Anderson Speaks on Long Distance Trains

[cpotisch]

I am not into accounting, but allocation of costs and revenue with respect to food service, seems to be just an accounting issue with respect to the sleepers. As some have suggested, raise the price of the sleeper to cover the food service costs or, more imaginatively, allocate more of the sleeper revenue to the food service.

Recognizing the fiduciary responsibility of management, a reasonable combination of the two approaches would seem to be a workable solution.

I think one could even upgrade the quality of the food, cover the costs and increase ridership with an imaginative advertising campaign featuring the “experiential” benefits of traveling on Amtrak. “Your vacation starts when you step on board!”

And you have just stated the exact marketing on how to alienate Congress. How do you think subsized vacations would go over in Congress? VIA gets away with this because even they admit they don't even register on the radar in Canada anymore. The Canadian is supposedly still a money loser even with premier class.

I feel like Congress can distinguish marketing from the actual product...

 

[Anderson]

I seem to remember that one of the PRIIA laws directed Amtrak to begin the efforts to turn some of the long distance trains over to private operators. I would be curious to see what Mr. Anderson's thoughts are on this idea.

It depends on how much of a check the private operators get. If they got 80-90% of the "fully allocated loss" as a subsidy, I suspect that would go far beyond covering "actual" operating costs and give them some slack to acquire equipment for an overhaul that would leave the train(s) in question properly equipped.

The main thing that doomed the private operator deal is this: Amtrak was not required to provide their existing access rights or (at-cost or at-cost-plus-reasonable-markup) operating crews upon request. What Mr. Ellis ultimately had to do is hire an Amtrak conductor (and I think an operating crew) and then have his folks "on top" of that. His other issue had to do with revenue allocations between himself and Amtrak when incentive payments to the hosts spiked.

Setting that aside, if an operator was offered the LSL and told "Here is $27m/yr[1], here is an Amtrak operating crew, here is Amtrak's existing equipment allocation if you want to lease it, and here is Amtrak's set of slots from NYP/BOS-CHI" I think they could make it work[2]. Telling them "Here is $27m/yr, now figure everything else out but the equipment" was a fool's errand.

[1]The LSL's nominal loss at the moment for FY17 was $33m per the 9/17 MPR; I'm discounting that by 20% (I think the initial mandate was 10%) to account for "actual services" provided by Amtrak (e.g. booking system, etc.).

[2]Per the famous "Boardman chart", the LSL's direct cash losses are probably <$5m. If that were to hold, and if nothing else were to need to be changed, $330m over a 15-year franchise (I picked this because it's the length of the Caledonian sleeper franchise) should be more than enough to completely overhaul the train into something that isn't falling apart and pump up incentive payments to get at least passable OTP. For example, if the train were overhauled into an 11-car NYP section and a 5-car BOS section, at $3m/car that would be $144m. Throw in a half-dozen spare/shop cars and you're still at $162m. You can probably buy new locomotives for the BOS-ALB-CHI run and "just" lease Amtrak locos for NYP-ALB (since those need to be dual-modes) with some more of the cash (or just lease from Amtrak). This would probably bump your financial performance substantially as well.

 

[jis]

The Hoosier State under IP was operated by an Amtrak T&E crew AFAIR, i.e. Engineer, Conductor and Assistant Conductor were provided by Amtrak, and they pocketed the corresponding subsidy amount. IP was responsible for providing serviceable equipment and OBS. Naturally, since the entire responsibility for operation of the train was Amtrak's, they tended to pocket most of the operating incentive. When I Iearned of the deal under which IP was operating that train, my first thought was either someone did not bother to read the contract before signing it, or someone ought to have been fired a long time back from IP.

In my opinion, the entire subsidy thing for Amtrak should be restructured as a contract, wherein the federal government pays a certain amount of money to Amtrak as part of a contract to provide specific services. Then Amtrak can do accounting like any other company that fulfills contracts. The subsidy would appear in the income column, and costs corresponding to it would appear in the expense column. That is how all of the government grants to TOCs in UK are handled. In UK the TOCs are also expected to pay a franchise fee to the government in order to be allowed to operate the franchise.

 

[Anderson]

I am not into accounting, but allocation of costs and revenue with respect to food service, seems to be just an accounting issue with respect to the sleepers. As some have suggested, raise the price of the sleeper to cover the food service costs or, more imaginatively, allocate more of the sleeper revenue to the food service.

