KINKI NIPPON RAILWAY COMPANY LTD. History

Company History:

The Kinki Nippon Railway Company is the largest and oldest private railway company in Japan, with daily traffic of 2.1 million passsengers over 595 kilometers of track. It is also the parent company of the Kinki Nippon Tetsudo Kabushiki group (Kintetsu), which has 170 subsidiaries employing 81,000 people worldwide, total assets of ¥180 billion and annual sales nearing ¥2.7 trillion. The business interests of Kintetsu range from tourism to real estate, air freight, hotels, and cable television, among others.

The Kinki Nippon Railway Company Ltd. began life with two main corporate predecessors, the Osaka Electric Tramway and the Sangu Express Company (Sankyu). The Osaka Electric Tramway was a modest concern, founded in 1907, whose first project was to build a standard gauge interurban tramway between Osaka and Nara. As Japan's ancient former capital, Nara had a rich heritage of important historical sites, including the Todaiji temple, renowned for its great statue of the Buddha. The 17-mile stretch between the two cities took seven years to complete and involved blasting a two-mile tunnel through the Ikoma mountains, east of Osaka. The unhurried pace of railway development was quite typical of the times and in striking contrast to modern Japanese efficiency.

Through the 1920s Osaka Electric Tramway added two further lines, one south from the Nara area to the shrine at Kashihara and the second providing a link from Fuse, just east of Osaka, to Sakurai, an area of great natural beauty. In the 1920s it also acquired a number of smaller railways, the Tenri Light Railway, the Ikoma Cable Railway, the Hase Railway, the Yoshino Railway, and the Iga Electric Railway, which improved its coverage of the region. Much of the 1930s was spent upgrading the tramways to railway standards.

The second corporate predecessor of the Kinki Nippon Railway, Sangu--or "Pilgrimage"--Express Electric Railway (Sankyu) was founded in 1927. Its main holding was a line from Sakurai in the middle of the peninsula across the mountains to the shrines at Ise. This link, which was completed in 1931, allowed passage directly from Osaka in the west to the Grand Shrines at Ise on the Shima peninsula in the east of Japan. Since the early 1900s there had been a series of plans to provide better transportation to this region. The shrines attracted a great deal of pilgrimage traffic, but state-run Japan National Railways services from Osaka and Nagoya were indirect and slow. From 1915 the Ise Railway began a line which by its completion in 1930 ran from Kuwana in the north to Ise in the south. In 1938, Kankyu forged the last link between Kuwana and the northern city of Nagoya, which did much to unite the area as a whole.

In 1936 Sankyu took over the Ise Electric Railway, as the Ise Railway had become in 1926. In 1940 it absorbed the Kansai Express Electric Railway (Kankyu) and a year later added the important Osaka Electric Tramway, renaming itself the Kansai Express Railway. Government-prompted wartime railway mergers brought four smaller companies into the fold--Osaka Railway, an interurban railway out of Osaka; the Yoro Electric Railway, a line in the Kuwana region; the Mt. Shigi Express Electric Railway; and the Nanwa Electric Railway. Kansai Express Railway merged with the Nakai Railway and renamed itself the Kinki Nippon Railway on January 6, 1944. In the postwar untangling of wartime railway mergers, the Nankai Railway, with its lines running south of Osaka and out along the bay, was split off in 1947. Although small, it still remained a going concern in the early 1990s.

The history of the Kinki Nippon Railway Company Ltd. in post-war Japan is closely linked with the phenomenal economic developments in that country as a whole. The end of the war in August 1945 revealed an economy in tatters, with food prices rising ten times in the first six months and an outbreak of strikes and sit-ins across the country. The railway systems were not immune. In one railway company, workers took over the running of the trains themselves in sheer frustration. Nevertheless, by the end of the Allied occupation in 1952, the tide had begun to turn. Substantial U.S. investment had begun to stimulate Japanese economic growth, and by the mid-1950s Japan had taken matters into its own hands. Carefully laid five-year plans aimed at achieving economic independence and an end to U.S. subsidies through modernization of production, boosting exports, and encouraging household savings.

As Japan's economy grew, so did the importance of its rail and transport services. The railways, culturally regarded as one of the most convenient and popular modes of land transportation, brought the people to work in the newly industrialized areas around Tokyo and Osaka, and allowed them to escape on brief holidays and day trips. With a scarcity of motor cars, the railways had been popular and profitable in the 1930s, so much so that the state-owned Japan National Railways had developed plans to standardize the Tokyo-Nagoya-Kyoto-Osaka line to relieve congestion. Furthermore, many of the railway companies in Japan, both private and state-run, owned considerable land banks that dated back to the companies' beginnings and which would provide rich sources of revenue in the future.

