IR

An Interview with the President

Question 1
Looking back to the restructuring of Japanese National Railways (JNR) that led to the establishment of JR East, what have the Company’s achievements been in the 30 years since then, and what are the tasks going forward?
Answer
  • JR East has rehabilitated and revitalized railways based on a commitment to being autonomous, customer focused, and regionally rooted, which were the starting points of the Company’s establishment.
  • To continue responding appropriately to changes in business conditions, we will advance concrete measures based on the priority Groupwide tasks of improving the safety and reliability of transportation, taking on the challenge of enhancing profitability, and advancing “TICKET TO TOMORROW” initiatives.

It feels as if 30 years have passed in an instant. I worked at JNR at the time, so I remember it well. In the period just before it was restructured, repeated strikes and fare increases had lowered customers’ trust in the company. JNR was recording huge losses year after year. Financially, there seemed to be absolutely no prospect of moving out of indebtedness. It was especially tough for employees because no matter how hard they worked light never appeared at the end of the tunnel. Without the prospect of improvement, organizations lose vitality. I remember that even though we were frustrated at being unable to exercise our abilities, we felt strongly that we could do better.

I joined JNR in 1974. At the time, Japan’s transportation market was undergoing a major period of transition. With advances in motorization and the development of expressways, automobiles, mainly private cars, were claiming an increasingly large share of passenger transportation. Also, progress in developing airports was popularizing air transportation. Unable to adapt sufficiently to these changes in business conditions, JNR slipped into the red in fiscal 1965 and saw its business results and financial position worsen with each passing year thereafter.

JNR was a public corporation that was tasked with running the country’s railways—a critical public service—with a private company’s efficiency. However, management responsibility was unclear, and the management team lacked autonomy. As a result, the company failed to perform adequately from the viewpoints of both public service and efficiency. Further, while many employees worked hard to preserve local transportation services, employee morale dwindled amid confrontations between management and labor.

TETSURO TOMITA, President and CEOJNR collapsed as a result of being unable to adapt to changes in business conditions. A monolithic nationwide organization, the company and its business management were unable to reflect each region’s characteristics. As well, the company was unable to fine-tune services to meet specific customer needs. As a public corporation, the company did not have autonomy over management, on the one hand, or clear management responsibility on the other. Solving these problems and rehabilitating and revitalizing railways called for drastic restructuring that would break completely with the past. This realization led to the division and privatization of JNR. I think restructuring released the pent up energy of employees, which manifested as a sense of mission and a commitment to taking charge of creating their own future.

Since the restructuring of JNR, more than anything, the change in employees’ attitude has been the biggest factor driving continued and steady growth. The systemic reform resulting from the division and privatization of JNR only produced benefits because employees adopted a new attitude. Reflecting the starting points of JR East’s establishment—in other words, a commitment to being autonomous, customer focused, and regionally rooted—each employee moved away from the JNR attitude of “getting people on trains” to one of focusing on “creating train services for customers.” This new attitude motivated us to elevate the quality of transportation services. Moreover, the shift from being a JNR employee to being a private company employee led employees to work with an awareness of their dependence on customers for their wages. In addition, we must not forget that the endorsement and support of customers and local communities allowed JR East employees to advance corporate policies.

In 1987, when JR East was established, the economy was booming, and Japan was brimming with vitality. For the next five years, JR East grew revenues steadily. I think it was very significant that we were able to win customers back in such a short period. Meanwhile, as Japan entered the 1990s its economy flagged and interest rates declined. When it was established, JR East had revenues of roughly ¥1.5 trillion and real debt of more than ¥6 trillion. Consequently, the annual interest burden was fairly hefty, reaching about ¥400 billion. In response, we reduced the interest burden by refinancing to access lower interest rates, and minimizing capital investment. Low interest rates have continued to this day, creating favorable business conditions for JR East.

We have been able to leverage this good fortune thanks not only to the efforts of individual employees but also the support and endorsement of customers and local communities. Neither will we forget the significant help we received from national and regional governments and private companies in processing JNR’s long-term debt and dealing with the issue of personnel reemployment. It would be arrogant for us to think we came this far entirely through our own efforts.

In addition, as JR East’s management position has improved, the Company has been able to invest cash flows in enhancing safety and improving service quality. Specifically, in railway operations we have boosted inter-regional railway travel by expanding and raising the operating speeds in the Shinkansen network. At the same time, the Company has focused efforts on strengthening services through such initiatives as increasing transportation capabilities in the Tokyo metropolitan area to mitigate congestion. As for safety, we have invested more than ¥3 trillion in such safety measures as seismic reinforcement over the past three decades. From a long-term viewpoint, the number of accidents has decreased, and safety has improved. In recent years, however, there have been major incidents and transportation service disruptions. We need to remain ever vigilant. Also, revenues from non-transportation operations, in such areas as station concourses, shopping centers, and offices, have been growing steadily. The IT & Suica business, which we view as our third pillar, has enhanced services and promoted changes in customers’ lifestyles. In conjunction with these efforts, we have reduced equipment maintenance costs and realized more-efficient usage of space in railway stations. As Japan’s population will decline over the medium-to-long term, we have to create foundations for the steady growth of businesses in fields beyond railways.

At present, the JR East Group is approaching a major period of transition internally and externally. Externally, we are likely to see advances in population decline, the aging of society, the population’s concentration in the Tokyo metropolitan area, technological innovation, and economic globalization. Internally, railway systems will evolve, and a new generation of employees will take over from the current generation. To respond appropriately to these changes, in October 2016 the JR East Group set out three priority Groupwide tasks: improving the safety and reliability of transportation, taking on the challenge of enhancing profitability, and advancing initiatives for the Tokyo 2020 Olympic and Paralympic Games under the “TICKET TO TOMORROW” slogan.

We will take measures focused on improving the safety and reliability of transportation to entrench the trust that customers and local communities place in the Company. At the same time, we will sustain growth and ensure autonomous business management going forward by taking on the challenge of enhancing profitability and advancing “TICKET TO TOMORROW” initiatives. The aim of setting these three priority Groupwide tasks is to return to our starting points directly after the restructuring of JNR. In terms that reflect society today, the tasks express a commitment to being autonomous, customer focused, and regionally rooted.

The JR East Group’s 30th anniversary