Hankyu Corporation History

Company History:

Hankyu Corporation is one of Japan's largest private railway operators. It owns a network of approximately 140 kilometers of track in the Kansai region of Japan. The Kansai region is the country's second largest metropolitan area and contains the industrial cities of Osaka and Kobe and the historic towns of Kyoto and Nara. Hankyu's three main rail lines link Osaka, Kyoto, Takarazuka and Kobe, serving millions of commuters, school children, and other travellers. The railway business forms the core of Hankyu Corporation, which consists altogether of almost 200 companies in many areas of business, including retail, entertainment, and tourism. Hankyu is primarily engaged in transportation, which contributes about 50 percent of sales, and operates six rail and seven bus and taxi companies covering the major cities in the Kansai region. Hankyu's nontransport businesses consist of real estate and urban development, retail and rental businesses, and leisure and cultural businesses. In real estate, Hankyu owns high-rise residential buildings and housing subdivisions. Its retail and rental business consists primarily of renting or directly managing stores around its rail stations. These range from small convenience stores to large commercial complexes. Hankyu's leisure and cultural division operates family amusement parks and sports facilities, as well as operating an internationally known theater troupe, the Takarazuka Revue.

Early History

Hankyu Corporation was founded in 1907 by Ichizo Kobayashi as Minoo Arima Electric Railway Company. Kobayashi obtained government permission to operate electric railways between Takarazuka and Osaka. In 1909 a railway bridge was completed, spanning the Yodo River in Osaka and thus allowing a 25-kilometer stretch of railway to be built in the following year between Umeda in central Osaka and Takarazuka. A smaller four-kilometer line was also built, branching off the main line to reach Minoo. Railway companies were major users of electric power at the time in Japan, and they tended to generate their own power. Minoo Arima Electric Railway Company began the generation of its own power via a thermal station built in 1910. Both lines began operation following a ceremony at the train depot at Ikeda station in March 1910. In 1911 the lines began to provide freight as well as passenger transport, and in 1912 the nearby Arima Electric Railway was acquired. Kobayashi's hometown of Takarazuka was then the company's base. Kobayashi opened a hot spring resort in Takarazuka in 1912, hoping the attraction would encourage Osaka city dwellers to use his railway line. The hot spring continued to flourish and was the predecessor of Takarazuka Familyland, Japan's first amusement park. In addition to being an astute businessman, Ichizo Kobayashi was a lover of the arts. In 1913 he formed the Takarazuka Revue Company, an all-female theater group that gained an international reputation. Although its contribution to the railway company's profits was minimal, it provided invaluable publicity.

In 1917 Kobayashi changed the name of his company to Hanshin Kyuko Railway Company, which came to be known simply as Hankyu from the 1920s. The next five years were a period of great expansion for the company with the establishment of the main Kobe line in 1920. This line joined the cities of Osaka and Kobe and spanned 30 kilometers. North Osaka Electric Railway was also formed, operating two lines within the city. Hankyu was not only the leading private railway company in Kansai but was one of the largest in Japan as well. In 1921, in response to increased demand for electric power, Hankyu merged with Inagawa Hydroelectric Power. In the following year, the company formed the New Keihan Electric Railway, which absorbed the lines run by North Osaka Railway, and in the following five years opened four new railway lines within the city of Osaka. In 1924, in response to the success of the Takarazuka Revue Company, a new theater was built for the group. A hotel was added in 1926, adding to the town's attraction as a tourist resort.

Although Hankyu Department Store Company is now an independent entity and one of the major chains in the country, it has its roots within Hankyu Corporation. Kobayashi formed Hankyu's first proper store in 1928 by renovating and expanding the existing Hankyu store located in the vicinity of Hankyu's main Umeda station in Osaka. The Hankyu group entered the real estate business at this time with the completion of the New Hankyu Umeda buildings in the central Osaka district of Umeda. Hankyu had in the past entered areas of business that were not necessarily very profitable but were of interest to the company's leaders. The theater venture was one example. In 1936 Hankyu formed a professional baseball team to compete with the ten or so existing teams in the country. Imported from the United States, the sport had grown to become Japan's number-one spectator sport. Most of the teams were named after the companies that sponsored them, the most famous and successful at the time being the Tokyo Yomiuri Giants.

New Arrangements Before and After the War

In 1943 the company merged its railway operations with those of the next largest private railway operator in Kansai, Keihan Electric Railway. The resulting company was called Keihan Shinkyu Electric Railway. This trend toward mergers was spreading throughout Japanese industry, and the closest Tokyo equivalent of the Keihan Shinkyu Electric Railway at the time was the Tokyu group, which was swallowing up large portions of Tokyo's electric railways. These mergers were reversed upon Japan's defeat in World War II when occupation forces began to split up the huge Japanese industrial combines. Hankyu was no exception. Its department store division was made into a separate company in 1947, and in 1949 the railway operations of the group were split up, with Keihan Electric Railway becoming an independent company again. This still left Hankyu with a fairly extensive rail network, however, and the company's management decided to concentrate immediate investment on upgrading and repairing routes damaged in the war. Construction work was completed on Hankyu's main station in Osaka, Umeda, to allow the New Keihan Line's trains to utilize the station. In 1948 Hankyu opened an office at Osaka Airport and acted as agent for Pan American Airlines. In the 1950s Hankyu's rail business began to grow fairly quickly in terms of the number of passengers served. Freight service was stopped as the more lucrative passenger service increased.

