Yoshiharu Hoshino is known as a maverick in the hospitality industry, an innovative entrepreneur with a progressive management style who transformed his family-owned inn into one of the nation’s largest and best-known operators of luxury hotels and ryokan (traditional inns).
Riding on a boom of inbound visitors in recent years, Hoshino Resorts Inc. had been steadily expanding its footprint in both Japan and overseas — until COVID-19 hit.
During the onset of the pandemic in early 2020, seven of the 42 properties it operated were temporarily closed as both domestic and international travel came to an abrupt halt. Five Hoshino Resorts properties that had been planned to open during March and June were postponed. And during April and May, when the country’s first state of emergency was declared, profits plunged by 80% to 90%.
To quell his employees’ concerns, Hoshino conjured up an 18-month survival plan in April that year, laying out the expected correlation between travel demand and infection rates on the assumption that vaccines and/or cures would be ready toward the end of 2021.
“Things went as planned, and we were able to weather the pandemic delivering satisfactory results,” Hoshino says. “But what I didn’t anticipate was how the health crisis didn’t end with a second dose. Now we have omicron.”
Just as the battered travel and tourism industry thought it saw a light at the end of the tunnel, it is being rattled again as nations introduce flight restrictions to contain the spread of the new variant.
Less than a month after easing border controls in November, the Japanese government imposed new bans for inbound international visitors to the dismay of travelers, airlines and hotel operators alike. As of early January, it remains unclear when the restrictions will be lifted. Meanwhile, the number of reported coronavirus cases are seeing a spike, raising concern of a new wave of infections.
Still, with COVID-19 treatment pills starting to be distributed to medical institutions and the nation rolling out its third round of vaccinations, Hoshino and others in the sector are hopeful that travel will regain its footing this year while incorporating the lessons learned from the past two tumultuous years.
“We will need to monitor how the situation with omicron evolves … but I’m optimistic that inbound travel will return leading up to the 2025 World Expo,” Hoshino says.
The fourth-generation hotelier predicts that compared to 2019 when a record-high 31.88 million foreign visitors came to Japan, inbound volume will return to 15% this year, 40% in 2023, 70% in 2024 and 100% in 2025, when Osaka will host the international extravaganza.
“Meanwhile, I believe the domestic tourism market will continue to recover as looser restrictions are applied to concerts, theaters, bars and restaurants, to name a few — steps that will bring tourists back to the cities” he says. “I’m sure 2022 will be better than last year for the tourism industry.”
If there’s one trend kick-started by COVID-19 that will continue impacting travel and tourism in the post-pandemic world, it’s probably the rapid proliferation of remote work, and the new possibilities and pitfalls it poses.
On the one hand, business travel appears doomed, as corporations cut back on travel budgets and carbon emissions. A Bloomberg survey last year of 45 large businesses in the United States, Europe and Asia, for example, showed that 84% of respondents plan to spend less on travel following the pandemic, with a majority of the respondents cutting travel budgets seeing reductions of between 20% and 40%, with about 2 in 3 slashing both internal and external in-person meetings.
“Flexible working arrangements are weighing on business travel demand in Japan. The commuting population is shrinking and business trips are being replaced by online meetings,” says Toru Azuma, a professor at Rikkyo University’s College of Tourism.
“That means transportation operators will need to stir demand for tourism to make up for the shortfall,” he says.
Under such circumstances, the nation’s two full-service carriers are both strengthening ties with low-cost carriers.
ANA Holdings Inc., the parent company of All Nippon Airways Co., is planning to launch a new low-cost carrier brand toward the end of the next fiscal year, with flights connecting Japan with Southeast Asia and Oceania. Its rival, Japan Airlines Co., meanwhile, made Chinese low-cost carrier Spring Airlines Japan Co. a consolidated subsidiary to offer services alongside JAL’s wholly owned budget airline Zipair Tokyo Inc.
“While the spread of the omicron variant could disrupt future scenarios, I believe the airline industry is expecting international travel to return in 2023,” Azuma says. “That means this year is when they need to recuperate from the massive losses they incurred from COVID-19 by resuming domestic air travel in earnest.”
There will be several steps necessary for international travel to take off again. While Japan’s booster rollout has begun, it will take months for it to reach the general population. Meanwhile, municipalities are starting to accept registrations from businesses for the so-called vaccine-test package — an initiative that would allow people who present proof of being vaccinated or testing negative for COVID-19 to enter bars, restaurants and other establishments within usual business hours with no restriction on the headcount of the party. The government, however, has expressed caution at introducing the program amid the recent surge in COVID-19 infections.
“Border restrictions will need to be loosened and quarantine periods shortened for arrivals,” Azuma says. “Finally, the public will have to be more tolerant of foreign visitors, who many believe to be responsible for bringing the disease into the country.”
Prime Minister Fumio Kishida’s decision to enact swift border controls was partly in response to criticism his predecessor received for contributing to the spread of the virus by being too slow in dealing with such measures. While Kishida’s move has gained popular backing according to polls, the tough response has also drawn anguish from the international community for singling out foreign visitors.
The government, meanwhile, hopes to ramp up domestic tourism by resuming the state-sponsored Go To Travel campaign, which, according to initial drafts, will subsidize up to 30% of total costs through discounts. While the previous program was suspended in December 2020 when case counts soared, it was still lauded as a success with some 90 million people taking part and boosting much-needed consumption.
The campaign also supplemented micro-tourism, or staycations, a concept that Hoshino Resorts was among the front-runners in promoting. With long-distance travel frowned upon, a growing number of hoteliers and municipalities have been calling for residents to seek out accommodation and tourist attractions only one or two hours away from their homes by car as a means to energize local economies while minimizing virus contagion risks.
