How Can Amtrak Achieve 100% Cost Recovery? (F&B losses)

[Philly Amtrak Fan]

It seems like Richard Anderson is behaving like a corporate CEO and his philosophy, attitude, proposals, and decisions are made towards reducing losses and increasing "profits", running Amtrak like a company, as if Amtrak was like the airline companies he used to run.

No transportation company truly is "profitable". Amtrak every year does brag about its "cost recovery" and I have talked about it on occasion. Last fiscal year (2017), Amtrak covered "94.7 percent of its operating costs with ticket sales and other revenues". This number was a record and it seems to be higher almost every year, trending in the right direction.

https://media.amtrak.com/2017/11/amtrak-sets-ridership-revenue-and-earnings-records/

While I don't think Amtrak should be fully profitable, I think it is a reasonable goal of Amtrak for that number to be 100%. If it isn't 100%, guess who is paying the difference. Remember not everyone in the country has access to Amtrak or the same level of access. You're telling people in Las Vegas or Nashville to pay taxes so people in Thurmond, WV can ride trains that they can't. IMO Amtrak and Anderson have a responsibility to America and the American taxpayers to get that number as close to 100% as possible and make decisions to achieve that goal.

The question then becomes what is the best way(s) to do so? It's clear Anderson is doing it the wrong way so what is the right way?

I have no problems with the Woody "best cure for more Amtrak is more Amtrak" approach or "you have to spend money to make money". Of course the big question is convincing Anderson that expansion and extra trains are worthwhile. In the meetings with RAILPAC, Anderson did mention the future is corridor trains. The current "750 mile rule" would require states and not the federal government to fund additional trains. Either Congress would have to repeal the 750 mile rule or states would have to get together and approve funding for these trains/equipment for the trains. There's also getting the host railroads to play nice.

As for the food issue, is there a way to make food and beverage service cost neutral while keeping it satisfactory to AU/RPA customers? If not, you are again expecting taxpayers to pay for your "Amtrak steaks".

 

[Thirdrail7]

I think it is a fallacy. Sure, you can say that year after year the cost recovery is growing. However, when you pull back the seams, you see what the trade off has been. Incidents have been rising. Infrastructure repairs are lagging. Training has been hit by the NTSB and the FRA.

The payment to the piper was kicked down the road and now the balance is due!

I agree with one thing. If Amtrak had a better relationship with the hosts and they could do better in moving the trains, expenses would drop significantly. I Hell, if OTP was better, you could actually have food stops. That would save money.

Along the lines of Neroden, I believe increasing service would actually help since the economies of scale are at work. When you start adding another train to RNK, you may not need to leave a crew there overnight. More runs can lead to better crew utilization.

 

[IndyLions]

I also think 100% is a fallacy. In my opinion, it is going to take a radical step for rail service to improve. I am NOT a socialist - but the government is responsible for infrastructure and trackage/bridges/tunnels are infrastructure.

Federal and state governments need to start snapping up trackage for passenger use. This is akin to what has happened in MI but on a much larger scale. Call it eminent domain if necessary. Once a significant part of the infrastructure is paid for and maintained outside of the Amtrak equation the finances will look a lot better - even if only because it is accounted differently. With more right of way in place, additional corridor service can be justified, along with potentially more LD trains that traverse significant parts of that corridor. With more service, economies of scale will also improve the numbers.

 

[crescent-zephyr]

It should also be noted that Amtrak's cost recovery includes state money being paid to subsidize state corridors. So that makes the cost recovery look alot better than it actually is.

 

[niemi24s]

[Redacted; please see Post #9]

After receiving no meaningful response to this question in another thread, I found the FY 2017 F&B losses of $194.1 Million here... https://www.amtrak.com/content/dam/projects/dotcom/english/public/documents/corporate/monthlyperformancereports/2017/Amtrak-Monthly-Performance-Report-September-2017-Preliminary-Unaudited.pdf ...and from this document... https://www.railpassengers.org/site/assets/files/1038/trains-7.pdf ...calculated the total number of sleeper passengers (693,137), total actual sleeper revenue ($189,014,934) and from those the average sleeper ticket price of $272.69.

• Then a little simplistic middle school economics told me for a zero F&B loss, the sleeper revenue needed to be the sum of F&B Losses +
Actual Sleeper Revenue = $194.1 Million + $189.0 Million = $383.1 Million.

