[Special Contribution] “Tourism × Tourism Destinations”: Responding to Economic Changes in Tourism Destinations—What Must Stay the Same and What Must Change: Lessons from the Case of Beppu

Introduction: Tourism as an Industry of Safety and Security Under Threat

Tourism is an industry built on the premise of safety and security, and above all, it is an industry founded on “peace.”

Since the onset of the COVID-19 pandemic in late 2019, global travel has been curtailed, and the service sector—particularly tourism, lodging, food and beverage, and entertainment—has continued to suffer a downturn that could be described as the worst since the post-war era compared to other industries.

Since Russia’s invasion of Ukraine began on February 24, 2022, not a day has gone by without news reports of this war. In terms of international politics, the situation has become so severe that it is described as a divide between democracy and authoritarianism.

Furthermore, in Japan, natural disasters such as earthquakes and torrential rains continue to occur almost every year. The Hyuga-nada Earthquake, which occurred in February 2022 and registered a seismic intensity of 5, is still fresh in our memories, and in March of the same year, the Tohoku region was struck by a major earthquake with a seismic intensity of 6+ (strong).

This makes me realize once again how important it is to recognize that an increase in visitor numbers is only possible when there is “peace, security, and safety,” and that “nature, culture, and history” are inherently diverse. Had it not been for the sense of stagnation caused by the COVID-19 pandemic, the war in Ukraine might never have happened.

Let’s examine the current state of tourism in Japan during the COVID-19 pandemic. Taking 2019 as a baseline, the total number of overnight stays in 2021 fell to 52.9%—nearly half the previous level—with metropolitan areas like Tokyo, which traditionally attract many foreign visitors, suffering particularly severe blows.Oita Prefecture, at 54.3%, is roughly in line with the national average. It seems that local governments that took the lead in pursuing the government’s goal of 60 million foreign visitors to Japan by 2025 are now struggling.

On the other hand, now that three years have passed, the tourism industry has gradually adapted to this difficult environment and is able to operate more steadily. Assuming conditions will not worsen beyond this point, we can say we have reached a starting point for figuring out how to grow within the “With Corona” era.

While the deterioration of the business environment due to the prolonged COVID-19 pandemic and the war in Ukraine is unprecedented, from a long-term perspective, regional economies have experienced similar downturns on several occasions. We know that while this is closely tied to Japan’s macroeconomy, it can also “change” depending on regional community development strategies and human resources.

It is precisely in times of hardship like these that we must re-examine the region’s inherent comprehensive strengths; each region and individual requires the mindset and execution capabilities to adapt to a changing market. Regions that neglect this will inevitably enter a prolonged period of stagnation.

Here, we will look back on the rise and fall of Beppu tourism since the 1990s and examine how to prepare for the “changes” of the post-COVID era.

1. The Rise and Fall of Beppu Tourism and Tourism-Driven Community Development

Historically, Beppu tourism began with the construction of Beppu Port and the opening of the Kansai route in 1868 (Meiji 2). Since then, it has experienced cycles of boom and bust throughout its long history, and the companies and individuals driving the industry have also changed over the course of 30 to 50 years.

A major shift in recent years occurred between 1990 and 1992, following the collapse of Japan’s economic bubble. While the bubble is generally considered to have burst in Tokyo in 1988, at that time there was a lag of 12 to 24 months before Tokyo’s economic conditions affected regional cities. Compared to today, when even global economic conditions immediately spill over into regional cities, those were indeed more laid-back times.

As the region was engulfed by the turbulent waves of the bubble’s collapse, Beppu was fortunate enough to see the completion of the “Beacon Plaza” in 1995—the largest convention facility in Western Japan at the time—which sparked a flurry of celebratory events. In 1996, the expressway finally opened, albeit belatedly, and a sharp increase in vehicle traffic began in earnest.

At that time, other tourist destinations were still suffering from the aftereffects of the bubble economy, and it seemed that only regions blessed with favorable social conditions, like Beppu, were enjoying a recovery in tourism.In the accommodation sector, an unprecedented boom in expansion and renovation—unseen since the mid-1960s—took place from 1995 to 1997. The number of newly built and expanded guest rooms in Beppu reached approximately 700, with a particular emphasis on new Western-style rooms. Preparations were also gradually being made for the future aging society (as sleeping on futons is difficult for the elderly) and the foreign tourist market.