Recognizing the fiduciary responsibility of management, a reasonable combination of the two approaches would seem to be a workable solution.

I think one could even upgrade the quality of the food, cover the costs and increase ridership with an imaginative advertising campaign featuring the “experiential” benefits of traveling on Amtrak. “Your vacation starts when you step on board!”

And you have just stated the exact marketing on how to alienate Congress. How do you think subsized vacations would go over in Congress? VIA gets away with this because even they admit they don't even register on the radar in Canada anymore. The Canadian is supposedly still a money loser even with premier class.

The Canadian has three problems. Problem #1 is that they have enough fixed costs that the train loses money quite handily in winter (so for 5-6 months out of the year it is a major leak in VIA's budget). Problem #2 is that in an attempt to deal with problem #1, frequency has been cut off-season to the point that the train is problematic-at-best to use for functional transportation. Problem #3 is called "Winnipeg to Toronto": While there are a number of other city pairs the train serves where it actually makes sense to use the train, this segment is basically a "rural services" line.

I have tried to look at VIA's accounting, but there are just enough differences from Amtrak that I get a headache...but they also give a subsidy-per-pax-mile statistic which is nice. The subsidy given for "longhaul west" (which I presume to be solely the Canadian was $1.20/mile in Q1 of 2017, $0.31/mile in Q2 of 2017, and $0.04/mile in Q3 of 2017. The Q1 figure is pretty much stuck, but Q2 and Q3 did show improvements over 2016. Since it gets rolled into the annual report (whenever it actually comes out), extracting a Q4 figure is like pulling teeth. The bottom line, however, is that if Prestige Class didn't "fix" the operating loss on the Canadian, it sure helped blow a hole in the deficit...the train actually seems to be performing roughly in line with how the original California Zephyr was performing during the train-off fights (doing very well "in season" and getting killed "out of season").

 

[Anderson]

The Hoosier State under IP was operated by an Amtrak T&E crew AFAIR, i.e. Engineer, Conductor and Assistant Conductor were provided by Amtrak, and they pocketed the corresponding subsidy amount. IP was responsible for providing serviceable equipment and OBS. Naturally, since the entire responsibility for operation of the train was Amtrak's, they tended to pocket most of the operating incentive. When I Iearned of the deal under which IP was operating that train, my first thought was either someone did not bother to read the contract before signing it, or someone ought to have been fired a long time back from IP.

In my opinion, the entire subsidy thing for Amtrak should be restructured as a contract, wherein the federal government pays a certain amount of money to Amtrak as part of a contract to provide specific services. Then Amtrak can do accounting like any other company that fulfills contracts. The subsidy would appear in the income column, and costs corresponding to it would appear in the expense column. That is how all of the government grants to TOCs in UK are handled. In UK the TOCs are also expected to pay a franchise fee to the government in order to be allowed to operate the franchise.

I had wondered how that all got screwed up. Thanks for the clarification (I knew roughly what happened but a few dots had not been connected in my mind, and I never wanted to pump Mr. Ellis for arcane details like that). I think "didn't read the contract" might have been the case, considering how much of a mad scramble it was to get the train running after the "other guys" got exposed as being unable to provide their services. IIRC Iowa Pacific was basically called up and asked "Can you have a train running in a week?"

As to the contracts, I agree, but I would add the caveat that Amtrak needs to be in a position of "You WILL supply the crews to third-party operators upon request". Amtrak has an odd position in the US vis-a-vis anyone operating overseas and their "special privileges" and existing relationship(s), while necessary, inherently cripple most other operators.

 

[Larry H.]

The railroads for the most part never made any real money on the trains or the diners. But when they were trying to keep them going they did everything possible to encourage ridership. Today we have the exact opposite. They mostly wanted them out of the way of their freight business, yet any video on you tube from the 50's has glowing commentary about the luxury provided on board to attract passengers. NO it might not have worked. But then it was a different time. Cars were cheap, gas was 18c a gallon. The environment didn't play any part in travelers plans. Still the railroads often tried to out do the competition because they wanted the companies name out front for encouraging freight traffic business. Granted when the signs all pointed to abandonment of the passenger base they outdid them selves in most cases to destroy the ridership and complain they couldn't afford to run them. This sounds a great deal like what is going on now to me.

