The September 14 issue of Weekly Toyo Keizai included a special feature, “Stock Dojo: Promising Stocks During Violent Fluctuations.” One of the articles was titled, “Early Read of Autumn Shikiho: Searching for Valuable Stocks Based on Latest Issue’s Predictions.”

　This article describes the positive performance at listed companies doing business in foreign countries, companies in the semiconductor field, and other corporations. Circumstances are also extremely favorable in the ryokan/hotel industry due to rebounding business and leisure demand after the COVID-19 pandemic and the growing number of foreign citizens traveling to Japan. According to Teikoku Databank’s Ryokan/Hotel Industry Trend Survey (FY2023), the hotel and ryokan market is expected to be approximately 4.9 trillion yen for the full 2023 fiscal year (total sales by business operators). This is around same level as FY2019, when there were many international travelers, and is 1.2 times larger than the FY2022 amount of four trillion yen. The Japan Tourism Agency said the cumulative number of guests at hotels and ryokan in April 2024 was roughly 51.9 million people, an approximately 10% year-on-year increase. Continually strong performance in the ryokan/hotel industry is driven by the major increase of international tourists, and Teikoku Databank predicts the market for the entire 2024 fiscal year may reach the record-setting amount of five trillion yen.
　APA Group has maintained favorable performance like other companies in this industry, and has experienced zero deficits during the 53 years since the company was founded. In our consolidated financial results for the period ending November 2024, we expect to significantly exceed our past sales and profit records with net sales of 215 billion yen and ordinary income of 65 billion yen. On October 2, we held a ceremony to welcome 602 new employees who will join the company in 2025. When Motoya Fumiko became president of APA Hotel in 1994, she stated, “We will become the Joan of Arc of the hotel industry, and we will pay wages of the highest level in this industry.” We have continually leveraged our high earning power to raise base salaries, and new employees are paid the industry’s highest starting salaries, just like Fumiko declared. This topic makes me recall my first job at the Komatsu Credit Union in Ishikawa Prefecture. I was involved with the labor union’s efforts to raise wages, which were lower than other credit unions. I also helped successfully establish an employee loan scheme that encouraged housing purchases as part of the benefit program. In this scheme, the credit union provided loans with a maximum amount equal to 60 months of the employee’s salary. The small credit union only covered Komatsu City, and its management efficiency was exceedingly poor. I remember how we seized the initiative in management reform. At the start of collective bargaining, we wrote an open letter asking for the credit union to be modernized, stating, “We must switch from Gemeinschaft (communal society) to Gesellschaft (a society of mutual self-interest).” When you run a business, you cannot simply do the same thing over and over – reforms must be implemented on a consistent basis. That was true back then, and it remains true today.

　Weekly Diamond ran a special feature on the Japanese hotel industry in its August 17 issue, published on August 10, 2024. It was titled, “Best Hotels: Major Increase in Hotel Real Estate and Foreign Capital.” In its article ranking the best hotels, APA Hotel had the top position in the Japanese business hotel category under “Membership Programs.” For “Recommended Hotel Loyalty Programs,” it was ranked number two after Marriott Bonvoy. The article praised APA as follows:

　It is a great honor to be ranked underneath Marriott, a renowned global brand. I believe we earned this high ranking thanks to our commitment to service and user friendliness. We have focused on our membership program since the very beginning, and we give 5,000 yen back for each 50,000 yen paid by the member for accommodation.
　The most important part of this special feature was the main article with the headline, “Starting Guns in Japanese Market Race.” It said that more foreign travelers are coming to Japan as the government works to meet its 2030 goal of 60 million international tourists. Based on these market circumstances, foreign-affiliated hotel groups are launching full-scale efforts to expand into Japan. The so-called “Big Five” are Marriott, IHG, Hilton, Hyatt, and Accor. A major factor driving this trend is the “Kurofune Funds,” a nickname given to foreign investment funds. With increasing numbers of foreign tourists, hotels are the most efficient type of investment in terms of real estate interest, more so than offices, commercial facilities, or condominiums. Kurofune Funds purchase existing hotels and entrust different companies with their operation and conversion (rebranding). This means they do not have to struggle to find hotel properties (of which there is currently a shortage), enabling a short turnaround between acquisition and opening. These funds are achieving rapid progress, backed by investors who are highly motivated to invest in hotels and foreign-affiliated hotel companies that are focusing on swift business expansion. This is demonstrated by the strong performance of real estate investment trusts (REITs).

　It is worth noting that foreign-affiliated companies are not solely focusing on the luxury market for international travelers; they are turning to omnidirectional strategies. The Marriott vice president of Japan and Guam spoke as follows in the included interview:

　The Four Points Express by Sheraton brand was acquired by KKR, a foreign investment fund with 14 Unizo hotels. They will be converted to Marriott business hotels and re-opened in November. According to the article, fierce competition is sure to occur in many hotel genres as more Japanese and foreign companies get involved in this field. Of course, APA Hotel must not feel a sense of security while this fight is occurring.

　There are three parts to the hotel business: ownership, management, and branding. Traditionally, many Japanese companies have leased a hotel building and paid rent to its owner while being in charge of operating and branding the hotel. However, lots of foreign-affiliated hotels employ management contracts. The building owner hires an operator, who pays fees based on sales proceeds or profit. Sometimes the same company is in charge of operation and branding, but this is not always the case. Often, a Japanese company is the owner and operator of hotels underneath a foreign brand, which has the ability to attract customers from across the world. In all of these cases, profit must be divided among the owner, operator, and brand. In contrast, APA Group is the owner, operator, and brand company for most APA Hotels. While other hotel chains and luxury hotels have operating income rates between 5% to 15%, APA Group’s is much higher at 30%, which is a major strength of our business.
　When we do purchase and convert existing hotels to the APA Hotel brand, we retain employees and maintain relationships with existing business operators. We take sufficient time to bring everything up to the APA standard, both in terms of tangible and intangible offerings. This is only possible because we are in charge of everything from building ownership to operation. It would be difficult to implement this method under a management contract for a building owned by an investment fund. In most cases, the only thing that changes is the hotel’s sign – everything else remains the same.
　Another of APA Hotel’s strengths is the creative methods used by our president and CEO, Motoya Isshi. Based on his philosophy of “Innovation at every hotel,” we conduct some type of “hard” or “soft” experiment in every new hotel. I once told him, “Strategic failure is a bad thing, but tactical failure is good.” He has steadily and successfully implemented the hotel development strategy while engaging in trial and error. This includes APA Hotel Stay, a brand-new, all-inclusive hotel business. He has also introduced a new fundraising scheme. For instance, APA has given up ownership of buildings outside our focus regions, switched to franchise contracts, and used these funds to build hotels in ordinance-designated cities and other key areas. The president is constantly reforming our business, which I think will become APA Group’s biggest strength going forward.
　One of my APA Words to Live By is, “Only what you have won through victory remains / What you have been given will someday be taken away.” Foreign-affiliated hotels are successfully entering the business hotel field according to their top-class strategies. I am confident that APA Hotel will gain even greater strength through this competition, achieve good results, and become a company that endures for the next 50 or 100 years.

October 18 (Friday), 5:00 p.m.