• That would put the average sleeper ticket price at $383.1 Million ÷ 693,137 passengers ≈ $553

• But as the actual average sleeper ticket was only $189.0 Million ÷ 693,137 passengers ≈ $273

• Sleeper fares would have to be raised $280 or a bit over 100% to eliminate the F&B losses.

There are no doubt a lot of iffy things in all this, but I does seem to show that zeroing out F&B losses would be a gigantic undertaking - whether by cutting costs or raising ticket prices. Anybody else who wants to churn up how to meet the Congressional mandate of zero out F&B losses in a few years by raising fares is welcomed to have a go at it.

 

[railgeekteen]

It seems like Richard Anderson is behaving like a corporate CEO and his philosophy, attitude, proposals, and decisions are made towards reducing losses and increasing "profits", running Amtrak like a company, as if Amtrak was like the airline companies he used to run.

No transportation company truly is "profitable". Amtrak every year does brag about its "cost recovery" and I have talked about it on occasion. Last fiscal year (2017), Amtrak covered "94.7 percent of its operating costs with ticket sales and other revenues". This number was a record and it seems to be higher almost every year, trending in the right direction.

https://media.amtrak.com/2017/11/amtrak-sets-ridership-revenue-and-earnings-records/

While I don't think Amtrak should be fully profitable, I think it is a reasonable goal of Amtrak for that number to be 100%. If it isn't 100%, guess who is paying the difference. Remember not everyone in the country has access to Amtrak or the same level of access. You're telling people in Las Vegas or Nashville to pay taxes so people in Thurmond, WV can ride trains that they can't. IMO Amtrak and Anderson have a responsibility to America and the American taxpayers to get that number as close to 100% as possible and make decisions to achieve that goal.

The question then becomes what is the best way(s) to do so? It's clear Anderson is doing it the wrong way so what is the right way?

I have no problems with the Woody "best cure for more Amtrak is more Amtrak" approach or "you have to spend money to make money". Of course the big question is convincing Anderson that expansion and extra trains are worthwhile. In the meetings with RAILPAC, Anderson did mention the future is corridor trains. The current "750 mile rule" would require states and not the federal government to fund additional trains. Either Congress would have to repeal the 750 mile rule or states would have to get together and approve funding for these trains/equipment for the trains. There's also getting the host railroads to play nice.

As for the food issue, is there a way to make food and beverage service cost neutral while keeping it satisfactory to AU/RPA customers? If not, you are again expecting taxpayers to pay for your "Amtrak steaks".

Running the Empire Builder is more profitable than the Broadway Limited would be

 

[Anderson]

After receiving no meaningful response to this question in another thread, I found the FY 2017 F&B losses of $194.1 Million here... https://www.amtrak.com/content/dam/projects/dotcom/english/public/documents/corporate/monthlyperformancereports/2017/Amtrak-Monthly-Performance-Report-September-2017-Preliminary-Unaudited.pdf ...and from this document... https://www.railpassengers.org/site/assets/files/1038/trains-7.pdf ...calculated the total number of sleeper passengers (693,137), total actual sleeper revenue ($189,014,934) and from those the average sleeper ticket price of $272.69.

• Then a little simplistic middle school economics told me for a zero F&B loss, the sleeper revenue needed to be the sum of F&B Losses +

Actual Sleeper Revenue = $194.1 Million + $189.0 Million = $383.1 Million.

• That would put the average sleeper ticket price at $383.1 Million ÷ 693,137 passengers ≈ $553

• But as the actual average sleeper ticket was only $189.0 Million ÷ 693,137 passengers ≈ $273

• Sleeper fares would have to be raised $280 or a bit over 100% to eliminate the F&B losses.

There are no doubt a lot of iffy things in all this, but I does seem to show that zeroing out F&B losses would be a gigantic undertaking - whether by cutting costs or raising ticket prices. Anybody else who wants to churn up how to meet the Congressional mandate of zero out F&B losses in a few years by raising fares is welcomed to have a go at it.

Well, your F&B numbers are off rather dramatically. You mixed up total losses with F&B losses (those sit somewhere in the $70m range).

Basically, to zap the overall losses what you need is...

...the Acela II trainsets. That's really about it. Those should add somewhere around 600m-1.1bn seat-miles.