A recovery driven solely by the development of two major social infrastructure projects was bound to backfire. The post-bubble market had shifted significantly from group tours to individual travelers. Although management was aware of this market shift, their business performance had recovered, causing their strategic decisions to lag several steps behind.

Furthermore, until then, it had been standard practice for local governments in tourist destinations to focus solely on promotion, and even the accommodation statistics used as the basis for these efforts were unreliable. As a result, neither the public nor private sectors recognized that this brief recovery was merely temporary, leading them to face the worst phase of the crisis.

1997 was a watershed year for the Japanese economy and marked the beginning of a long period of stagnation for Beppu tourism. That same year, the Asian financial crisis, domestic financial instability, and a 5% increase in the consumption tax all converged, plunging the country into an unprecedented era of deflation. From the second half of 1997, unit prices clearly began to decline, and group tours—the mainstay of Beppu’s tourism market—began to disappear.

During this period, a noteworthy event occurred in the history of Japanese tourism: the rising national reputation of Yufuin, a neighboring village just a 30-minute drive from Beppu.Starting in the late 1980s, local residents had been actively engaged in “village development,” and its reputation had spread nationwide, seemingly in harmony with Oita Prefecture’s “One Village, One Product” movement. This was the result of exploring a path diametrically opposed to that of traditional hot spring resorts—focusing on the quality of small inns, the natural landscape featuring Mount Yufu visible from every angle, and expansive fields and farmland.

Yufuin had transformed into a destination highly regarded by individual travelers. This “Yufuin Model” would continue to be held in high esteem as a successful example of community development until around the time of the 2008 financial crisis.Special features on Oita Prefecture in travel magazines like “Rurubu” also featured Yufuin on the cover and introduced Yufuin first in the opening pages, followed by Beppu. This served as a stark reminder that Beppu’s reputation as a hot spring resort had become outdated.

2. Beppu’s Urban Development: Rebounding After Hitting Rock Bottom

The seeds of Beppu’s urban development were sown in the mid-1990s through a private initiative to revive the traditional name “Beppu Hatto” (Beppu’s Eight Hot Springs) locally. As Yufuin’s reputation as a national brand grew, this effort could be described as Beppu’s “rebranding.”Beppu is, in essence, a collection of eight hot spring districts, each originally a settlement or village. Since the Meiji era, repeated mergers have led to the formation of the current city of Beppu, and since the postwar period, it has marketed itself under the single “Beppu Onsen” brand. At the height of Beppu’s popularity, its brand power was so strong that Yufuin was even marketed as “Oku-Beppu” (Inner Beppu).

The initiative undertaken at that time was an attempt to rebrand each of these distinct hot spring districts as independent destinations after Beppu had become stale as a single, collective hot spring area. Note
: The eight hot spring districts (Beppu Hatto) refer to Beppu, Hamawaki, Kamegawa, Kannawa, Hotta, Shibaishi, Kankaiji, and Myoban.

The first initiative was the launch of the “Subatchi” bus in May 1994, operating as the Beppu Hatto Loop Bus. The name was a play on the “8” in Hatto and the Japanese word for “bee” (hachi), and the logo featured an image of a flying bee. The project was a private initiative supported by Beppu City, Kamenoi Bus (a local bus company affiliated with Nishitetsu), and the Oita branch of JTB Travel Association.

However, ridership failed to increase, and with persistent losses and no prospect of turning a profit, the service could not be sustained for even a year and had to be discontinued. The reality was that, despite being a historic hot spring area with distinct local characters, the region could not even attract the attention of its own residents in its current state.

Even though the region had its own distinct character, it was too early to market all eight hot spring areas at once; time was needed to resolve the following challenges:
(1) Developing human resources and organizational structures for town planning to build brands for each hot spring area;
(2) Ensuring that local residents first recognize the region’s unique characteristics (such as the quality of the hot springs, history, nature, and culture). In other words, residents of each of the eight hot spring areas needed to recognize and take pride in the unique qualities of their own communities.

From today’s perspective, this is the foundation of regional branding, but at the time, we didn’t even understand that and felt like we were running blindly.