In 1957, on the 50th anniversary of Hankyu's founding, Ichizo Kobayashi died. He had become renowned throughout the country not only as a leading figure in the development of the railway in Japan, but also a patron of the arts. In 1959 his son, Yonezo Kobayashi, became president of Hankyu. Under Yonezo Kobayashi, the company embarked on an expansionary program concentrating on the development of the areas around the company's major railway stations. The Umeda underground complex was completed in 1958 with similar work completed in the Omiya area of Kyoto in 1963. A new station was completed in Takarazuka in 1961 and a new hotel constructed nearby. New rolling stock was introduced on all lines--the so-called 2000 and 3000 series cars--and the Senriyama line was extended by two kilometers northwards with a further five kilometers to be added four years later. To cope with an increasingly complex railway network, an IBM 1440 computer was introduced in the operations department at the company's headquarters in Umeda station. In 1967 Hankyu became the first railway company in Japan to install automatic ticket vending machines at its stations, and the company is probably the leader in Japan in introducing safety- and efficiency-enhancing technology into its railway operations. Most of Hankyu's track within the center of Osaka was elevated to avoid traffic congestion, and in 1967 an automatic train-stopping system was introduced on the Kyoto line. Hankyu's various real estate companies were busy developing and constructing the choice central Osaka real estate that the group owned, and a series of new buildings were completed in the Umeda station vicinity. In 1967 following a severe typhoon, many Hankyu lines sustained damage as the embankments upon which the lines were raised collapsed. Although the damage was not serious, valuable lessons were learned about railway line construction; elevated embankments were subsequently strengthened to withstand severe weather.

In 1967 the baseball team, known as the Hankyu Braves, won its first league title. As founder of the team, the late Ichizo Kobayashi was voted into Japan's version of the Baseball Hall of Fame in 1969. Hankyu's founder was further honored when the Itsuo Art Museum was constructed on the site of his birthplace in Takarazuka. It has grown to become the city's premier museum with more than 5,000 works from all over the world. Japan's first amusement park was being developed in the city and was known as Familyland. This, along with city's hot springs and cultural activities, made it a popular place to visit for the residents of nearby Kobe and Osaka. The year 1969 also marked the death of Yonezo Kobayashi and the appointment of Kaoru Mori as chairman of Hankyu Corporation. The introduction of the total-traffic-control system in 1969 allowed Hankyu's headquarters to maintain absolute control over the network's trains, and resulted in one of the best safety records of any railway company in the world. There has not been an accident on a Hankyu railway since 1979. By 1969 Hankyu operated 141 kilometers of track, only slightly less than today's total of 147 kilometers. Expansion of Hankyu from the 1970s onward was thus largely in the nonrail areas of urban development and leasing and sales of real estate. Other transport-related ventures were started, however, such as Japan Car Rental in 1970 and the expansion of the existing bus routes. In 1973 the company officially changed its name to Hankyu Corporation. The group took advantage of the continuing golf boom in Japan by opening Kanzaki River Golf Club and a number of smaller practice ranges. The company's expertise in sophisticated computer control systems was marketed by the formation of Hankyu Computer Services in 1974. The Hankyu Braves continued their success as a professional baseball team by taking the Japan Series from Tokyo archrivals Yomiuri Giants in 1975. Two more consecutive titles followed, and to some people the name Hankyu became synonymous with baseball rather than railways.

Developing Business in the 1970s and 1980s

Takarazuka Familyland was undergoing continual improvement and was becoming one of the most popular attractions in the Kansai region. New theme sub-parks such as Machine Land were added. One of Ichizo Kobayashi's goals for Hankyu had been that the company should invest and help in the development of the local community. Hankyu Swimming School was opened in 1977, operating several pools in the Kansai region. The Ikeda Library, founded by Kobayashi, contained one of Japan's largest collections of works on the theater and entertainment. The 1970s saw the expansion of Hankyu's hotel business with new hotels in Kobe and Kyoto and several more planned. To finance these capital investment projects, Hankyu looked to the foreign as well as domestic bond market and raised Sfr50 million in 1985. Although Hankyu was not actively increasing its total rail network mileage to any great extent, money was invested in passenger comfort and safety as competition in the marketplace heightened with the dismantling of the enormous government-owned railway combine in 1987. Air conditioning was installed on underground platforms as well as on all railway cars. Ticket and rail pass payment was facilitated by the introduction of Hankyu credit cards acceptable by the vending machines at Umeda station in 1986. For the benefit of handicapped commuters, braille ticket vending machines were installed and special restrooms added to all the major stations.