In the last days of the Empire Builder we had come across Canadian and decided that we would return though the upper U. S. Instead of a return trip on the CNN. When we got to Vancouver we tried to buy a sleeper room on the Builder. Three times the agent in Canada tried to book a room. All request came back as "Sold Out".. Finally he told us to get on the train for Seattle and get off at Everett and when the train arrived ask the Conductor about getting a room.. We did that and when it arrived it had at least five sleeper. The Conductor had no problem at all getting us a room, they probably had 5 rooms sold in total. A lady who's husband worked as an Auditor for the line said they were purposely claiming sold out trains to people trying to get a ticket in order to claim no one wanted to ride. That week the signs went up in the pullman section that in 30 days they would be turning the passenger service over to the government. It was a wonderful consist, but the time was wrong.

The diners should be considered a part of the train like the engine, and the baggage cars. Odd they pick food to work at destroying the incentives to travel.

 

[Lonestar648]

Eliminating food is a quick way to discourage additional passengers, which is what I think the anti-Amtrak group in Congress is thinking. They need to see a decline in riders to sell the rest of Congress on shutting down Amtrak and give the NEC to NY and NJ to run.

 

[MARC Rider]

I have mostly held the position that Amtrak, while being directed to be "All things to all people" (and in turn ios mediocre, at best) could indeed cater to different markets: 1) Core basic transportation. 2) Semi-luxury travelers. However, I think the optics of catering to the latter, kill the idea, tho Via Rail, in a very different environment, does "get away with it".

Not sure of the demand for "First Class" anymore on Amtrak. But, I'd pay a premium above what sleepers cost now, given:

• Linen, China, and glassware
• Fresh flowers on table
• Turn-down service @ nite with choc or other
• Wine or non-alcoholic beverage upon boarding
• Amenity Kit
• Wine tasting or other local samplings
• Exclusive lounge car access. (PPC perfect example)
• Menu could pretty much stay the same, except for desserts and salads.
• Ice, Coffee, juice all day in sleepers
• etc., etc.

Now, the $64K question is, at what yield or occupancy rate, do you cover your increased costs to provide the above "extras"......

Well, they could outsource that sort of service and get it off the Amtrak budget. Back in the Golden Age, Pullman used to operate the sleepers. That sort of removes the talking point of tax dollars being used for retiree rail cruises.

 

[Anderson]

@rrdude: You have literally described the state of the Coast Starlight within the last decade, save the beverage upon boarding.

@MARC Rider: This raises an interesting question: Would outsourcing the on-board operations of the LD trains to a third party operator (say, Serco) work as a kludge to get around the "no subsidy of F&B" clause? "We're not subsidizing F&B, we're simply hiring an operator to handle the on-board situation more efficiently (and not asking too many questions because we're distracted by the NEC)."

 

[John Bobinyec]

@rrdude: You have literally described the state of the Coast Starlight within the last decade, save the beverage upon boarding.

@MARC Rider: This raises an interesting question: Would outsourcing the on-board operations of the LD trains to a third party operator (say, Serco) work as a kludge to get around the "no subsidy of F&B" clause? "We're not subsidizing F&B, we're simply hiring an operator to handle the on-board situation more efficiently (and not asking too many questions because we're distracted by the NEC)."

Have on-board services ever been outsourced - besides on the pullmans of old? I would expect a labor strike if that were tried again.

jb

 

[Bob Dylan]

See the numerous threads about the Subway fiasco aboard the Empire Service Trains between NYP and ALB.

 

[John Bobinyec]

See the numerous threads about the Subway fiasco aboard the Empire Service Trains between NYP and ALB.

It's not that easy to find what you're referring to. Please provide some links.

Thanks,

jb

 

[PeepersK]

That's one story. Another is Amtrak's successful partnership with Dunkin Donuts....

https://news.dunkindonuts.com/blog/blog_custom-20180418

 

[jis]

@rrdude: You have literally described the state of the Coast Starlight within the last decade, save the beverage upon boarding.

@MARC Rider: This raises an interesting question: Would outsourcing the on-board operations of the LD trains to a third party operator (say, Serco) work as a kludge to get around the "no subsidy of F&B" clause? "We're not subsidizing F&B, we're simply hiring an operator to handle the on-board situation more efficiently (and not asking too many questions because we're distracted by the NEC)."

Have on-board services ever been outsourced - besides on the pullmans of old? I would expect a labor strike if that were tried again.

jb

It would be difficult for Amtrak to pull it off due to historical encumbrances that it is obligated to carry. State run operations apparently do not have such issues or are somehow able to get around them.

