Amtrak concedes perpetual $1 Billion/Year operating losses

[cirdan]

We should be examining what other countries are doing and learn from them. Amtrak is in many ways unchanged from its 1971(or 1981 or 1991) versions, while other countries have changed their models significantly since then.

I disagree, Amtrak has evolved as well. Evolution is not just about adding high speed lines. In countries that built these it was typically the governments that took the initiative and stumped up the money. When you look at evolution that was driven by railroads themselves out of their own initiative and funds you are looking at smaller steps, and Amtrak has taken these too, for example with a computer driven booking and sales system and demand driven price categories, or just the continuous evolution and renewal of equipment to conform to the latest standards and requirements, including ADA compliance etc. To say the Amtrak of today is stuck in the same rut as the Amtrak of 50 years ago is a gross oversimplification.

If i may name some things that work pretty well in Germany for example but are still lacking on Amtrak, that would be a schedule enquiry system that does not limit itself to Amtrak's own services but provides connecting services for commuter railroads and even local transit to provide as much of a door to door schedule as possible.

But rather than saying Amtrak is behind here, it might be fairer to say Germany is ahead as there are plenty of European railroads who do not provide such a utility.

 

[TheCrescent]

I disagree, Amtrak has evolved as well. Evolution is not just about adding high speed lines. In countries that built these it was typically the governments that took the initiative and stumped up the money. When you look at evolution that was driven by railroads themselves out of their own initiative and funds you are looking at smaller steps, and Amtrak has taken these too, for example with a computer driven booking and sales system and demand driven price categories, or just the continuous evolution and renewal of equipment to conform to the latest standards and requirements, including ADA compliance etc. To say the Amtrak of today is stuck in the same rut as the Amtrak of 50 years ago is a gross oversimplification.

If i may name some things that work pretty well in Germany for example but are still lacking on Amtrak, that would be a schedule enquiry system that does not limit itself to Amtrak's own services but provides connecting services for commuter railroads and even local transit to provide as much of a door to door schedule as possible.

But rather than saying Amtrak is behind here, it might be fairer to say Germany is ahead as there are plenty of European railroads who do not provide such a utility.

Understood; I just see other countries trying different financing models, a range of operators and other structural innovations that Amtrak hasn’t tried. And Amtrak certainly hasn’t increased average speeds as much as other railroads have (this is of course due to a lack of funds, but looking solely to government is perhaps a reason for a lack of funds).

For profitability, Amtrak will likely never be profitable, and Congress has made it clear that the social service aspect is important.

However, if a business is profitable, that means that it provides products and services that people are willing to pay enough for, and it means that funds are being used at least somewhat efficiently. If there are routes where Amtrak could be profitable, I hope that Amtrak would try.

Let’s remember that profits- or at least the pursuit of profits- gave us the 20th Century Limited and Brightline.

 

[jis]

Then again, pursuit of profit in a different environment perhaps, got rid of the 20th Century Limited too but it was nice while it lasted. Actually it not only got rid of the 20th Century, while at it, it pretty much got rid of all New York - Chicago through service for a short while, which was pretty drastic actually.

But I would argue that profitability is not something that happens in vacuum. It happens in a socio-economic environment which determines what costs are socialized and what are included in the business' account. Something that was quite profitable in one environment could become a loss leader in a different environment merely by changing the position of the dial on what costs are socialized and what are not.

 

[cirdan]

In the private sector, there is typically a balance between profitability and risk. The higher the risk of any particular business or market, the higher the expected profits as investors expect the ones that fly to make up for the ones that sink. In a more lower risk environment, lower profits are also considered acceptable because investors know they won't lose out. This is why the bond market is for example more sluggish than the stock market, but a lot of people will invest in it anyway as they value security over profit.

