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Airline Mismanagement

Amtrak is chronically unprofitable, but don't blame Amtrak for the trouble it is in!

This year the federal government is promising Amtrak less than 2% of the funding it is giving to highway maintenance. Although the government gave the airlines billions of dollars after 11 September, it gave nothing to Amtrak.

Amtrak needs capital investment in order to become viable.

 
 
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Amtrak Answers

New fast trains like this Acela Express, and the upgraded track for them to run on, are essential for Amtrak's future success, but require tens of billions of dollars of investment.

UPDATE : Please also see my new 28 June Amtrak column for more on this topic.

 

 

On 7 February the Amtrak Reform Council submitted a plan that would break Amtrak up and eventually privatize much of its network, and in congressional hearings on 15 Feb, described Amtrak as 'obsolete'. Sen McCain introduced a bill on 19 Feb that had similar provisions, and which would involve the states in regional funding of the trains in their areas.

Each year sees Amtrak post a larger loss than the year before, and some analysts believe that even Amtrak's 'most successful' project - its Boston - New York - Washington Northeast Corridor, is losing substantial sums. With Amtrak projecting as much as a $1.2 billion loss for 2002, and anticipating less than half this in government funding, it is threatening to discontinue all long-distance train service if it doesn't get the money it needs.

Lastly, let's not forget the law passed in 1997 that requires Amtrak to be profitable by 2003 - next year!

Plainly, rail transportation is at a critical point in America - a crisis magnified by the reduced level of confidence and convenience in air travel, and the growing popularity and success of rail travel elsewhere in the world.


Amtrak's Troubled History

Trains used to be the primary and preferred means of transportation in the US. But they died a long and slow death during the second half of the twentieth century, first at the hands of the automobile, and then at the hands of the airline industry. By the 1960s the railroads had essentially accepted defeat and wanted out of the passenger side of their business, preferring to concentrate on freight. However, rather than just witness the complete abandonment of passenger rail services, the government chose to step in and create a hybrid part private/part government body, now popularly known as Amtrak, in 1970.

Unsurprisingly, Amtrak took over a loss-making organization. But the then Transportation Secretary confidently predicted 'a new era in rail service' and said Amtrak would break even in 'about three years'. Amtrak become a political plaything, with lawmakers seeking increased services in their home states, while withholding the massive capital funding that Amtrak consistently said it needed to revitalize its network.

Amtrak lurched from loss to loss during the thirty two years since its founding. In 1998, 39 of its 40 routes lost money, and in total from 1971 through 2000, it has soaked up over $23 billion in federal subsidies. In 2000, it lost $944 million, its largest loss in its entire history, but in 2001, it set a new record with a $1.1 billion loss, and now says it will need $1.2 billion to cover its costs in 2002. To misuse a popular expression, for Amtrak 'the light at the end of the tunnel is an oncoming passenger train'!

Amtrak's Problems

Amtrak suffers from some severe limitations that would appear to make it impossible to make a profit in its present form.

In Britain and Europe, over 90% of the routes feature more than five trains a day. With Amtrak, this figure is only 5%, and almost three quarters of its routes offer only a single train each day (inevitably, it seems, at an inconvenient hour of the day or night!). It is impossible to build up a strong route system and strong passenger numbers with only one train a day. It also means that all the infrastructure that Amtrak operates - owning and manning train stations, for example, only gets used once or twice in each day instead of steadily all the time. That is sinfully inefficient - imagine if your local airport only had one flight a day!

Amtrak's problems get worse. In its present form, it would be very difficult for Amtrak to appreciably increase its service levels - it has less than one tenth as many coaches as most other railroads elsewhere in the world (expressed in terms of coaches per mile of track).

Amtrak's problems are very simple. Too little equipment, and too few services, with too high a mix of fixed costs. The more it cuts back on service, the more difficult it becomes to reach breakeven with the fewer remaining services.

The Solution is Obvious

Amtrak seem to regularly announce reductions in services in an attempt to cut costs. But this just digs itself a deeper hole, as its financial results indicate.

The only way for Amtrak to get to breakeven is to increase, not decrease, its services.

On the few occasions that Amtrak has experimented with growing, rather than cutting back services, the results have often been positive. Doubling the number of trains between Los Angeles and San Diego, some years back, resulted in more than doubling the passengers on the route.

Even in its showcase corridor - the Boston - New York - Washington service, it provides a disappointing level of service that does not meet the needs of many business travelers. For example, the last express train in the evening to depart from Boston to New York and DC is at 5.15pm. In my own Seattle area, it is common for the Horizon Airlines shuttle to operate flights between Seattle and Portland as regularly as every 30 minutes; Amtrak provide a grand total of three fast and one slow trains per day!

By comparison, trains between major cities in Britain and Europe commonly depart with the same frequency that shuttle flights operate here; indeed, in many parts of Europe, the airlines have given up on short haul traffic, recognizing the superiority of train service. Trains must offer the same or better frequency of service to successfully compete with air travel.

Two Types of Train Service

Amtrak needs to recognize that it provides two very different types of train service, and to segment its offerings accordingly.

  • Short distance convenience service between larger sized cities (usually no more than about 300 miles apart). In such cases, Amtrak can go head to head with the airlines - and win - by offering fast, comfortable, affordable, and frequent services.

  • Long distance 'experiential' service that it should market primarily to train lovers and people seeking a relaxing different type of travel/vacation experience. People seeking a convenient means of travel will never choose a multi day train when they can fly the journey in less than a day. Instead, Amtrak needs to copy what has been successfully done in Australia, where long distance train services have been changed to an upmarket and primarily tourist attraction rather than a downmarket and functional form of transportation.

The Biggest Problem of All - Money

The budget for this year allows Amtrak a miserly $521 million in funding. The same budget sets aside $28.5 billion for highways (55 times more money!), supplemented by who knows how much more at state, county, and city levels. The airlines received billions of dollars in handouts after 11 September. Amtrak received not a single extra penny.

Amtrak is the poor cousin of the transportation family. Amtrak is only unprofitable because it can not invest in its future to create the efficient, high speed, high frequency rail network that would succeed. Instead, it has been forced to sell off or mortgage its asset base (eg Penn Station in New York) merely to cover its operating losses.

So don't blame Amtrak for losing money every year. Amtrak knows what its problem is, and continually pleads with Congress for more money so it can invest its way out of its current 'death spiral'. No business can make money if it lacks the capital to create the environment in which it can trade profitably. Congress is being myopically unfair in demanding that Amtrak become profitable, while denying it the tools it needs to achieve this goal.

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Originally published 22 Feb 2002, last update 19 Dec 2013

You may freely reproduce or distribute this article for noncommercial purposes as long as you give credit to me as original writer.

 
 
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