INTRO: Faced with growing competition from deregulated airlines, JR Central plans to run seven ultra-fast Nozomi trains every hour between Tokyo and Shin-Osaka. JR Central President Yoshiyuki Kasai revealed his strategy to Murray Hughes in Nagoya

AFTER many years of continuous growth, traffic volume on the Tokaido Shinkansen peaked in the year ending March 31 1992 with 133·9 million passengers. Since then volumes have faltered slightly, and in the year to March 2000 the total had fallen to 128·4 million. One reason for the decline was a downturn in the generally buoyant Japanese economy, but there is a new factor too.

In 1996 there were 20 return flights a day between Tokyo and Osaka. Now there are 34. Challenging the dominant airlines such as JAL and ANA are newcomers including Skymark Airlines. Their arrival follows legislation deregulating the Japanese airline industry, and while the private airlines’ market share may be tiny at the moment, it represents a fresh threat to the Tokaido Shinkansen. This has resulted in ’destructive, cut-throat competition’ with low profit margins.

JR Central President Yoshiyuki Kasai has watched the arrival of more competition with intense interest, and his strategic response is already well advanced.

For the moment JR Central is not in a position to cut its prices, and Kasai’s immediate policy is ’to try to increase our service advantage’. From next year Nozomi departures will be at half-hourly rather than hourly intervals. The 2h 30min timing over the 515·4 km between Tokyo and Osaka is very popular, and the reservation-only trains run with high load factors.

Second Tokyo terminal

Doubling the Nozomi frequency is just a taste of what is to come. Once JR Central’s second Tokyo terminal opens at Shinagawa, 6·8 km from Tokyo Central, in autumn 2003, the whole pattern of services on the Tokaido Shinkansen will change.

From that date there will be seven Nozomi departures an hour from Tokyo and Osaka, with 2 Hikari [semi-fast] and 3 Kodama [all stations] trains. Apart from relieving the congested platforms at Tokyo Central, the new departure pattern will, believes Kasai, give the airlines something to think about and ’may even suffice to eliminate the market distortion of the airlines brought about by mistaken government policy’.

From July 2000 passengers without seat reservations have been able to board Nozomi trains under certain conditions, but in future more seats will be made available for passengers without reserved seats. In October 2000, the Nozomi frequency at Shin-Yokohama was doubled, providing a third access point in the greater Tokyo area for premium services to Osaka.

Reducing debts

Kasai views the Transport Ministry’s decision to charge low fees for airport landing slots to encourage new airlines as just part of the problem. Much more difficult to deal with is JR Central’s historic position relating to the cost of building Japan’s Shinkansen routes. This is closely linked to the break-up of JNR in 1987.

The nub of the issue in Kasai’s eyes is that the break-up was a political decision and not the result of market mechanisms. Although it was based on a national consensus, it was ’self-contradictory, in that a political procedure was applied to introduce market mechanisms. But if true market rules were to be applied to the railway, they would be rejected by the Diet because it would mean closing some lines and reducing services.’

Kasai emphasises that the Tokaido Shinkansen is the most profitable of all the JR routes, but it was valued at only ´470bn at the time of the JNR break-up in 1987. This value was later recalculated at ´5090bn, and the JNR debt settlement arrangements mean that this amount has been allocated as debt for JR Central to pay off.

Kasai’s controversial view is that two-fifths of this should have been allocated to JR East and JR West to pay for the Tohoku, Joetsu and Sanyo Shinkansen. He is concerned that in practice JR Central is providing a large cross-subsidy not only to JR East, but to the other JR companies as well (JR West, JR Hokkaido, JR Shikoku, JR Kyushu and JR Freight).

Of particular concern to him is that 26% of JR Central’s annual costs go on interest payments, and he remarks that ’it is very fortunate that interest rates in Japan are close to zero. While JR Central is maintaining a profit ratio of 6·4% - not a bad performance - we cannot control interest rates. So our financial strategy is to reduce the debt as soon as possible and as fast as possible.’

Kasai is proud that ’we have already cut the debt by´655bn in the last eight years, and this year we expect to reduce it by another ´130bn.’ He feels that ’it is a kind of race against the time when interest rates may rise. Our aim is to get the debt down so that it is only two or three times our annual revenue, which would be the same as electricity or other utility companies.’