The problem with passenger railroads is that the risk is essentially quite high as you are building a line and buying trains that you are writing off over 20 to 30 years whereas you cannot really plan that far ahead or make reliable projections of ridership or income more than a few years into the future. Anything could happen to fuel prices or the market as a whole, or Covid could come along and stop people travelling, or a new competitor could come along and syphon away your ridership, or somebody could build a hyperloop and kill your business in one blow, or it could just be unanticipated and well-meant new regulation such as having to stump up money to fix hundreds of road crossings and make them safe that could bankrupt you.

In other words, investors are not happy to see some marginal and fragile profitability but want to see a level of profitability that is appropriate to the level of risk they are facing.

The risk of running the 20th Century Limited in a time that there were lots of other passenger trains everywhere wasn't that big. If the train had ceased to make a profit they could have deployed the cars and engines elsewhere, and other trains would have continued to use the tracks. It wouldn't have been a live or die scenario.

In the UK privatization there is a lot of structural diffusion of risk. For example operators have to put up relatively little money up front as trains are not owned but leased, maintenance is contracted out etc etc. This is why in addition to the private operators who have signed up to run the services the government wants for whatever subsidy, there are also open access operators who run trains on their own dime, often on routes not adequately served by the franchised operators. They also have access to the train leasing companies and this makes it easier for them to get started and makes it easier for them to walk away and contain the losses should things not work out.

 

[jis]

Agreed. Actually way more of the cost component is socialized in the UK supporting the viability of private TOCs and ROSCOEs. They went a bit too far with infrastructure, got bitten badly and backed that off back into socialized control cost (difference between what they can collect as fees and what it actually costs) to keep the trains on rails instead of distressingly often in less desirable places. Interestingly such a somewhat well thought out division of responsibility is also somewhat enshrined in the EC directive on the matter, which is way more pragmatic than the wishy washy wishful thinking approach used in the US.

 

[TheCrescent]

Then again, pursuit of profit in a different environment perhaps, got rid of the 20th Century Limited too but it was nice while it lasted. Actually it not only got rid of the 20th Century, while at it, it pretty much got rid of all New York - Chicago through service for a short while, which was pretty drastic actually.

But I would argue that profitability is not something that happens in vacuum. It happens in a socio-economic environment which determines what costs are socialized and what are included in the business' account. Something that was quite profitable in one environment could become a loss leader in a different environment merely by changing the position of the dial on what costs are socialized and what are not.

I’m not aware of anyone expecting Amtrak to be profitable, or any passenger train to be profitable.

However, the same goal of profits can help Amtrak best use its funds to provide the best service for the most people.

We all understand that a national network of trains, often for social or political purposes, is required, even if it loses a lot of money.

My points are that:

For any trains beyond the basic social-service network, if a train can be profitable, Amtrak should go for it. And if a train (beyond the social service network) can’t be profitable, Amtrak should set financial metrics that the train should meet: for example, it should cover 75% of its operating costs. And for any capital expense, beyond maintaining the basic social-service network, Amtrak should spend fundswhere they’ll have the highest rate of return.

Plenty of transit systems, Class Is and Federal capital grants for transit operate or have operated this way. Result? Investments are made where they have the greatest impact.

Hopefully we could all agree that if Congress, with its micromanaging, should have its ability to micromanage limited. Getting Amtrak as free as possible from the need to beg for funds each year would free Amtrak from the yoke of poor micromanagement by Congress. And getting Amtrak as free as possible from that need can be done by finding private-sector sources of capital and using funds where they’ll have the greatest economic rate of return.

And again, I’m not saying that the basic network of trains operated as a social service should be cut, or even changed. The goal of profitability (or satisfaction of some financial criteria) should apply only for trains and other expenses beyond that basic social-service network.

 

[jimdex]

Amtrak basically broke even in 2019 with a load factor of about 60%. It would be very profitable (at least operationally) if it had significantly more riders.