Change of Focus in the 1990s

In 1990 following a reorganization, the company decided to focus on three main business areas--transport, urban development, and leisure. It divided its 155 companies into these three separate management groups, whereas formerly they had been loosely controlled by the railway sector. The six railway companies operated by the group contributed almost 60 percent of revenue and half of the operating profits. The group's sports and leisure facilities grew as well, though at that time their contribution to Hankyu's overall profit was negligible. Property rental and sales accounted for a third of the group's profits, with the remainder coming from so-called zaitech or speculation on Japan's stock and real estate markets. Urban development projects in the pipeline included the Chiyamachi area near Umeda station, the construction of a new Hankyu headquarters building in the same area, and a plan to develop an international culture park in Ibaraki City north of Osaka. In the core business of railway operation the emphasis was on progress through technological advances. Hankyu operated the most efficient network in the Kansai region, earning more revenue per kilometer of track than its major competitors Keihan and Hinshin Electric Railways.

As Hankyu spread away from its core business of railways, it became what it called a "Life-Style Developer," working on a total urban development plan for the areas around its rail stations. Hankyu increased its commitment to operating retail businesses located near its stations in the mid-1990s, and revenues from stores steadily increased. It operated a fleet of stores for a convenience chain called ASsooNAS, and directly managed stores of its own. Directly managing the stores inside its own stations became increasingly lucrative. Revenue from retail and rental operations grew from ¥30 billion in 1993 to over ¥53 billion by 1997. In 1997, Hankyu decided to press its commercial developments further, and it began construction of a shopping and business complex in Kyoto's Miyazu City, looking over Amano-hashidate, a historic site called one of the three most famous views in Japan.

The major jolt to Hankyu's successful diversification plans was the tragic Great Hanshin Earthquake on January 17, 1995. The earthquake devastated the city of Kobe and surrounding areas, with great loss of life and property. Hankyu's rail lines and stores sustained heavy damage. Rebuilding costs were at first estimated at $865 million for Hankyu's rail lines, and the service interruption cost the company about $600,000 a day. Eventually the company paid over ¥18 billion for rebuilding and repair in 1995. The next year, the company was still paying for repairs and removal of debris, at a cost of almost ¥5 billion. Ridership declined as a result of the disaster, and tourism, which not only promoted rail ridership but contributed to Hankyu's profits through fees at its amusement parks and events, also fell precipitately.

After the quake, Hankyu rebuilt, continuing its plans to become a more diverse "life-style" company. Its real estate and urban development division took a huge loss in revenue for 1995, but two years later it was doing quite well. Hankyu sold close to 500 subdivision properties in 1997, which were mostly small plots with a prefabricated single-family house. It also sold two of its high-rises, which were massive apartment complexes housing hundreds of families. Real estate sales grew to account for more than 17 per cent of Hankyu's total sales in 1997. The leisure and cultural division also grew. Hankyu refurbished its Fantasyworld amusement park in 1997 and began improvements on its Nishinomiya Sports Arena, where American-style football was played. The percentage of the company's total sales from the cultural and leisure division, which had been next to nothing a few years earlier, by 1997 stood at nearly ten percent.

The company undertook new reforms at the end of 1997, vowing to reinvent the company along more competitive lines. Management decided to divide the railway, real estate and urban development, retail and rental, and leisure and cultural sectors into more independent units, where each would be regarded as financially separate. Hankyu also announced its intention to get rid of companies and assets that were not sufficiently profitable. The challenge Hankyu faced was that its railway business was not expected to grow. Population growth in the Kansai region was flat, and Hankyu had to increase its efficiency in order to retain its profit margin. The demographics of the Kansai region affected not only rail ridership, but Hankyu's other service sector businesses as well. The company realized that it would have to adapt to flat population growth by streamlining the organization of the company, making it more flexible to change. Though many of the necessary reforms were already in place--devolving the business away from dependence on rail profits--after the earthquake disaster, Hankyu seemed even more determined to prepare itself for an uncertain future.

Principal Subsidiaries: Nose Electric Railway Co., Ltd; Kobe Electric Railway Co., Ltd; Kita-Osaka Railway Co., Ltd; Hokushin Kyuko Electric Railway Co., Ltd; Kobe Rapid Transport Railway Co., Ltd; Hankyu Bus Co., Ltd; Hankyu Realty Co., Ltd. (50%); Hankyu Sangyo Co., Ltd; Arima Kogyo Co., Ltd; HOTEL new HANKYU Co., Ltd; Hankyu Taxi Co., Ltd.

Further Reading:

• Furukawa, Tsukasa, "Railway Service Creeps Back in Shaken Kobe," American Metal Market, February 7, 1995, p. 9.
• "Japanese Railway Tallies Costs," Wall Street Journal, January 30, 1995, p. A14.

Source: International Directory of Company Histories, Vol. 23. St. James Press, 1998.