Postcards from Tokyo

Greetings from Tokyo. I just got back from my third trip to Tokyo in as many months. Two key takeaways from this trip: (1) Shrinking portions = Inflation? (2) Watch out CX, budget airlines are for real

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Greetings from Tokyo.

I just came back from my third trip to Tokyo in as many months. I won’t go into the details on why I was there but just to say that I see tremendous value in Tokyo at the moment.

Two key takeaways from Tokyo

As I reflected on this recent trip, there are two key messages that I wanted to note:

  1. Is inflation starting to creep back in Tokyo? and
  2. Watch out CX, budget airlines are for real.

1. Shrinking portions = Price rise

Ahhh, shabu shabu. I’ve got a couple of go to restaurants in Tokyo. I’ve got a high-end sushi place, a teppanyaki place, a shabu shabu place and even a conveyor sushi place. Over the past 10 years, I have gone back to these places repeatedly because they are so consistent. The menu doesn’t change, the location does not move and the prices have also tended to stay the same.

Well, this time, something did change. It may just be my “rose-colored glasses memory” but on this trip back to our favourite shabu shabu restaurant, the portion appear to have shrunk. I could swear that I used to get like 4-5 slices of beef but this time around, there were only three slices.

Although the official prices haven’t changed but what you’re getting are smaller portions. This brings back memories of Hong Kong circa 2004-2005 when its economy was in the nascent stage of recovering. Back then, a lunch box used to only costs around HK$30. At first, the price went up HK$1 or HK$2. When they started to encounter price resistance, the lunch box became smaller and the slices of char siu decreased from 7-8 to 5-6 pieces.

Although this does not chime in well with the official numbers (the BoJ did just revise down this fiscal year’s inflation forecast from 1.5% to 1.4%),  I can’t help but think that the smaller portions as well as the increased tourist traffic (note: the department stores and luxury retailers were jammed) may provide a much needed boost to Japan’s inflation.

Japan annual inflation

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(Source: World Bank)

2. Budget airlines are for real

The second key takeaway is that Budget Airlines are for real. I admit it, I am a late adopter of technology and new things. In the past, I’ve always been scared of flying budget airlines because of stories of flight delays and poor service. Well, I tried it this time and I was very pleasantly surprised.

Are the 40-50% savings worth it?

First of all, let’s talk about savings. Using a flight in mid-May, away from the holiday charges, I have looked up what a economy class return flight would cost if you fly budget and normal airline.

Screen Shot 2017-07-05 at 12.57.34 pm.png

Source: Vanilla Air

As you can see from the table below, flying with a budget airline would cost 42% to 51% less than a normal carrier. (Note, for the budget airline’s simple fare, I have already included a JPY700 seat selection charge per flight whereas the normal carrier’s economy save fare does not allow for pre-booking of seats).

Screen Shot 2017-07-05 at 12.55.25 pm

The soft factors – Entertainment, food, etc

But what about the soft factors? There is no snazzy video-on-demand entertainment system and I have to buy my own food and drinks on the budget airline. But I thought that was manageable for flights below 5 hours, all you need is a fully charged iPad and shows that you like. As for drinks and food, there are a variety of drinks and snacks available for purchase and these only costs around JPY400-1,000 each. Furthermore, if you are like me and you find that the airline coffee is not as good as say Starbucks, you can always buy and bring your own coffee on board.

Screen Shot 2017-07-05 at 12.59.58 pm.png

(Source: Vanilla Air)

On to service level, I thought the staff on both the outbound and inbound flights were professional and attentive, not all that different from other airlines. The only criticism from the flights were (1) the check in took longer than normal, and (2) their cabin baggage dimensions were very odd. The 36cm width limit means most trolley bags have to be checked in and they were very strict in enforcing this which is a good thing.

Watch out CX, the threat from budget airlines is rising

I don’t know about other locations but at least for Tokyo, I now have a cheaper flight option for future trips. The bad news for my regular carrier is that they have a choice to make: 1) They can either lower their price to try to compete against the budget carriers, or 2), they can try to restore their service level to their previous levels. This means not making it impossible for frequent flyers to get lounge access, giving proper food and drinks instead of a juice pack and a pastry.

Whatever the case, I suspect either revenues or margins or both will have to come down. At this point, I feel very little urgency to bargain hunt despite a near 50% correction in the airline’s stock price.