3. Starting with Beppu Onsen: “Christmas HANABI Fantasia”

In December 1994, “Christmas HANABI Fantasia” began as a winter fireworks display. It was a “turn-of-the-century event” in the downtown area around Beppu Station (the Beppu Onsen area, one of the Beppu Eight Hot Springs), for which preparations had been underway for nearly a year. At the time, Beppu was deserted on Christmas Eve and Christmas Day, effectively an off-season when only local school teachers held their year-end parties.

Consequently, the event was planned to draw people to the downtown area. At the time, winter fireworks were a rarity, and the event was even dubbed “Beppu’s Ingenious Strategy.” Organized by the private sector, the first edition had a total budget of 22 million yen. The venue was a reclaimed plot of land owned by the city of Beppu (then a 6,000-tsubo vacant lot, now the site of the Yume Town shopping mall), which was leased from the city for about a week.

An organizing committee was established, bringing together the downtown shopping district, dining district, and ryokan (traditional inn) district (a “one-stop” approach). It was at this time that the event was first recognized as a tool for community development, and the two-day festival came to feature events held throughout the downtown area. Furthermore, this committee served as a breeding ground for future community leaders.

The first event concluded successfully and became an ongoing initiative, but the committee completed its role in the year 2000, at the turn of the century. Subsequently, in response to strong public demand, the Beppu City Tourism Association took over the event’s organization, and it has since become a winter tradition in Beppu that continues to this day.

Another noteworthy development in the ryokan industry was that, during the two days of the event, the Ryokan Association offered a “one-night stay with breakfast” package. The focus was on encouraging visitors to come to the venue, dine in town, and help revitalize the otherwise quiet streets. Until then, ryokans had been criticized for being too insular, focusing solely on dinner and souvenirs. However, this initiative marked the beginning of a shift toward a business model offering one-night stays with two meals.

4. Community Development Groups Emerging One After Another Since 1996

An event indispensable to the history of Beppu’s town development is the “Beppu Eight Hot Springs Declaration of Independence,” held at 8:08:08 a.m. on August 8, 1996, at Asami Hachiman Shrine, considered Beppu’s tutelary deity.Organized by the Beppu Industry and Tourism Management Research Association (San-Ken, a private advocacy group with its secretariat at the Beppu Chamber of Commerce and Industry), the event was carried out through the collaboration of organizations and individuals supporting the independence of each hot spring area.

In response to this movement, various private community development organizations were established—beginning with the founding of the “Kanname-kai” (an organization of female innkeepers from small inns in Kannawa Onsen) in February 1997—and community development projects and events were carried out until around 2001. Although each was a small group, they were characterized by bold initiatives and brought together passionate individuals who shared the same vision.However, as small, loosely organized groups, they lacked funding and promotional resources.

Consequently, to serve as an umbrella for these initiatives, the “Hatto Onpaku (Beppu Eight Hot Springs Tour)” was organized in 2001. Since each group was carrying themes that would truly shape Beppu’s future, a coordinating umbrella organization naturally emerged. With financial backing from Oita Prefecture, these groups came together under the “Hatto Onpaku” event.

Subsequently, the Onpaku project was highly praised by the Ministry of Health, Labour and Welfare, the Ministry of Economy, Trade and Industry, and the Ministry of Internal Affairs and Communications. It deepened its expertise from the perspective of “unearthing, discovering, refining, and commercializing” local resources for community development and tourism. In 2006, Onpaku launched a horizontal expansion project in Hakodate, subsequently expanding nationwide. In Beppu City as a whole, its role would come to a temporary close with the Onpaku event in the fall of 2014.

5. The Reality of the Accommodation Industry During Its Worst Period: 2001–2006

Although Beppu tourism had recovered briefly after the collapse of the bubble economy, conditions began to deteriorate again starting in 1997. Subsequently, in line with policies from the Financial Services Agency, regional banks began in earnest to resolve their non-performing loans. Visibly, from around 2001 to 2005, there was a wave of closures, bankruptcies, and transfers of inns and hotels nationwide.

In Beppu, this trend began in 2001 with the transfer of the mega-scale "Suginoi Hotel" to a major financial institution and continued until around 2006.The total number of rooms affected by changes in management due to bankruptcies and transfers amounted to approximately 1,200. The Sugi-no-i Hotel was originally a 600-room ryokan-style property; however, because its bankruptcy proceedings were conducted under the banner of preserving jobs and operations continued, this ultimately triggered the bankruptcy of approximately 600 additional rooms.