The succession of prewar and wartime mergers and acquisitions put the Kinki Nippon Railway in a strong position as it began to establish itself under its new name. It covered much of the region in a network of mainline, branch, and suburban lines, and was operating bus services, tourism, and freight transport services through its Kintetsu subsidiaries, Kintetsu being the group name of the developing corporation. However, the capital investment required on the lines, which used a wide range of gauges and were in various states of repair, was immense, and the permanent presence of Japan National Railways in the area could not be overlooked.

On August 10, 1947, Kinki Nippon began its first Limited Express service. Two daily round trips ran from Osaka to Nagoya, but the lack of gauge standardization meant passengers had to change trains at Nakagawa to continue their journey in either direction. Plans were made for standardization on this route in 1959 when one of Japan's record-breaking storms, the Ise Bay typhoon, struck the area in September 1959. The Nagoya line was put out of service, but in the subsequent reconstruction the lines to both Nagoya and Ise from Nakagawa were standardized and a Vista car service began running on these lines from 1959. Meanwhile, standardization of the Nara line was in progress, including modernization of the pre-1920s Ikoma tunnel in 1964, and the service was generally speeded up. In 1962 Kinki Nippon founded a Research and Development Institute, the first of its kind for a private railway, which was designed to keep the railway at the forefront of technological and engineering advances.

The early 1960s brought new acquisitions. The Nara Electric Railway, which provided a link between Nara and Kyoto, was added in 1963; the Shigi Ikoma Electric Railway, acquired by Kintetsu in 1964, brought a north-south line from Oji to Ikoma on the main Kinki Nippon line; and the important Mie Electric Railway, with its lines in the Ise-Shima peninsula, was added in the same year. Mie was the railway division of Kintetsu subsidiary Mie Transport until it was merged into the corporation in 1964. In 1964, Kinki Nippon Railway announced profits of ¥2.04 billion which were to rise steadily at a rate of 10% a year.

In the late 1960s an automatic train stop was installed on the main lines and subsequently on branch lines through the early 1970s. Branch lines were also brought up to standard on voltage, which was increased from 600 to 1500 on the Nara, Kyoto, Kashihara, Tenri, Ikoma, and Tawaramoto lines in 1969. The Shima line was standardized in 1969 and thereby linked to the rest of the system.

Railways formed the hub of the Kintetsu empire, but were not its only interests. Like many private interurban railways, it had a range of interests that had developed over the years in assorted areas. One of the first subsidiaries was the Kinki Nippon Tourist Co. Ltd (KNT), which dated back to 1941 and was acquired by the Kinki Nippon Railway in 1947. As well as being one of the oldest subsidiaries of Kintetsu, KNT was the first travel agency to be quoted on the Tokyo Stock Exchange.

Until the Tokyo Olympic Games in 1964, the Japanese people were not free to travel overseas as they wished, and KNT operated mainly in the domestic market, cooperating with the Kinki Nippon Railway to develop the tourist potential of the shrines, national parks, and resorts of the Kansai region. KNT also developed links with other railway lines and with hotel chains in Japan for the development of tourism on a nationwide scale and began the building of its Miyako hotel chain in Japan's major cities.

The 1960s were also important for Kintetsu on the international stage. In February 1968 the newly-formed Kintetsu Enterprises Company of America opened its five-acre Japan Culture and Trade Center in the heart of San Francisco. The center was designed to provide a cultural bridge between Japan and the United States, introducing a U.S. audience to Japanese food, products, art, and artifacts, and the complex included a 218-room luxury hotel, the San Francisco Miyako. The center caught the world's attention and the project was the first of a series of property and hotel enterprises in San Francisco and Los Angeles. A return export from the United States to Japan was baseball. Kintetsu put forward a team, the Kintetsu Buffaloes, which won the championships in 1979, 1980, and 1989, boosting railway income considerably in the traffic of fans to the Kintetsu Fujidera Stadium, the team's home ground.

The 1970s brought both setbacks and successes to the group. The oil crisis of 1973 triggered recession in Japan, and Kintetsu--particularly the railway and bus services--suffered a big decline in 1974 and 1975. Nevertheless, by 1976 profits across the board had recovered to 1973 levels and the group was looking for new directions for growth and development.

Real estate development, including hotels, shopping malls, and residential development for leasing purposes, was the direction chosen. In 1978 Kintetsu began developing a shopping area under the overhead railway line in Osaka. In the same year, construction was begun on another Miyako hotel, this time in Tokyo. By 1982 there were plans to redevelop the areas around two terminal stations in Osaka, the Uehommachi, whose development would include the Miyako Hotel and Kintetsu Theater, and the Abenobashi, including the new and extended Kintetsu Department Store, at a combined cost of ¥50 billion. Meanwhile, Kintetsu was adding office buildings, flats, and land for inner-city development in Tokyo, Nagoya, and Osaka to its portfolio, and becoming increasingly interested in residential housing in the Kansai region. As land prices soared in and around Tokyo and Osaka in the 1980s, Kintetsu found itself with a reputation as one of the leading private residential developers in Japan.

