector.

Finally, our third point in innovation is related to speed. The fastest speed in Japan is 320 km/h (200 mph) and our target is to reach 360 km/h (220 mph). Even if this is usually the hot topic when we talk about high-speed rail, I would like to emphasize the importance of the total trip time, which involves the time required to walk to the train or the time spent while waiting for the train arrival. We are working to reduce the waiting time in the station and also to reduce the on board time as well.

It it also important to generate collaboration between all existing modes of transportation in order to reduce the total trip time. This is the concept of ‘mobility as a service’. People living in Tokyo might not need this type of transportation because they can always find a railroad/metro station within 10 or 15 minutes walking distance.

Another innovative initiative, this time in your lifestyle business, announced recently is the reutilization of the Hokutosei sleeper train as a Tokyo hostel. What other innovative steps in your business diversification towards the lifestyle and tourism sector are you planning to take?

In order to be ready to welcome the 2020 Olympic Games visitors, we need to speed up, not only in the railroad sector, but in the lifestyle business sector as well. The link between railway and lifestyle businesses is quite specific to Japan. We are currently trying to export it to other countries around the world, especially to Southeast Asia, where they are interested in developing retail shopping centers within the stations.

At JR East we have accumulated a high level of knowledge and experience in this area, so we are working as consultants for those interested in following our business model.

Today, we have many subsidiaries, which are trying to export their business to Southeast Asia, especially in or near the station. In terms of retail, our subsidiary just developed a new type of shopping center within the stations. The question now is how are we going to continue to diversify and go beyond the retail sector.

We see office spaces and hotels as very promising business opportunities too. In this regard, Shinagawa could be a future milestone for us: it was an old depot for locomotives and coaches. Now, we are in the process of removing old coaches and rail tracks to make spare land. Once the operation is completed, JR East will have an impressive amount of spare land, about 13 hectares, in the center of Tokyo, which will most likely be the last huge land available in the capital. This is why we consider Shinagawa as our next milestone in the lifestyle business.

Eight of the nation’s 32 national parks have been selected by the Environment Ministry for a pilot project aimed at attracting more foreign visitors to sites of natural beauty. The Ministry announced an improvement in infrastructure and services at the selected locations to encourage private investment in hotels and other facilities around the parks. As two of these eight national parks are connected by your network (Nikko and Towada-Hachimantai), how is JR East participating in the services and infrastructure improvement and in promoting these areas among foreign visitors?

Actually, Nikko has traditionally been a very famous spot for foreigners. We provide high-speed rail services to Utsunomiya, and then to Nikko.

In addition to our hotels and ryokans (Japanese-style guest houses), we also have a tourism agency which actively includes our railway routes. Today, we offer dynamic package combinations that customers can find through the internet which involve ryokan hotels and transportation to the Nikko area. Many airlines and other tourism companies have been working with these packages already.

As I have already mentioned, we provide very good access to these areas with the shortest trip in means of trip time. We also provide the secondary transport to customers arriving at their destination station continuously to get to their hotel.

Not many visitors to Japan travel to the Tohoku region, but many of them visit Kyoto. To what extent are you planning to attract foreign visitors to Tohoku region through the new Hokkaido Shinkansen? What kind of synergies can be created with the newly privatized Sendai Airport to integrate air and rail transportation services?

We are working hard together with the local governments of different prefectures, especially those in the Tohoku region. Even though the number of inbound tourists has increased, the percentage of those staying at least one night in the Tohoku area is only 1%. So, we are offering package tours for Chinese tourists who use Sendai Airport and Shinkansen for traveling around the Tohoku and Tokyo region.

We are working together with Tohoku authorities plus we are encouraging our customers to travel to Tohoku through advertisements in our stations. There are many treasures in Tohoku, like impressive sceneries and mouthwatering food, but it is not known or adequately communicated. For the foreigners, Kyoto tends to be more popular, and thus, going to the west is what the majority of visitors do.

In comparison to other railway operators in Japan, transportation disturbance is your main weakness, according to consumer reviews. What are you doing to improve your reliability?

In our annual survey census, we saw that our users evaluate our safety levels very highly. In general, we have an overall good score with customer satisfaction, but our weakness is in disturbance, which still shows high level being compared with foreign countries. This is mainly due to the fact that safety is always our top priority. In order to have safety within our trains’ operations, we always stop trains if there is a problem. For example, if the driver finds someone walking on the track. If that person disappears, we still need to stop and look for him or her. Some minutes would be required before we can resume the service again.

This high safety standard has granted us with high levels of safety satisfaction. At the same time these standards generate higher amounts of times when the train is stopped. Users want to be fully informed about the cause of the suspension, the ways to detour the trains, and how long it will take to resume the operation in order to decide among other options to get to their destination. We have invested a lot to be able to resume operations very quickly, but still, in every single situation we need to be careful about the safety. Without safety, we cannot resume operation.

We have understood that safety and the ability to resume operations promptly are important, but also, making announcements so the customers feel relaxed is important as well. Without the information, they will start complaining and our satisfaction ratio will decline.

Japan offered to participate in the California high-speed rail project by forming the Japan-California HSR Consortium with other companies. On the other hand, JR Central has been active in cooperation with some US companies, as Texas Central, to build a bullet train between the main cities of this state. They are also promoting the Maglev train, which will connect Tokyo and Osaka by 2027. How do you differentiate yourself from your competition, not only JR Central, but also other international rail companies when acceding the promising US rail market?

It depends on the project. It is true that we have shown a deep interest in California. In this case, we would like to support the operation using conventional types of high-speed trains that run at 220 miles per hour. That is our target. We have already been doing consultations, and we have been working together with Japanese suppliers.

We are always interested in high-speed rail, which we offer as one integrated system, from the design of the routes to its construction, signals installation, train manufacturing and operation. Our aim there is to operate a conventional type of high-speed train running at more than 220 miles per hour, and having the entire system unified, as we want to follow the same stringent safety controls that we have in Japan.

In the California project, we emphasize safety in earthquakes, which they have shown a lot of interest in. We have a lot of technology to minimize disasters when an earthquake occurs. For instance, our early detection of earthquakes is extremely useful. When the P wave (preliminary tremors) comes, our systems detect that, so that when the S wave (principal shock) follows, our train services will have already been shut down and stopped. We have seismometers along the sea coast and we are going to install some of them on the sea bed.