Presuming RASM [1] takes a 15% hit (due to a mix of somewhat lower load factors on the weekends and on off-hour trains and an overall hit to yields) but CASM [2] takes a 10% drop as well (due to improved efficiency vis-a-vis the original Acelas), if we add 800m seat-miles (I think this is a reasonable middle forecast) that would give us the following:

-RASM: FY17, $0.944; Acela II, $0.802

-CASM: FY17, $0.498; Acela II, $0.448

Resulting cost/revenue picture:

-FY17: Revenue: $614.7m, cost: $324.1m, nominal earnings: $290.5m

-ACE2: Revenue: $1499.0m, cost: $836.9m, nominal earnings: $662.1m

Nominal gain: $371.6m

Even if we go ahead and knock $100m/yr off of the Regionals (or knock RASM back even further), that still gives Amtrak a "spare" $271.6m to play around with, which exceeds losses at present (and almost assuredly exceeds the cost of the loans). You'd either have to realize almost no savings from the new trainsets vis-a-vis the energy hogs that the Acelas are known to be, or take a RASM hit in the range of 25-30% while also sandbagging the Regionals, to /not/ realize rather significant gains off of this.

Yes, I'll grant that between equipment costs and everything else it is possible that this might not /totally/ eliminate Amtrak's losses purely on its own...but it gets painfully close. It does almost everything that is needed; beyond that, you're really just looking at the need to fill in some capacity with the Siemens/CAF orders (which will allow the redeployment of at least some cars from CA and the Midwest).

You've also got some possibilities if they could run some additional Regionals (aiming for two trains/hour on that front), get more trains going into VA, etc. If the funding can hold up for a botched budget cycle or two, presuming there's cash left over after equipment order(s) are taken care of, Amtrak might want to look into seriously co-sponsoring some stuff with VA (for example, stepping in so VA could throw DDOT out of the Long Bridge project) in exchange for some sort of guarantee of extra business. There are some other possibilities (could they take up the capex part of some additional trains elsewhere?), but I'll also admit that a lot of them come back to Amtrak's "Hollywood Accounting" of the state trains rendering those operations relatively profitable for Amtrak at the states' expense.

[1] Revenue per Available Seat Mile

[2] Cost per Available Seat Mile

 

[JRR]

I guess my question is, can you determine what the actual cost is food service was?

In other words, if there had been no food service at all of any kind, how much money would Amtrak have saved in any particular year?

For this exercise, one would assume that all the cafe card/diners etc would still have run as “ lounges” and would have required at least one attendant. Under this scenario passengers would bring there own food etc.

How much would have Amtrak saved in cost vs how much revenue would have been lost?

 

[niemi24s]

Well, your F&B numbers are off rather dramatically. You mixed up total losses with F&B losses (those sit somewhere in the $70m range).

How right you are! My senior moments seem to be coming more frequently.

Anyway, using $70 Million (instead of my original and highly erroneous $194 Million) in that simple analysis, the average per sleeper passenger ticket (of $273) fare would need to increase by $70 Million ÷ 693,137 = $101 to zero out the F&B losses. That's only a 37% increase.

 

[JRR]

Assuming the $70 million figure is correct.

 

[Anderson]

Assuming the $70 million figure is correct.

$70m is a ballpark based on the OIG report from a few years ago. I suspect it still holds +/- $5m (it might even be down a bit; this was before the Silver Starvation affair, for example). Under the old MPRs, we'd get a breakout, and I recall the loss being largely static or dropping slightly over time (albeit probably due to F&B sales on the NEC rising in line with ridership).

 

[niemi24s]

The only reports I've been able to find which include F&B are for FY14, 15 and 16 which reported F&B losses of $155.967 million, $8.565 million, and $122.354 million.

F&B did not seem to be shown separately prior to FY14. The huge dip in reported F&B losses for FY 15 certainly does look strange. The average of these three is about $95.6 million and it does not appear that F&B will be readily available for FY17.

 

[Just-Thinking-51]

Huge dip is why too many people are questioning Amtrak on the math. Would be so much simple if there was numbers that made sense.

Cooking your books to hide a huge loss on the North East Corridor are we?

No way for us simple mortals to know.

 

[niemi24s]

More digging on the interweb turned up this Congressional Research Service report dated Sep 2017... https://fas.org/sgp/crs/misc/R44973.pdf ...which contained the following table of information:



As only F&B revenue for FY2017 is known ($139.1 million) data in the above table used to obtain an estimate of F&B expenditures for FY2017 from the revenue figure.

• Noting that the percents in the right column had increased by about 3% points since FY2013, the assumption was made that the FY2017 figure was up 3% again to 72%. This assumption led to a total expenditure figure of $193.2 million for FY2017 and an F&B loss of $54.1 million.