Enthusiastic dabbling in real estate contrasted with great difficulties in the railway business at the beginning of the 1980s. Installation of a new automatic wicket gate system brought the railways' equipment up to date, but interest payments following capital investment were high. The cost of the electricity supply to the railways rose dramatically, and Kinki Nippon Railway was committed to laying a new line in eastern Osaka, the Higashi-Osaka line, scheduled for completion in 1983 but not actually ready for operation until November 1986. By 1983 profits had slumped to ¥6.06 billion due to the slow growth in the number of passengers and depreciation costs.

The late 1980s marked a recovery for the railway. Fare increases of 12.5% in 1987 brought an increase in operating revenue, and in 1988 the Silk Road Exposition in Nara and the popularity of Urban Liner express trains led to an increase in the number of rail users.

The privatization of Japan National Railways in 1987 and heavy marketing by the new local company Japan Railways West (JR West), part of the privatized Japan Railways, brought unwelcome competition, as a fit and lean JR West began building up its commuter services into Osaka, Kobe, and Kyoto. In response, Kinki Nippon introduced a discount system for passengers who bought their tickets in bulk, as well as a plan allowing passengers unlimited travel for a three-day period.

The 1980s brought tremendous opportunities for KNT. The Japanese government aimed to double the number of people who went abroad in 1986--5.52 million--over the next five years. The intention was to familiarize the Japanese people with other cultures and also improve Japan's trade imbalance. In 1990, one year short of target, the number of Japanese travelers overseas reached 10 million. KNT's business mirrored the government's aspirations. In 1987, 29,000 Japanese tourists used KNT to visit the United Kingdom alone; by 1990 this figure had increased to 50,891. In 1989 KNT organized overseas travel arrangements for 815,939 Japanese visitors, which represented 35% of its business, the remaining 65% being concentrated in the domestic market. KNT offered luxury tours both at home and abroad, with the honeymoon business viewed as a growth area for the 1990s. Through the 1980s KNT built up a network of 19 overseas offices to add to its 252 domestic branches and 174 sub-agencies. It also negotiated agreements with United Airlines and the Westin, Sheraton, and Hilton hotels in the United States, and formed a business arrangement with Berlitz to strengthen the travel publications.

Meanwhile Kintetsu Enterprises Company of America had developed the 125-room Miyako Inn San Francisco and the 40-lane Japantown Bowl in California, and in 1987 started to construct a 432-room Los Angeles Miyako Hotel, due to open in 1992. The move into hotels in the United States in the 1980s followed the Japanese government's relaxation in 1980 of foreign exchange controls that had prohibited large-scale investment outside Japan.

The profile of Kintetsu as it entered the final decade of the 20th century was impressive. Turnover in 1990 for the group was ¥2.46 trillion. The railway was responsible for 10% of this, with an unrivaled network of rail systems in Western Japan. High speed limited express rails linked Osaka, Kyoto, Nagoya, Nara, Yoshin, and the shrines and resorts of the Shima Peninsula. In addition, commuter trains provided an important service to and from the major cities, and branch lines gave access to the rural areas of the Kinki and Tokai districts. Kintetsu's bus services provided a nationwide service through a fleet of 4,300 buses and combined routes of 14,000 kilometers. Through 28 subsidiaries, Kintetsu operated 3,200 taxicabs in western Japan. Trucking companies, aerial trams, cable cars, ferry boats, hydrofoils, and coach operations were all part of a transport empire.

Kintetsu's interests did not stop there. A shopping mall in San Francisco, large Kintetsu department stores in 15 major Japanese cities, boutiques, supermarkets, and the development of shopping areas at railway terminals demonstrated the company's strong commitment to retail. The funding of museums, theaters, and cultural and educational centers represented a move toward subliminal marketing and advertising, and as the Japanese government urged its people to make more of their leisure time, Kintetsu's hotels, golf courses, nightclubs, and resort facilities under development at Shima were set to benefit.

However, on the railway side, the tight government regulation of fares left Kinki Nippon Railway with its hands tied, at a time when the company faced stiff competition from JR West. On the real estate side, land prices were stagnant or falling in the Osaka area, and Kintetsu could no longer rely on quick returns to offset lean years on the railway. Finally, Kintetsu faced the challenge of many large companies with an extended family of subsidiaries--achievement of greater synergies between the business areas.

Source: International Directory of Company Histories, Vol. 5. St. James Press, 1992.

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