In short, while the number of overnight guests in Beppu City remained stagnant, operations continued at the same scale despite an oversupply of approximately 600 rooms as of 2001; consequently, by 2006, approximately 600 financially vulnerable rooms (the oversupply) had gone bankrupt.

I keenly realized that the price for the gap between local demand (total number of guests) and supply (total number of guest rooms) must inevitably be paid in the medium term. There were no organizations or personnel capable of thinking from the perspective of managing a tourist region; instead, the region ended up paying the price over the long term for having focused solely on resolving non-performing loans. It was a classic case of “seeing the trees but not the forest.”

On the other hand, initially there were almost no precedents for regional banks to resolve non-performing loans related to large-scale accommodation facilities, and government-affiliated banks had no experience with debt write-offs. The lack of a debt resolution framework like the one we have today was a factor that prolonged the problem, leading to a widespread negative perception of large-scale tourist destinations.

In Beppu, where the seeds of tourism-driven town development were sown relatively early, a sufficient pool of talent had largely been assembled by 2005, and efforts to identify, discover, and commercialize local resources had begun. Nevertheless, the reality of the local economy remained extremely dire.

6. The Results of Town Development and the Era of Inbound Tourism

Amid a series of disasters for the Japanese economy, such as the 2008 Lehman Shock and the 2011 Great East Japan Earthquake, Beppu tourism was undergoing a brand rebuild. This involved promoting the appeal of “hot springs”—a regional resource unparalleled anywhere in the world—as well as rediscovering the charm of what could be called Japan’s largest and longest “back alleys” and offering guided tours.Efforts to unearth the history and local culture—which differed entirely from those of Yufuin—also progressed, helping the region break free from its long-standing stagnation.

The appeal of the hot spring water itself and the charm of the alleyways, with their strong sense of community, were promoted with such depth that even local residents came to recognize these previously overlooked aspects. In particular, people drawn to the allure of the hot springs were connected through the internet—which had become widespread since 2005—significantly strengthening the region’s ability to disseminate information.

Additionally, the “Beppu Eight Hot Springs Trail” (a stamp rally where participants can become “Hot Spring Masters” by visiting 88 different springs), which began in 2001, had produced 10,000 masters by March 2022. This not only demonstrated the strong influence of hot spring enthusiasts but also showcased the true greatness of Beppu as a hot spring destination to the entire nation.

While the period of this brand’s reconstruction appears relatively stable, major changes began to occur after 2013. As the internationalization of the tourism industry and the increase in foreign tourists were concretely promoted, the nature of tourism in Japan underwent significant changes. The rapid growth in foreign visitors was remarkable, reaching the 10 million mark in 2014 and exceeding 30 million in 2019.

This had a significant impact on tourism in Beppu. While the region had seen a large number of Korean tourists since the 1990s, a new era began in which tourists from East Asia, in particular, surged. Of the approximately 2.6 million overnight guests in 2019, about 500,000 were foreign visitors, 70% of whom were from East Asia.

The establishment of Ritsumeikan Asia Pacific University in 2001—where half of the current 5,000 students are international—proved beneficial, allowing language barriers to be easily overcome. Multilingual part-time workers at lodging and dining facilities became an extremely valuable human resource for the region.

7. The Rapid Increase in Western-Style Guest Rooms Amid the COVID-19 Pandemic

Since 2014, attention has focused on the clearly surging trend of foreign tourists. At the same time, due to widespread publicity about a shortage of hotel rooms for the 2020 Tokyo Olympics and the fact that real estate prices in Japan had remained relatively low, a hotel construction boom began at the city level, guesthouses (simple lodging facilities) proliferated, and the private lodging system was established.

In regional cities, an extraordinary expansion of hotels is underway in places like Hakodate and Kanazawa, where Shinkansen lines have opened. Amidst this trend, Beppu emerged as a focal point among hot spring tourist destinations.With a population of 120,000, 2.6 million overnight guests, and 8 million tourists, Beppu’s scale as a hot spring resort, combined with its affordable land prices, proximity to East Asia (South Korea, Taiwan, Shanghai, etc.), and the presence of three airports within a three-hour radius (Oita, Fukuoka, and Kitakyushu), likely led to its recognition as one of the best regions for hotel investment.

