As domestic travel picks up in Japan, players adapt with safety measures, micro-targeting and hybrid models

In the past few weeks, domestic travel has begun to rebound in Japan, as evidenced by an increase in rail, hotel and attractions bookings. Restrictions on inter-prefecture travel have been lifted. The government has also encouraged work-style reforms, advising people to take “workations” – working remotely from holiday destinations.

The government’s Go To campaign (worth 1.1t Japanese yen) – a travel subsidy and coupon scheme – will also be launched to help to stimulate demand for domestic travel and accelerate recovery.

However, ensuring that numbers increase gradually and safely will be paramount to stimulating the economy without causing a sharp rise in coronavirus cases at the same time.

For example, the super app LINE has employed a “micro-marketing” strategy – targeting local destinations with promotions about attractions nearby. By identifying a specific target audience, the campaign could boost bookings without risk of over-crowding the destination.  In Hakone, for instance, one ryokan managed to sell 780 room nights within 48 hours, explains Kei Shibata, CEO and co-founder, LINE TRAVEL.jp and Trip101.

With these strategies in mind, Japan looks well positioned to survive on domestic tourism, at least until inbound tourism resumes. Japan’s travel market volume last year was estimated to be worth $258 billion, with $204 billion being domestic. However, recovery will not be without its challenges. Different travel players must adapt to new methods or develop new products, if they are to survive.

“With no outlook for overcoming COVID-19, we need to consider the worst-case scenario. Hotels are taking many actions to survive… they are improving facilities and services for secure travel. This is going to be the key factor… to minimize the impact of a second wave,” says Yoshiyuki Takano, executive officer, head of travel and mobility business, Rakuten.

He explains that hotels listed on Rakuten Travel are able to publish what countermeasures they have taken to protect the property from COVID-19, to build consumer confidence when booking a property.

According to a Rakuten survey, over 25% of consumers stated they have different conditions when selecting hotels during COVID-19 – prioritizing higher sanitation measures, sanitary equipment and social distancing. Few consumers actually focused on discounted rates.

Takano observes that there is a clear difference in year-on-year growth depending on how well accommodation providers could demonstrate the precautions they are taking. 

“The average of year-on-year growth showing these actions is two points better than others. The [greater the] hotel response, the higher their growth rate becomes,” he says.

Over 15,000 hotels have published some kind of safety information on the platform.

Aya Aso, founder and CEO, SAVVY Collective, corroborates the notion that consumers are willing to pay the same, if not more, for well-managed properties. Aso says her hotels have maintained the same ADR as 2019 and have not resorted to discounting rooms to incentivize bookings. 

“People are willing to pay 500 to 1000 Japanese yen more to [have] security and sanitation measures,” she says.

COVID offers ryokans an opportunity to get back to traditional roots

While the hospitality sector is still under a lot of pressure to drive bookings back up to pre-pandemic levels, the panel was generally bullish on ryokans’ strong survival.

“Ryokans have had a hard time keeping their traditional operations very personal… with COVID-19, this style is actually the only solution for us to survive. In recent years, people are looking for a different type of operation… It’s time to rethink how we welcome back domestic travelers to a traditional way of hospitality,” Aso says.

Events, which make up a major source of revenue for hotels, are also taking new form in Japan as organizers get creative about how to deliver an event experience either virtually or through a hybrid online-offline model.

“There’s a new trend of weddings happening in hotels – online weddings where they are sending catered meals to their guests’ houses. Then they can connect online to have the banquet wedding like they are all in the same room,” Aso says.

She shared how Savvy Collective plans to convert one of its properties into a hybrid space – “so we can send our event space out to the public [virtually].” Its facilities would also be able to cater well to the “workation” market.

“The future of hotels isn’t just a place to sleep or eat good food… we have been thinking about using hotels as a part of [people’s] lifestyle, including work,” Aso says.

“We’re opening up [our retreat] to emphasize that it’s not only for vacations but for work. I’m starting to implement a satellite office plan… so people can come to work for two weeks or a month, bringing their whole lifestyle. I’m talking about lifestyle portability.”

Veltra focuses on domestic, launches KITE, with aims to grow its media business

As for tours, activities and attractions, Kenichiro Sakamizu, CTO, Veltra explains that the strong recovery of domestic travel has meant that the sector has rebounded to almost 2019 levels. 

Veltra is taking quick steps to focus more on domestic, with Sakamizu saying, “We are not new to domestic… we’ve had domestic products since 2015, so now we’re working more aggressively to develop new products with partners.”

Sakamizu, who joined Veltra from Disney, started his new role in May and in two weeks, he has led the team to develop a real-time destination dashboard, KITE, to give travelers local information about attractions in as well as outside Japan.

“We looked at what we could contribute to our partners right now, and there was a need of real-time local information – what’s happening in local areas. So we started compiling local facts about domestic as well as foreign destinations and we see this developing into a travel media business over time. It’s now in Japanese, but we will be translating it into other languages in July,” he says.

With regards to foreign travelers, Shibata predicts that the earliest inbound leisure travel numbers would recover would be by the fourth quarter this year. While “travel bubbles” and “green lanes” may be established between select countries, it would still be some months before they become fully operational.

Nevertheless, while inbound numbers are low, Japan has an opportunity to improve upon how “foreigner-friendly” its online planning tools can be – for example, with road trips, a sector expected to thrive as “slow travel” gains momentum, post-COVID.

“There are so many global car rental brands in the world, but only a few are available in Japan… most of the current brands are local and owned by the car manufacturer. They’re not necessarily providing services that are friendly to inbound travelers,” Shibata says.

“The highways are becoming better in terms of signage and Google Maps works in Japan very well. It’s better, but there are more than a couple areas it can improve on.”

The virus and its wider implications on work culture and breakout moments for domestic brands

Meanwhile, Japanese companies are also experimenting with remote work models with the government giving incentives to those who enable employees to work from remote places.

Takano says that 97% of Rakuten Travel staff are working remotely, five days a week “and it’s working well. But our management is concerned about corporate culture and how we can foster it through remote work, so now we have Huddles twice a day”.

Veltra’s Takamizu has not been to the office since he started with Veltra and says that initially it was challenging but still they have managed to be productive. Having said that, he said he was looking forward to spending his first day in the office soon.

Applying lessons from Disney where he was responsible for building their on-demand system for Japan, Takamizu says travel brands have to look towards content to differentiate their business. 

“There are so many competitors in the content streaming business, but what differentiates is unique and attractive content. Netflix spends more on content production than traditional TV companies, so one lesson is create attractive and unique content,” he says.

And while he does admit that Japan’s hierarchical style of management can be a disadvantage in terms of IT innovation, with younger engineers unwilling to speak up and challenge status quo, Takamizu says, “I worked with Microsoft before and I can bring Western-style management practices to encourage people to challenge me – and I am used to being challenged. There are also more IT startups now in Japan, and things are changing.”

As for Rakuten Travel, Takano says COVID-19 had strengthened its parent company’s position. Says Takano, “Up to April, we had a +50.7% increase in customer base, and this will give us an even much larger base on which to grow our travel business.”

He sees this as an opportunity for Rakuten Travel to come out stronger post-COVID against foreign OTAs, which do not have such a strong domestic base. “It allows us to deepen and broaden our content and partnerships, and we then have to offer that content in other languages as well, to come out stronger.”