Vertical Separation: A Key to the Survival of Local Railways - Japan Railway Journal

Key Concepts

• Vertical Separation: A railway business model where the infrastructure (tracks, stations, facilities, rolling stock) and train operations are split into separate entities. Typically, a management organization (often local government or municipalities) owns and maintains the infrastructure, leasing it to the railway operator, often at zero cost, allowing the operator to focus solely on train services. This model is likened to road administration, where governments maintain roads for vehicles like buses.
• Quasi-Vertical Separation: A variation where the railway entity remains whole (infrastructure and operations are not formally split into separate organizations), but receives subsidies from municipalities or local governments to cover infrastructure upgrades and repairs. This approach avoids the time-consuming process of setting up a new organization and transferring assets.
• Silver Pass: A discounted travel pass offered to residents aged 65 and older, allowing them to travel any section of the railway for a significantly reduced fare (e.g., 100 yen).
• Prepaid E-money Cards: Electronic payment systems used for ticketing, enhancing convenience for passengers.

The Challenge for Japanese Local Railways

Local railways across Japan are facing severe financial difficulties. According to the Railway Bureau of the Ministry of Land, Infrastructure, Transport, and Tourism, 80 out of 96 regional railway operators are running at a loss. This widespread struggle is attributed to an aging population, declining birth rates, and increasing reliance on cars, leading to reduced ridership and revenue. A major portion of their deficits stems from the high costs associated with infrastructure maintenance and repair.

Omi Railway: A Case Study in Vertical Separation

Omi Railway, operating in Shiga Prefecture since 1896, has historically served as a vital local lifeline. However, it had been in the red since 1994, recording a deficit of approximately 300 million yen in fiscal year 2023, primarily due to maintenance and repair costs.

• Request for Support: In 2016, Omi Railway requested support from the prefecture.
• Council Formation: The prefectural government formed a council with 10 municipalities along the line to assess the situation.
• Decision and Implementation: The council decided to support Omi Railway's continued operation through a vertical separation model for 10 years, beginning in 2024.
• Structure of Separation:
  • Shiga Prefecture and the municipalities established a management organization.
  • This organization now owns and maintains the station buildings, tracks, overhead wires, crossing signals, and train cars.
  • Omi Railway leases these trains and facilities at zero cost, allowing it to focus exclusively on train operations.
  • While Omi Railway still owns the land, the management organization pays a usage fee.
  • Omi Railway, possessing technical expertise, continues to handle inspections and repairs of the rolling stock, for which the management organization pays a fee.
  • The total amount the management organization is expected to pay over the next 10 years will exceed 16 billion yen.
• Improvements and Outcomes:
  • The management organization introduced new train cars equipped with cameras and inspection devices to monitor track conditions during regular operation.
  • Upkeep of stations and facilities improved.
  • Hino station, for example, saw its building taken over by the town, transforming empty space into a tourist information center and cafe.
  • The management organization began issuing Silver Passes to residents aged 65 and older, allowing them to travel any section for just 100 yen.
  • Starting in 2026, all stations will accept prepaid e-money cards.
  • By cutting costs significantly through vertical separation, Omi Railway posted its first profit in 31 years, recording a surplus of 50 million yen in fiscal year 2024.

Quasi-Vertical Separation

While standard vertical separation involves creating a new organization and transferring assets, quasi-vertical separation offers a quicker alternative.

• Key Difference: Instead of splitting infrastructure and operations into separate entities, the existing railway company remains whole but receives subsidies from municipalities to cover infrastructure upgrades and repairs.
• Jomo Electric Railway (Gunma Prefecture): In 1998, it became the first in Japan to adopt quasi-vertical separation. Its ridership peaked at 9.58 million in 1965 but declined, leading to prolonged deficits. A council of the prefecture and local municipalities provided support through this model, allowing the railway to avoid closure.
• Government Subsidies: Initially, only standard vertical separation qualified for government subsidies. However, in 2008, quasi-vertical separation also became eligible for national support.
• Benefits: "Simply put, you don't need to set up a new organization." This scheme is particularly useful for existing small private railway companies operating rural lines, as it avoids the time-consuming procedures of asset transfer and new entity setup.
• Hokuriku Railroad (Ishikawa Prefecture): Switched to quasi-vertical separation in 2025. Operating two lines (Ishikawa line and Asanogawa line), it struggled with chronic deficits and aging trains. The prefecture and municipalities agreed to provide approximately 22.2 billion yen in support over 15 years, starting in 2025.