In the rest of the world, outsourcing F&B is not all that unusual. Outsourcing the rest of OBS, e.g. Car attendants is less common. though not unheard of.

See the numerous threads about the Subway fiasco aboard the Empire Service Trains between NYP and ALB.

It's not that easy to find what you're referring to. Please provide some links.
Thanks,

jb

Here is a thread on trainsmag website from back then.

http://cs.trains.com/trn/f/111/t/49829.aspx

and here is the thread on the subject on AU:

http://discuss.amtraktrains.com/index.php?/topic/4580-subway-coming-to-amtrak/?hl=%2Bempire+%2Bservice+%2Bsubway+%2Bfood&do=findComment&comment=42174

And there is an old 11 page long thread on the subject of F&B outsourcing which also has some discussion of the Subway situation:

http://discuss.amtraktrains.com/index.php?/topic/27078-could-amtrak-subcontract-dining/page-2?hl=%2Bempire+%2Bservice+%2Bsubway+%2Bfood&do=findComment&comment=161789

 

[crescent-zephyr]

Iowa Pacific did operate an outsourced full service dome diner on the Hoosier State. Business Class passengers were served a meal, included in the BC, in the dome. And coach passengers could purchase and eat in the lower level of the dome.

This was on a state supported line, but did run for a year or so. Iowa Pacific was apparently losing money on the deal. The take-away is... It has been done in the past decade. And it worked... Just not financially. ha.

 

[OBS]

That's one story. Another is Amtrak's successful partnership with Dunkin Donuts....

https://news.dunkindonuts.com/blog/blog_custom-20180418

This is not contracting out anything. It is just successful co-marketing of a product on board the train. Similar co-marketing is done to a lessor extent with several products, just look at menu display boards at the Acela Cafe. Pepsi, Sam Adams, etc are advertised with revenue furnished by these companies.

 

[jis]

Don't forget the famous Jimmy Dean's Breakfast Sandwich. I know I will be crucified for saying this, but I actually like it!

 

[niemi24s]

It seems unlikely (to me, at least) that the Congressional mandate to eliminate F&B losses in a few years will be repealed. That leaves two alternatives: Reduce F&B expenditures or raise fares to cover the F&B losses. Regarding the later - How much would fares need to be raised to offset F&B Losses? A crude analysis follows:

• This document... https://www.amtrak.com/content/dam/projects/dotcom/english/public/documents/corporate/monthlyperformancereports/2017/Amtrak-Monthly-Performance-Report-September-2017-Preliminary-Unaudited.pdf ...shows F&B losses in FY 2017 were $194.1 million

• This document... https://www.railpassengers.org/site/assets/files/1038/trains-7.pdf ...shows (with some calculations) that for the LD trains there were 693,137 sleeper passengers who paid $189.0 million in fares which gives an average fare per sleeper passenger of $273

• Making the bold assumption that all of the F&B losses should be covered by sleeper fare increases, we find that for F&B to break even in FY 2017 sleeper fares would have to have been the sum of those two previously given dollar figures or $383.1 million

• Dividing this increased sum by the same number of passengers yields an average fare per sleeper passenger of $552

• This increased fare is $280 more (or slightly more than 100% more) than what was actually charged each sleeper passenger.

Remembering that I said this was a crude analysis, AU members are invited to improve upon it with their own analyses.

 

[Ryan]

It’s already been improved upon in the first thread you posted it in.

 

[Lonestar648]

Doubling the Accommodation fares will drive away a percentage of potential riders, so would Amtrak really break even with F&B by such a rise in fares? Raising the prices in the Dining car also brings in more revenue, but again how many Coach passengers will no longer eat in the Dining Car. Would the increase in prices actually bring in less revenue? Based on the quality of the product being delivered, it appears there is little room to maneuver as to increases.

 

[crescent-zephyr]

There are ways to decrease F&B losses and increase F&B sales, both at the same time. I've seen amtrak do very little to actually try and increase on-board dining car sales. They did try the "at your seat" coach meal for dinner on a few trains. How has that worked? I think there should be an at your seat meal offered for coach passengers for each meal period. I can't imagine that wouldn't sell. I also think that ALL sleeping car passengers should be asked "would you like to eat in the diner or your room?" - this would encourage more sleeper passengers to eat in their room which would

1 - free up more space for coach passengers to eat in the diner with current staffing

2 - if coach passengers don't fill up the diner, perhaps you can reduce staffing in diner down to 1 server.

