Avoidable expense metrics

[user 14106]

For those who want some interesting data on "avoidable expenses." Also shows true revenue for state corridors without state payments.

FY21 Q4 Financial Metrics | FRA (dot.gov)

 

[Trogdor]

How does the Adirondack have a negative avoidable expense? Did crews pay Amtrak to work a train on that line or something?

 

[neroden]

Yes, I just noticed this (thanks to Jis for pointing me to it in another forum)

After being required to be published by law since 2008, this data has finally been published! Note that "National Network" means both state-supported AND long-distance. The national network covers its avoidable costs; the NEC doesn't.

This shows that each of the so-called long distance trains, individually, is highly profitable. Perhaps we can convince Congress and Amtrak's management, with this data, that there need to be more of them, to leverage the fixed costs.

With the caveat that Amtrak's accounting is still not entirely trustworthy:
-- Acela doesn't cover its avoidable expenses
-- Neither does Northeast Regional
-- New Haven - Springfield doesn't either
-- Non-NEC Special Trains and NEC Special Trains don't seem to be covering their avoidable costs (though I suspect these are including trains which aren't really passenger trains at all, judging by 43 passenger-miles and 21124 train-miles on the Non-NEC Specials)

-- All the so-called long-distance routes cover their avoidable expenses, except the Palmetto, which is very close
-- Most of the state-supported routes do require state support to cover their avoidable expenses
-- Ethan Allen, Empire West, Carolinian, and Piedmont cover their avoidable expenses without state payments, and the state payment is only paying for Amtrak's overhead
-- Empire South, Keystone, Pennsylvanian, Wolverine, and Blue Water do not cover avoidable expenses even with state payments
-- The Adirondack wasn't running at all so its numbers are wonky

This shows a REALLY different financial picture than the dishonest BS we've been hearing for decades. One of the things it shows is that *sleepers are a profit center*, which really shouldn't surprise anyone, but is contrary to the anti-long-distance disinformation campaign of the last few decades.

 

[jis]

How does the Adirondack have a negative avoidable expense? Did crews pay Amtrak to work a train on that line or something?

The NYSDOT funded routes appear to have lower numbers with state adjustment than without. I was also wondering what it means. A small proportion of the ticket revenues flow directly to NYSDOT?

 

[neroden]

How does the Adirondack have a negative avoidable expense? Did crews pay Amtrak to work a train on that line or something?

The Adirondack wasn't running. I don't know, but my surmise is that keeping the line officially operational but not running trains on it is causing Amtrak to be paid compensation by CP or something like that. That would show up as negative expense.

Hmmm, also interesting is Empire West, where the state payment is negative -- Amtrak is paying NYSDOT.

 

[Trogdor]

Another curiosity in that is that somehow the Cardinal costs more to operate than the Sunset Limited, despite the latter being ~2x as long of a route and having (IIRC) a larger OBS crew (Sunset still has a full diner & lounge).

 

[jis]

Another curiosity in that is that somehow the Cardinal costs more to operate than the Sunset Limited, despite the latter being ~2x as long of a route and having (IIRC) a larger OBS crew (Sunset still has a full diner & lounge).

NEC and specially Penn Station access charges which have historically been high, even from before Amtrak? I don't know just speculating.

 

[neroden]

It's unfortunately pretty obvious from some of the weirdness that APT still isn't fit for purpose. But after 14 years of being required by law to publish these numbers, at least Amtrak is attempting to comply.

 

[Trogdor]

The Adirondack wasn't running. I don't know, but my surmise is that keeping the line officially operational but not running trains on it is causing Amtrak to be paid compensation by CP or something like that. That would show up as negative expense.

I find it difficult to imagine a contractual arrangement whereby hosts pay Amtrak for Amtrak's decision not to operate a train.

Looking at the Sunset numbers in more detail, they can't possibly be correct. $328,000 for a quarter extrapolates to $1.3 million/year. That wouldn't cover the payroll costs of the OBS + T&E crews, let alone fuel, track access, station staff, maintenance, hotel & van costs for crews away from base, etc.

Somehow the Pere Marquette costs 5 times as much as the Sunset, and twice as much as the Texas Eagle. The Palmetto costs more than the Silver Star (and not that much less than the Silver Meteor).

These numbers feel as though they are skewed against corridors in order to justify what Amtrak is charging states. How could the Lincoln Service cost $7 million in the same time that the Eagle only costs $750,000? Just the CHI-STL portion of the Eagle, if proportionate, would be 1/4 the cost of the Lincoln Service (1 Eagle/day vs. 4 Lincolns/day). Except the Eagle would have more OBS crew.

 

[neroden]

More evidence that APT is a shitshow, unfortunately.

I can speculate, but I do think Amtrak's route-level accounting needs to be redone from the ground up.

 

[jis]

Sunshine always helps kill of malarkey, which of course many suspected the existence of. It is a good thing that finally Amtrak has deigned to abide by the law.

 

[user 14106]

One should be cautious here - covering avoidable costs doesn’t necessarily mean profitable. Certain trains may have lower avoidable costs because there may be shared facility costs with other routes. For example no costs related to LA or New Orleans would be contained in the sunset’s avoidable costs - it’s share of those are added only in fully allocated costs. This certainly indicates, as has long been suspected that dropping LD service would saddle states with significant fixed costs related to shared facilities. Another interesting thing this document shows which has never been transparent is the true ticket revenue for the state supported routes.

