Analyse of the sector 29/11/2010
Damage from recession and swine flu

Whilst the industry was already suffering from the ongoing economic recession, the outbreak of the swine flu, announced at the end of April 2009, caused further difficulties. Outbound travel dropped as both international and local travel agencies experienced a large number of cancellations of holidays, not only to North America but also other overseas destinations. June is a key season for 3-4 night school trips for Japanese junior high school and high school students, but during this period, most schools cancelled or postponed their school trips.

 

Significant decrease in arrivals

 

In 2009, Japan experienced its first two-digit decrease in the number of arrivals since 1986, when the US dollar was devalued according to the Plaza Agreement. The number of arrivals started to fall sharply at the end of October 2008, when the value of Japanese yen started to rise. The ongoing global economic slowdown and the outbreak of Swine flu were also to blame for the substantial decline. Luxury foreign brand hotels, which target business travellers from US and European countries, were particularly badly hit by the decline.

 

Air and travel retail sectors plummet

 

Impacted by the large decrease in number of arrivals and departures, air travel experienced an unprecedented fall in number of passengers and value sales in international flights. A large decrease in international business travellers, in particular, inflicted significant damage on value sales. Profitable business class passenger seats were almost empty on many international flights, as companies cut their travel expenses. A shift in preference in terms of destination among leisure travellers also impacted sales significantly, as an increasing number of people chose neighbouring countries as their holiday destination, for which flight tickets are much cheaper than to Europe. A large decrease in the number of overseas travellers also impacted sales for travel companies. Most of the top 10 travel companies registered double-digit decreases in annual sales in 2009.

 

JAL goes bankrupt

 

Japan Air Lines (JAL) announced a loss of ¥63 billion in the financial year ending March 2009. In late June 2009, JAL secured ¥100 billion in credit from the Development Bank of Japan and three other major banks, on condition that it accepted government direction and supervision in its rehabilitation efforts. However, there were no improvements, and losses continued to accumulate. There was a long debate as to whether the government should save the airline. In December 2009, it was decided that JAL should file for bankruptcy protection under the corporate Rehabilitation Law. JAL had already significantly reduced the number of flights which were not profitable and downsized its fleet. The company will have to continue to minimise the size of its operations to improve profitability. The company is considering getting assistance from foreign airlines.

 

Vigorous growth in car rental discounters

 

In 2009, Japan’s car rental market saw a considerable shake-up. A number of new low-priced rental car companies were established and expanded their operations rapidly, eroding the share of the established brands. They typically run service station-based franchise operations, using second-hand cars. In this way, the initial capital is minimised and operational costs are substantially reduced, which enables these operators to offer car rental at little more than half the price of standard operators. The most aggressive operator is Rentas Co Ltd, which operates Niko Niko Rent-a-car, which started business in December 2008. By the end of 2009, it had 227 franchisees. The existing rental car companies have tried to differentiate their service from those of discounters by introducing luxury foreign cars or/and electric operated environmentally-friendly cars, and have avoided getting involved in price competition. At the same time, the leading companies have extended their operations in car sharing.