All this has coloured Kasai’s view of government proposals to sell off the rest of the shares in the three mainland JR companies. Kasai argues that the government may wish to rid itself of the responsibility for the railway’s financial problems, but if they persist with a complete sell-off,’I have pointed out the reality of what will happen’ (RG 7.00 p414).

The government has already drafted proposals for the complete sell-off which were sent to the Diet in January. In practice, it now looks as if a compromise will be agreed under which JR Central’s debt will be reduced and various safeguards will be included in the legislation.

Maglev commitment

Not unrelated to Kasai’s concern about the future is JR Central’s commitment to the superconducting high-speed maglev project. This has now entered a five-year phase of development tests, in which one of the objectives is to reduce costs.

Kasai suggests that the gap between the cost of building a superconducting maglev line and a conventional Shinkansen comes down to ’the difference between the price of rail and the price of the magnets, which are rather expensive. Roughly speaking, the cost of building maglev infrastructure is around 50% more than a steel-rail Shinkansen. Now we are hoping to cut this to perhaps 10%, certainly no more than 20%, and the question is how to do this.’

On the assumption that agreement is reached for a commercial maglev route to be built, Kasai expects suppliers to ’become accustomed to the technology and the cost of magnets will come down dramatically’. Not only that, but Kasai anticipates that superconducting technology is still in its infancy. ’A certain metal is cooled to a temperature of -269°C using liquid helium to create a superconductive state - and these superconducting magnets have become quite strong. But now many studies are being made of materials that are superconducting at higher temperatures, and if this proves successful, it will be possible to simplify the structures of magnets and ground coils. This means that we shall be able to reduce the total cost.’

So far only the ’priority section’ of the planned 42 km maglev test guideway in Yamanashi has been built. Kasai is confident that ’we can test almost all the equipment on the 18 km line we have now. One round trip is around 30 km, and it is possible to run around 1 000 km in a day.’

In terms of paying for construction, Kasai believes that passengers will place considerable value on the price of a service at 500 km/h: ’they will be willing to pay 10% or perhaps 20% more; certainly considerable value will be given to a Tokyo - Osaka journey time of 1 hour.’

Pressed to estimate when such a line would be built, Kasai hedges a little. ’It is very difficult to answer. If the Chuo Shinkansen is constructed, it will double capacity on the route instantaneously, but the traffic will not double too. That could take a decade, or even two.’

JR Central has obtained agreement from the Ministry of Transport that it will be granted unified management of the Tokaido and Chuo Shinkansen. The running tests are a joint project with the Railway Technical Research Institute, a project on which JR Central is spending ´196·5bn. By March last year it had spent ´161·7bn, and it expects to stay within its budget for the rest of the test programme lasting until 2005.

Kasai points out that in many countries transport infrastructure is built using government funds, and that ’therefore the benefit does not belong just to the passengers and the industry.’ He feels that ’the cost should be met partly by passengers and partly by taxpayers.’ This requires a major strategic decision from the Japanese government, but at the moment he feels that ’the government is not strong enough’ to do this.

CAPTION: By July last year JR Central had leased nearly all office space in its landmark towers at Nagoya; apart from offices, the buildings house a hotel, a department store and other shops, restaurants, and an indoor garden. The company says that traffic on its Nagoya local lines increased by 5%last year compared with 1999 Photo: Mikio Miura

CAPTION: Series 700 trainsets are taking over more Nozomi services. With a 2h 30min timing between Tokyo and Shin-Osaka, this Nozomi is seen passing OdawaraPhoto: Mikio Miura

CAPTION: Ridership on the Tokaido Shinkansen climbed steadily in the early years, in line with the Japanese economy, but growth tailed off in the late 1990s due to recession and increased competition

Seven Nozomis an hour will challenge the airlines

Faced with growing competition from deregulated airlines. Traffic on the Tokaido shinkansen is declining slightly. To combat its new competitor JR Central plans to run seven ultra-fast Nozomi trains every hour between Tokyo and Shin-Osaka and is opening a second Tokyo terminal at Shinagawa in autumn 2003. Because of its historic debts, JR Central cannot for the moment reduce fares on the Tokaido shinkansen, but it is steadily reducing its historic debts and remains committed to develop plans for the 500 km/h maglev Chuo Shinkansen. President Yoshiyuki Kasai revealed his strategy to Murray Hughes in Nagoya

Sept Nozomi par heure pour concurrencer l’avion

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Sieben Nozomis pro Stunde fordern Fluggesellschaften heraus

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Siete Nozomi por hora har