• With no real reason to believe the above assumption was a good one (just the first one) I simply used the average % for those four years (64.25%) and got

$216.5 million for total expenditures and then $77.4 million for the the FY2017 F&B losses.

• Finally, not knowing which loss figure was closest to reality, their average of $65.8 million was chosen as a good middle ground for FY2017 F&B losses.

Wonder how hard it would be for somebody's Congress Person to squeeze that info out of Amtrak?

[edit] Oh, and zeroing this revised F&B loss for FY2017 would have required the average sleeper passenger pay about $103 or 38% more.

 

[west point]

We are confused. How much F & B losses do the airlines and cruise ships have ?. What is the difference. would expect loss per meal is higher in those two transportation systems either by meal or per passenger carried ?

 

[Philly Amtrak Fan]

We are confused. How much F & B losses do the airlines and cruise ships have ?. What is the difference. would expect loss per meal is higher in those two transportation systems either by meal or per passenger carried ?

Their operating costs aren't paid by taxpayer money.

 

[Lonestar648]

There is Tax payer dollars supporting the airline industry, but doesn't make it to a P&L or the Balance Sheet.

 

[Anderson]

I'm starting to wonder, in terms of a middle ground, what a practical demand on F&B loss controls might be? It seems probable that, overall, 60% is pretty easy to manage on an ongoing basis while 70% might be feasible with ongoing effort. Getting up in the 75-80% range will probably require either more state-supported trains with static LD losses (going from 132/190 to 152/210 gives the same dollar loss but improves the ratio by 3%).

100% is infeasible overall without accounting magic, but I get a feeling that Amtrak could probably get to 75% without wrecking anything. Getting beyond that is going to require something drastic, like somehow taking a major axe to labor costs (either by reducing personnel counts or actually forcing average wages down).

 

[railiner]

We are confused. How much F & B losses do the airlines and cruise ships have ?. What is the difference. would expect loss per meal is higher in those two transportation systems either by meal or per passenger carried ?

If you've been on a cruise lately, on a "mass-market" as opposed to "all-inclusive" line, you may have noticed

that they have substantially lowered the quality of the food in the included free dining venue's, and added a bunch of paid "specialty" restaurants on board.

From what I've seen on airlines, they couldn't lose much on the packaged meals that they offer for sale to coach class passenger's. And they've eliminated the cost of handling cash on board entirely.

 

[niemi24s]

Known and last estimate of F&B data for FY 2017 added to chart in Post #14 in purple for easier comparison:

 

[Paulus]

100% cost recovery is fundamentally impossible with the long distance trains; recovery requires high numbers of passengers and appropriate meal times. If Im not mistaken, the Pacific Surfliners F&B revenues currently exceed every LD train with the possible exception of the Auto Train and a good chunk of the LD trains combined (currently forecast at 7.8 million for the next fiscal year); this despite significantly lower costs to operate it.

 

[ainamkartma]

I think the goal of achieving profitable F&B operations is a false hare. After all, why does Amtrak (or any transportation or lodging organization) offer F&B services? It is certainly not to turn a profit on that part of their operations! Examples abound:

1) Airlines giving food and drinks away to some or all of their passengers, thus making a guaranteed loss of 100% on those particular operations

2) Hotels giving free food away to their customers in the form of breakfast buffets and the like, thus making a guaranteed 100% loss on those operations

3) All-inclusive resorts giving all you can eat food and drinks away to their customers

None of these businesses are charities: they give food away because it _makes them money overall_ by drawing customers in to their business. Somehow their accounting practices are able to understand the idea of a loss leader. Why can't Amtrak's?

Now, you could make the argument that Amtrak's F&B operations lose _so much money_ that they are a net loss to the company, even after taking the increased business into account. But that argument would be based on zero evidence provided by Amtrak.

If you look at the difference in price for sleeper accommodations on the SS and the SM, for this August, say, it appears that Amtrak charges roughly $100 more per sleeper passenger to ride the SM from New York to Florida. This is at least in the same ballpark as Niemi's estimate of average F&B losses.

So why can't Amtrak do the accounting like any other business? And don't say, "because Congress won't let them": it is Anderson's job, among others, to educate Congress on the realities of running a transportation and lodging company.

Ainamkartma

 

[Ryan]

You can't teach people something that they aren't willing to learn.

 

[jis]

Exactly. And how are we doing in our job of educating our representatives? Not so good? I thought so. [emoji57]

 

[Bob Dylan]

Yep, you can lead a ******* to Water, but you can't make them drink!