Given Amtrak’s overhead, profits would be tied to high ridership levels.

it's not always that easy to improve load factors. If you have a train running between A,B,C,D and E and one rider is occupying a seat between A and C, you can't resell that seat to a passenger riding from B to E. You could resell that seat if there's a passenger who wants to ride from C to E or from D to E. But if the passenger only wanted to ride from D to E, that seat would likely be empty from C to D. That's one reason the Auto Train does so well: all the passengers are riding the entire route.

 

[jpakala]

I wonder how airlines would do if they had to pay 75,000 FAA salaries, build and maintain all airport facilities, still serve all the cities where they lose money because they're not boarding hundreds of passengers (the U of IL even chips in a half million dollars a year to help keep the Urbana/Champaign airport going), and of course pay taxes on all their property as RRs always did on their stations and rights-of-way (which helps explain line abandonments).

 

[jis]

I wonder how airlines would do if they had to pay 75,000 FAA salaries, build and maintain all airport facilities, still serve all the cities where they lose money because they're not boarding hundreds of passengers (the U of IL even chips in a half million dollars a year to help keep the Urbana/Champaign airport going), and of course pay taxes on all their property as RRs always did on their stations and rights-of-way (which helps explain line abandonments).

That plays into the point I was making as to what is the social agreement on what costs will be socialized (and hence spread out over a broad social base) and what will be left to the businesses to cover. Somehow the US has meandered into the current state of where the dial is set between the socialized cost and the individualized cost for business using the social infrastructure, where it is now, and it is very different for air, rail and roads.

 

[TheCrescent]

I wonder how airlines would do if they had to pay 75,000 FAA salaries, build and maintain all airport facilities, still serve all the cities where they lose money because they're not boarding hundreds of passengers (the U of IL even chips in a half million dollars a year to help keep the Urbana/Champaign airport going), and of course pay taxes on all their property as RRs always did on their stations and rights-of-way (which helps explain line abandonments).

Amtrak rents a lot of stations, like airlines rent gates at airports.

But if the question is “how would airlines do if they were stuck with a system like Amtrak has”: they’d do like airlines have done since deregulation, and as private railroads did:

they’d adjust service levels to meet demand, invest in technology, seek better employee terms when they could and raise funds from a range of sources.

 

[cirdan]

it's not always that easy to improve load factors. If you have a train running between A,B,C,D and E and one rider is occupying a seat between A and C, you can't resell that seat to a passenger riding from B to E. You could resell that seat if there's a passenger who wants to ride from C to E or from D to E. But if the passenger only wanted to ride from D to E, that seat would likely be empty from C to D. That's one reason the Auto Train does so well: all the passengers are riding the entire route.

Indeed.

And this is also a major problem with commuter railroads. Typically people ride from many points to the downtown area, but only to a much smaller extent (if at all) between the outlying areas, and occupancy is thus very top-heavy. Even more so when you take into account that most journeys occur within a very short time frame and there is excess capacity the rest of the day. So basically if you are expecting the operation to recover costs, this has to happen in a very short time frame and on a very section of the overall line.

Commuter railroads are for the most part even less economic on the balance sheet level than intercity railroads, but are often justified by secondary benefits, such as reducing congestion or pressure on parking lots.

 

[TheCrescent]

These points above (about the difficulty of increasing load factors) are certainly valid, and I’m not disagreeing, but Amtrak could probably increase loads with some more marketing and revenue management.

For example, rooms on long-distance trains between NY and DC are often empty, even though they are available for short-haul trips.

Surely with some marketing, nearly all of them could be filled, since riding in a private room is much more productive and pleasant than flying or even the Acela.

Similarly, when I take the Crescent overnight, I am the ONLY sleeping car passenger getting off at my destination- a large metro area in the early morning. Surely there’s at least one other person who could be convinced to buy a room- Buehler? Anyone?