“The idea was a big hit, and I don’t think we could have survived without it,” Hoshino says, with hot-spring retreats in the countryside fairing especially well compared to establishments in cities. “During states of emergency and even now with the omicron variant, micro-tourism has been underpinning demand.”
Before the pandemic, for example, around half of the guests at Hoshinoya Kyoto, an up-scale ryokan in Japan’s former capital operated by Hoshino Resorts, were from overseas. Through the promotion of micro-tourism, the percentage of local guests from the Kinki region grew from below 10% to nearly 40% in 2020, according to the company, and the overall occupancy rate was maintained at roughly 80%.
Hoshino has been emphasizing the importance of domestic tourists, who spent a combined total of ¥22 trillion in 2019. That’s compared to ¥4.8 trillion spent by inbound foreign travelers in the same year, according to the Japan Tourism Agency. And the change in work styles spurred by teleworking could offer new opportunities for travel in Japan, he says.
“When looking at the domestic tourism market, demand is excessive for roughly 100 days of the year, mostly concentrated during Japan’s holiday seasons, including over new year. Meanwhile, supply is excessive for the rest of the 265 days,” Hoshino says. “The spread of ‘workations’ and other flexible working arrangements harbors the potential to create demand during these 265 days.”
In November, for example, East Japan Railway Co. launched onboard “office cars” for certain shinkansen bullet train lines connecting Tokyo with the nation’s northern and central regions in the hopes that the service will help encourage workation trips while stimulating demand for business trips. Numerous hotels and ryokans have also been offering workation packages, while corporations are promoting workation programs for its employees.
“Yes, there are firms reverting back to old working habits, but remote work is definitely making inroads, especially among the younger generation,” says Hiroshi Kurosu, a research fellow at JTB Tourism Research. “In that sense, I feel micro-tourism could stick, as people opt to spend more time and money at destinations in relatively close proximity rather than going out of their way to places farther away.”
Backing the trend, Kurosu says, is a shift in consumer habits stemming from Japan’s prolonged economic stagnation. Compared to the excessive spending synonymous with the asset price bubble of the late 1980s and early 1990s, the ensuing decades saw travel spending shrink as people tightened their purse strings and focused on their daily lives, Kurosu says.
“But the proliferation of remote work appears to be prompting many to rethink their quality of life,” he says. “Rather than hastily spending one night over the weekend for a short vacation, for example, the newfound flexibility could allow people to spend two or even three nights with a more enhanced experience at destinations closer to home.”
The Go To Travel campaign will also likely offer bigger discounts for travel during the weekdays to avoid trips being concentrated during the weekend. Initially planned to resume in late January or February, the program will likely be delayed further due to the increase in reported infections.
“What’s more, domestic travelers may feel inclined to visit sought-after destinations before inbound tourists return,” Kurosu says.
He warns, however, that “the real question is who will survive once these subsidies and pent-up demand runs dry.”
Attracting and retaining talent while cutting costs has been a major headache for the tourism industry as damaging travel restrictions led to the loss of tens of thousands of jobs.
According to the World Travel & Tourism Council’s annual Economic Impact Report released in June, Japan’s travel and tourism sector’s contribution to GDP plunged by 37% in 2020, resulting in the loss of 290,200 related jobs across the country.
“Human resources will be crucial for the industry to rebound post-pandemic. It could take years to recruit lost talent,” Hoshino says. “In that sense, the government’s employment adjustment subsidies were helpful in keeping our employees.”
And as travel and tourism players scramble to scrape costs, both the government and the private sector have been promoting so-called digital transformation to minimize labor fees and enhance productivity.
At Hoshino Resorts, for example, the company created its own reservation system supporting the first Go To Travel campaign to help both staff and prospective guests avoid getting mired in complicated application procedures. It also introduced a service allowing users to gauge the congestion of hot springs to lower infection risks.
“There are ‘offensive’ and ‘defensive’ digital transformation, the latter referring to reducing back office operating costs while the former is about improving tourism content using technology such as virtual and augmented reality,” says Tsukasa Sato, head of the new content development promotion office at the Japan Tourism Agency.
“As inbound travelers return, it’s important for various parties involved to create services to avert overcrowding at popular tourist destinations, for example, while attracting repeat visitors,” he says. “Installing customer-management systems in hotels and non-contact payment options are other initiatives we are pushing for.”
As part of its efforts, the tourism agency has been soliciting applications for digitally driven tourism content. One such project premiered in December when Keikyu Electric Railway Co. introduced an open-top sightseeing bus tour featuring VR goggles that let passengers experience the city of Yokohama submerged into the sea and lit up with fireworks.
“The tourism sector was able to secure revenue without having to embrace digitalization when the number of inbound visitors were growing. But now that it can’t count on them, I believe those in the business are finally working on ways to improve productivity and operational efficiency through digital transformation.”
Despite the pandemic, Hoshino Resorts has managed to continue opening new facilities. On Friday, it opened three hotels in Kyoto and Hokkaido under its budget OMO brand, with more being planned this year. Hoshino is also determined to open his first hot-spring ryokan on the U.S. mainland, a project that could take several years to materialize.
Behind the 108-year-old company’s resilience may be Japan’s history of enduring various disasters, be it earthquakes, volcanic eruptions or viral epidemics.
“I grew up in a hot-spring inn in Karuizawa, Nagano Prefecture, which is near Mount Asama,” he says, referring to the 2,568-meter volcano sitting on the border of Gunma and Nagano prefectures.
“And when the mountain erupted, tourists vanished. That’s why it’s important to reduce risks by investing in smaller properties across the nation,” he says. “But we also can’t forget that without volcanoes, we won’t have hot springs.”
In line with COVID-19 guidelines, the government is strongly requesting that residents and visitors exercise caution if they choose to visit bars, restaurants, music venues and other public spaces.
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