Vertical Separation for Disaster Recovery

Vertical separation has also proven crucial in restoring railway services severely damaged by natural disasters.

• JR Tadami Line (Fukushima and Niigata Prefectures):
  • In July 2011, heavy rainfall caused catastrophic damage, including washed-away bridges and landslides, particularly on a 27.6 km stretch between Aizu-Kawaguchi and Tadami stations.
  • Reconstruction was estimated to cost over 8 billion yen, leading JR East to propose replacing the railway with bus services.
  • Local residents insisted on full restoration. After six years of discussions, partial vertical separation was agreed upon.
  • Fukushima Prefecture assumed ownership and management of the tracks and facilities for the affected 27.6 km section.
  • JR East pays a usage fee to the prefecture to operate its trains, but this fee is waived if the service runs at a loss.
  • Restoration cost 8.1 billion yen, with 5.4 billion yen covered by Fukushima Prefecture and local municipalities.
  • The line reopened in October 2022, resuming full operation for the first time in 11 years.
• Minami Aso Railway (Kumamoto Prefecture): Switched to vertical separation after severe damage from the 2016 earthquake, resuming service in 2023.
• JR Hisatsu Line (Kumamoto and Kagoshima Prefectures): Suspended due to heavy rainfall in 2020. A decision was made in March 2025 to switch to vertical separation, with restoration aiming for 2033.

The Importance of Local Support

A recurring theme is that vertically separated railways in Japan are almost always unprofitable. Therefore, local community support, often through taxpayer money, is essential to keep these vital lifelines operational. As one speaker noted, "local community should use taxpayers money... everybody within the community should pay the cost." While there can be opposition due to the "hefty cost incurred in the future," the agreement to restore and operate these lines necessitates making "full use of that restored infrastructure so that the local community can receive as much benefit as they can."

Railway Vistas: Kurobe Gorge Railway

The video also features the Kurobe Gorge Railway, a private railway in Toyama Prefecture, originally built to transport materials for dam and hydropower plant construction.

• Route: Spans approximately 20 km connecting Unazuki and Keyakidaira stations, tracing the Kurobe River through mountains.
• Features: Distinctive triangular-roofed Unazuki station, enclosed passenger cars, and open-air trolley cars.
• Tourism: A popular tourist attraction, especially for its vivid autumn foliage from late October to mid-November, where red and yellow leaves contrast with the Emerald Green River.
• Current Status: Due to damage from the 2024 Noto Peninsula earthquake, service is currently limited to a 12 km section.
• Promotion: An employee, Mr. Kay, from the overseas sales group, takes photos of the trains and shares them online to promote the railway internationally.
• Scenic Spots: Observation decks offer spectacular views, and passengers are sometimes permitted to disembark at stations like Nekomata (normally for power plant personnel) to enjoy the scenery.

Conclusion

Vertical separation, in both its standard and quasi forms, has emerged as a critical strategy for preserving Japan's struggling local railways. By shifting the financial burden of infrastructure maintenance to local governments and municipalities, these models enable railway operators to focus on service delivery, cut costs, and even return to profitability, as demonstrated by Omi Railway. Furthermore, vertical separation plays a vital role in the recovery and restoration of railway lines severely damaged by natural disasters, ensuring continued connectivity for local communities. The success of these initiatives, however, fundamentally relies on strong local support and the willingness of communities to invest in these essential transportation lifelines.