 

[toddinde]

In the private sector, there is typically a balance between profitability and risk. The higher the risk of any particular business or market, the higher the expected profits as investors expect the ones that fly to make up for the ones that sink. In a more lower risk environment, lower profits are also considered acceptable because investors know they won't lose out. This is why the bond market is for example more sluggish than the stock market, but a lot of people will invest in it anyway as they value security over profit.

The problem with passenger railroads is that the risk is essentially quite high as you are building a line and buying trains that you are writing off over 20 to 30 years whereas you cannot really plan that far ahead or make reliable projections of ridership or income more than a few years into the future. Anything could happen to fuel prices or the market as a whole, or Covid could come along and stop people travelling, or a new competitor could come along and syphon away your ridership, or somebody could build a hyperloop and kill your business in one blow, or it could just be unanticipated and well-meant new regulation such as having to stump up money to fix hundreds of road crossings and make them safe that could bankrupt you.

In other words, investors are not happy to see some marginal and fragile profitability but want to see a level of profitability that is appropriate to the level of risk they are facing.

The risk of running the 20th Century Limited in a time that there were lots of other passenger trains everywhere wasn't that big. If the train had ceased to make a profit they could have deployed the cars and engines elsewhere, and other trains would have continued to use the tracks. It wouldn't have been a live or die scenario.

In the UK privatization there is a lot of structural diffusion of risk. For example operators have to put up relatively little money up front as trains are not owned but leased, maintenance is contracted out etc etc. This is why in addition to the private operators who have signed up to run the services the government wants for whatever subsidy, there are also open access operators who run trains on their own dime, often on routes not adequately served by the franchised operators. They also have access to the train leasing companies and this makes it easier for them to get started and makes it easier for them to walk away and contain the losses should things not work out.

Privatization in the UK has been a total failure, and it’s largely over. Sadly, profitable freight will still be contracted so profits are privatized but losses are socialized. Privatization in Britain led to the highest fares in Europe and service meltdowns. When Labour gets back in, the system will be renationalized.

 

[cirdan]

Privatization in the UK has been a total failure, and it’s largely over. Sadly, profitable freight will still be contracted so profits are privatized but losses are socialized. Privatization in Britain led to the highest fares in Europe and service meltdowns. When Labour gets back in, the system will be renationalized.

The Uk already had the highest fares in Europe before privatization. Privatization has brought about a massive increase in ridership and lots of innovation and growth.

 

[TheCrescent]

The Uk already had the highest fares in Europe before privatization. Privatization has brought about a massive increase in ridership and lots of innovation and growth.

Agreed. There are certainly downsides to privatization but there are also benefits, and having private operators run passenger lines in the UK is continuing and will continue even after the new reforms are implemented.

 

[cirdan]

Agreed. There are certainly downsides to privatization but there are also benefits, and having private operators run passenger lines in the UK is continuing and will continue even after the new reforms are implemented.

This

And remember the word "private" is quite broad in its meaning.

In the case of UK railroads its not about cut-throat capitalism but private contractors working hand in hand with the government in a way that the government working by itself would not have been able to do quite as well (at least if the historic track record of British Rail is anything to go by).

Other countries, including Germany also have similar setups (at least for some services) in which the government (or local government) contracts out operational work to private operators. In the future, I believe we are going to see more of this, not less.

In other words, the government remains responsible for long term strategic planning and setting goals (including such projects as Crossrail and HS2 in the UK) but the day to day nuts and bolts of keeping the network running is contracted out to private operators, who now after 20+ years of doing this actually have more know-how and competence than government civil servants. Reversing that now would cause unnecessary bloodlet and many more years of costly re-structuring and lots of things going wrong along the way, until that know-how is re-established.

 

[TheCrescent]

@cirdan is correct. Having private operators run passenger trains, for a government subsidy, is done throughout the EU, even in former Communist countries.

It’s ironic that the US, allegedly the land of free markets and capitalism, is one of the few Western countries where private operation of at least some formerly state-run long distance lines has not taken hold.