 

[jis]

Trying to make decisions on what to keep and what not to keep based on aggregated costs built out of proportionate use based allocations possibly of other aggregations is a fool's errand. Even many fools understand that

But sometimes it seems that some Congresspeople and some geniuses at the Volpe Center don't.

 

[user 14106]

Another one that, not surprisingly, has low avoidable costs is the starlight. But you drop the starlight and look how many costs would shift to the cascades, surfliners, and Capitol Corridor without the starlight’s revenue.

 

[jruff001]

This shows that each of the so-called long distance trains, individually, is highly profitable.

That is certainly an, um, "interesting" interpretation of the document.

 

[CCC1007]

That is certainly an, um, "interesting" interpretation of the document.

In the case of "Avoidable Operating Expense" vs "Passenger Revenue" it is accurate.

 

[neroden]

One should be cautious here - covering avoidable costs doesn’t necessarily mean profitable.

Yes, it does mean that particular train is profitable.

OK, look, I'm an expert on the concepts of "profit" and "loss". They're trickier concepts than most people think.

It is quite possible to have a dozen products each of which is profitable, and for the business as a whole to be unprofitable. This is, of course, the Amtrak situation.

As you note, *fixed shared overhead costs* are the reason for this. This is a very specific, and common, business situation. Each product is profitable. "Marginal profit" is the technical term. But you have to make enough total profits from products to cover the fixed overhead in order for the business as a whole to be profitable.

This is what profit and loss actually mean. And there's an important lesson for businesses with high fixed overhead costs: *you need to be selling more product* in order to defray your fixed overhead.

(The situation is particularly extreme for telecoms, even more so than railroads -- there is no such thing as a financially successful small telephone company: you need to be *big*. This is why the AT&T monopoly existed.)

In the Amtrak case, to reduce the need for Congressional subsidy, Amtrak needs to *expand* in ways that don't increase fixed costs -- more trains per day on the same route, for example.

This is something which has not made it through the heads of Congress, so that's why it's important to make the point very explicit. Each train is profitable. The business as a whole, made up of a bunch of profitable trains, is not profitable, because *there aren't enough trains*.

 

[neroden]

That is certainly an, um, "interesting" interpretation of the document.

100% correct and right there in the text of the document.

The problem is that most people don't understand the nature of what "profit" means. I explained it in the previous comment. I do business analysis for a living, as an investor; I guess I shouldn't be surprised that people for whom this is not their line of work don't understand the intricacies of the meaning of "profit".

If I'm running a widget store, and I get $5 each time I sell a widget, and I have to spend $3 to acquire the widget, then each widget is profitable. If I don't sell enough widgets to cover rent, then the store as a whole is unprofitable, but each widget is still profitable.

Now... I doubt that there is any number of trains that would fully cover fixed costs for Amtrak. Fixed costs are high, people demand low ticket prices, and there is only so much demand for train travel, what with the government-subsidized highways and airports competing with it.

But it's important to have the right perspective on how profit and loss works: you reduce Amtrak's need for Congressional funding by *expanding* Amtrak with economies of scale, not by contracting it.

 

[user 14106]

The morale of the day is - the more trains the better economies of scale. Win-win.

 

[MARC Rider]

The morale of the day is - the more trains the better economies of scale. Win-win.

If I understand @neroden correctly, the economies of scale come from more trains **on existing routes**. If you add new routes, you'll be adding more fixed overhead costs. From the point of view of adding access to passenger rail to parts of the country, starting new routes is essential, but the long-term plan should be to eventually maximize the number of trains running along the route in order to allow the fixed overhead costs to be shared.

 

[neroden]

If I understand @neroden correctly, the economies of scale come from more trains **on existing routes**. If you add new routes, you'll be adding more fixed overhead costs. From the point of view of adding access to passenger rail to parts of the country, starting new routes is essential, but the long-term plan should be to eventually maximize the number of trains running along the route in order to allow the fixed overhead costs to be shared.

Correct. Adding a new route adds a bunch of stations which need to be heated, cleaned, and possibly staffed, all of which costs money.

Running more trains from Niagara Falls to NYC... or from Chicago to NYC.... *doesn't*.

Now, the poor revenues-minus-avoidable-cost performance of some of the several-trains-a-day state-supported corridors indicates that there are some issues to work out here. Why aren't the Wolverines getting the ridership they need to cover avoidable costs?

If it's just a state government decision to keep the ticket prices low, then that's cool, that's a policy, that's fine. If it's low ridership, then we have to fix the problems. (Make the trains run more on time, make the schedules more attractive, market them, etc)

 

[west point]

Although not stated there is also the metric of connecting passengers. If enough passengers connect from present LD train A to train B then the extra passengers help defray avoidable costs.

 

[neroden]

Yes. Connecting passengers are, economically, generating "network effects".

If in one year you had a line from A to B, with ridership X;
and you separately during a different year had a line from B to C with ridership Y;

then when you combine them into a system with a line from A to B and a line from B to C both running at the same time, the total system ridership is higher than X + Y, because of the people travelling from A to C.

Network effects are very important in telecoms as well as in railroads and roads and airplanes and transportation in general. It's part of why Amtrak went to great lengths to consolidate all its trains in one station at Chicago and in NY. It's the reason behind the creation of "intermodal transportation centers". It's also why private competing railroads make no sense whatsoever.