As a result of these factors, 16 new accommodation facilities with a total of 1,785 rooms (including 232 rooms funded by local prefectural capital) opened between 2018 and 2023. Since Beppu’s total room count had remained at around 5,000 since around 2001, an oversupply is expected to return in the post-COVID era, leading to renewed intense competition.

To make the approximately 1,800 new rooms profitable, the required number of overnight visitors would be about 600,000. This means that unless the number of overnight visitors in Beppu City—which was approximately 2.6 million in 2019—surges to about 3.2 million (a 23% increase) all at once, the supply-demand balance cannot be achieved. It can be inferred that even the hotel groups that decided to enter the market based on mathematical data up to 2018 never imagined that such a torrential downpour of investment would occur.

In tourist regions, decisions regarding the construction of new lodging facilities or expansions have traditionally been based on criteria such as the state of infrastructure development and site evaluations. Consequently, the medium- to long-term fluctuations in a region’s prosperity inevitably create an imbalance between the number of guests and the number of guest rooms, making it difficult to achieve stable regional management. Moving forward, when considering regions from the perspective of “sustainable tourism destinations,” several regional indicators will likely be necessary, built upon lessons learned from the past.

These could include regional environmental impact regulations and restrictions on the area of tourist districts. Specifically, this would involve managed regional tourism management, such as limiting the total number of guest rooms and restricting vehicle access to downtown areas. Efforts are needed to create regions that satisfy both visitors and residents.

8. Rebuilding Regional Brands and Regional Management

As we have seen, tourist destinations are highly susceptible to economic cycles of boom and bust. For regions with a history of success to transform themselves, it takes about 10 years for urban development professionals to emerge and for local residents to recognize the need for change.

As a rule of thumb, those seeking change in community development are generally under 50 years old and are aware that change is necessary. Once they reach their mid-50s, they often take on the role of mediators within traditional communities, making it difficult for them to take bold or innovative actions.

The common thread in the changes they envision and hope for is none other than the “rebuilding of the regional brand.” This involves unearthing the “history, culture, and nature” inherent to the region itself, returning to the original charm of the land, and rebuilding upon it. When you form a team or group and engage in “unearthing activities” in small groups, the process is inherently interesting, so the number of participants grows steadily.

Community development begins with “realization” and ends with human resource development. Since human resource development never ends, community development continues in an endless spiral. However, the economy is constantly changing, tracing an S-curve of growth and stagnation. Regions that produce people capable of adapting to change are strong, and the baton will surely be passed on to them.

At the same time, we must also acquire methods to efficiently grow the local economy. This is the essence of “regional management.” Tourist destinations are a particularly clear example. Metrics such as the number of tourists and overnight visitors, along with their average spending and satisfaction levels, allow for quantification.

In Japan, DMO initiatives have been introduced as part of regional revitalization policies, and we have only just begun to see the first steps in this direction. While it is unlikely that DMOs are currently fully organized and functioning effectively in every region, the proliferation of ICT has led to a rapid increase in tools for quantifying and analyzing data. The use of these tools and analytical methods has become a particularly critical element in tourism region management, and it is believed that the policies and projects derived from these analyses will ultimately determine the region’s growth.

Conclusion: The Future of the “With Corona/After Corona” Era—Looking to the Long Term

I have a feeling that the “With Corona” and “After Corona” eras will give rise to a market different from that of 2019 and earlier. The hiatus from “normal life” lasting over two years has likely altered the lifestyles of the Japanese people. Consequently, if the “work styles” of 20% of the population change, this will have a significant impact on Japanese society.

As exemplified by workation, the very way people use their time will change. Assuming that the number of foreign tourists will return to 2019 levels by 2025, we must use the intervening period as a time for trial and error to anticipate the market of the next era.

Furthermore, the protracted war in Ukraine could divide the world into democratic and authoritarian nations, and we cannot rule out the possibility that this will hinder tourism exchanges, which are fundamentally based on peace. In particular, we must closely monitor how East Asia and Japan are assessed geopolitically.

According to various international surveys, Japan is highly regarded as a travel destination, and expectations for further growth in the tourism industry are high. Although the future is difficult to predict, from a long-term perspective, the outlook for Japan’s tourism industry should be extremely bright.