 

[jis]

@cirdan is correct. Having private operators run passenger trains, for a government subsidy, is done throughout the EU, even in former Communist countries.

It’s ironic that the US, allegedly the land of free markets and capitalism, is one of the few Western countries where private operation of at least some formerly state-run long distance lines has not taken hold.

I have a conjecture about why things turned out the way they did in the US. I don't claim this to be an established fact. It is just a conjecture, so take it with large dollops of salt and see what you all think of it.

One big difference between the US and Europe is that no significant group in Europe has ever thought that passenger train service will or ought to, cease entirely. It is part of the European social contract and laws and procedures have always been enacted based on the basic assumption that passenger rail is part of the broad social contract.

When Amtrak was created, there was no such clear cut agreement, and indeed there probably was an underlying assumption in many minds that Amtrak will not exist beyond a few years and it is perfectly fine that the US will cease to have any long distance passenger service. When the NEC was handed to Amtrak there was no change in this assumption in those people's minds regarding the national system. It fit the story line that some densely populated areas will have train service and things like NEC therefore will be supported. And since then this point specifically about the National Network, has been argued every year, one more time, while trying to get the federal government out of subsidizing rail business by pushing down funding responsibilities to the states as much as possible.

The consequence of this is that no one has spent the time to actually come up with a generally workable nationwide solution based on an agreed upon social contract. And thus we are where we are with a hodge podge of regulations that makes it exceedingly difficult if not impossible to set up any viable public-private partnership based service. Moreover it does not look like this is likely to change except in the margins.

 

[neroden]

I mean

Sure, passenger trains lose money almost everywhere.

That shouldn’t stop us from asking: “is Amtrak giving us the best passenger service per tax dollar spent, or are other countries getting better service for their investments?”

We should be examining what other countries are doing and learn from them. Amtrak is in many ways unchanged from its 1971(or 1981 or 1991) versions, while other countries have changed their models significantly since then.

I mean, I agree.


I think the only reason I hammer on the costs thing is that people don't understand the economies of scale. Basically, it costs a billion dollars a year to keep the lights on at Amtrak: keep the backshops running (Beech Grove, Bear, etc.), keep the reservations system going, have the facilities to train conductors and engineers, etc. etc.



This is the price of having any trains at all. Now, I know some people want to pull the plug on all passenger trains in the US, but those people are a small minority.


It's much more common for people to say "Well, I want to keep MY train (Washington-New York, or Chicago-St Louis, or whatever), but they should stop running THOSE OTHER trains".


And my point to those people is, if they stopped running those other trains, the costs would just get reallocated to your train. They wouldn't go away. You want to have one train, you might as well have a lot of trains, it costs about the same.

I actually read a blanket statement about the railway mania era in a historical book focused on the economics of it -- paraphrased, it said, every railway manager knew that their railway could not be long-term profitable unless it expanded and merged to be large and have frequent service. In other words, rail thrives on economies of scale.

 

[cirdan]

I actually read a blanket statement about the railway mania era in a historical book focused on the economics of it -- paraphrased, it said, every railway manager knew that their railway could not be long-term profitable unless it expanded and merged to be large and have frequent service. In other words, rail thrives on economies of scale.

Unfortunately the railway mania era also led to a lot of money being put into me-too type projects that were in many cases ill conceived and built on overly optimistic assumptions of income and profitability, if not outright fantasy. It was a bit like the dot com bust in that a lot of people ended up losing a lot of money when the truth came out, and many of the companies that did actually become profitable only did so because they could buy out the infrastructure of failing or bankrupt companies for a fraction of the money they had cost to build.

My personal persuasion is that passenger rail will never be profitable as a whole or across the board, but that losses and subsidies can be minimized through good housekeeping and focused planning and development (in other words, a long-term pro-growth strategy that isn't thrown overboard every time you get new management). Many of the people who object to money being spent on rail are those who do not themselves benefit in any way. The remedy here is more service as this means spreading the benefits further.