 

[jis]

It seems unlikely (to me, at least) that the Congressional mandate to eliminate F&B losses in a few years will be repealed. That leaves two alternatives: Reduce F&B expenditures or raise fares to cover the F&B losses. Regarding the later - How much would fares need to be raised to offset F&B Losses? A crude analysis follows:

• This document... https://www.amtrak.com/content/dam/projects/dotcom/english/public/documents/corporate/monthlyperformancereports/2017/Amtrak-Monthly-Performance-Report-September-2017-Preliminary-Unaudited.pdf ...shows F&B losses in FY 2017 were $194.1 million

• This document... https://www.railpassengers.org/site/assets/files/1038/trains-7.pdf ...shows (with some calculations) that for the LD trains there were 693,137 sleeper passengers who paid $189.0 million in fares which gives an average fare per sleeper passenger of $273

• Making the bold assumption that all of the F&B losses should be covered by sleeper fare increases, we find that for F&B to break even in FY 2017 sleeper fares would have to have been the sum of those two previously given dollar figures or $383.1 million

• Dividing this increased sum by the same number of passengers yields an average fare per sleeper passenger of $552

• This increased fare is $280 more (or slightly more than 100% more) than what was actually charged each sleeper passenger.

Remembering that I said this was a crude analysis, AU members are invited to improve upon it with their own analyses.

A good analysis of why this is way off base can be found at:

http://discuss.amtraktrains.com/index.php?/topic/72777-how-can-amtrak-achieve-100-cost-recovery-fb-losses/?p=751031

Essentially, it is not possible to derive a number for F&B losses from the document where it is alleged such a number was found.

 

[Skyline]

@rrdude: You have literally described the state of the Coast Starlight within the last decade, save the beverage upon boarding.

@MARC Rider: This raises an interesting question: Would outsourcing the on-board operations of the LD trains to a third party operator (say, Serco) work as a kludge to get around the "no subsidy of F&B" clause? "We're not subsidizing F&B, we're simply hiring an operator to handle the on-board situation more efficiently (and not asking too many questions because we're distracted by the NEC)."

Have on-board services ever been outsourced - besides on the pullmans of old? I would expect a labor strike if that were tried again.

jb

Absolutely. The Fred Harvey Co. staffed and operated dining cars back in the day. Way back. Get his biography; it's a long, great read. Or just google.

 

[Mystic River Dragon]

Thanks, Skyline, for the information on the Fred Harvey book.

I'm in my local library, and it was on the shelf! I just checked it out.

Few people in my town care about trains, but they sure are into food, so I guess that's why the book was here!

 

[niemi24s]

It seems unlikely (to me, at least) that the Congressional mandate to eliminate F&B losses in a few years will be repealed. That leaves two alternatives: Reduce F&B expenditures or raise fares to cover the F&B losses. Regarding the later - How much would fares need to be raised to offset F&B Losses? A crude analysis follows:

• This document... https://www.amtrak.com/content/dam/projects/dotcom/english/public/documents/corporate/monthlyperformancereports/2017/Amtrak-Monthly-Performance-Report-September-2017-Preliminary-Unaudited.pdf ...shows F&B losses in FY 2017 were $194.1 million

• This document... https://www.railpassengers.org/site/assets/files/1038/trains-7.pdf ...shows (with some calculations) that for the LD trains there were 693,137 sleeper passengers who paid $189.0 million in fares which gives an average fare per sleeper passenger of $273

• Making the bold assumption that all of the F&B losses should be covered by sleeper fare increases, we find that for F&B to break even in FY 2017 sleeper fares would have to have been the sum of those two previously given dollar figures or $383.1 million

• Dividing this increased sum by the same number of passengers yields an average fare per sleeper passenger of $552

• This increased fare is $280 more (or slightly more than 100% more) than what was actually charged each sleeper passenger.

Remembering that I said this was a crude analysis, AU members are invited to improve upon it with their own analyses.

A good analysis of why this is way off base can be found at:

http://discuss.amtraktrains.com/index.php?/topic/72777-how-can-amtrak-achieve-100-cost-recovery-fb-losses/?p=751031

Essentially, it is not possible to derive a number for F&B losses from the document where it is alleged such a number was found.

I really messed up on this one. In that thread you linked, Anderson mentioned F&B losses were more on the order of $70Million which reduced my crude estimate of sleeper fare increase down to 37%.