This Week At Amtrak 2004-11-18
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Vol. 1, No. 12 – November 18, 2004
- Austin Coates update: Mr. Coates, recently the victim of assault and robbery, is now out of a physical rehabilitation facility and has taken up residence in an assisted living facility near Nashville, Tennessee, home of his daughter and granddaughters. He reports his physical therapy went well, and he is currently moving around with the aid of a walker. A full recovery, courtesy of a new right replacement hip that is working well, is expected.
- Some Florida Amtrak Thruway Bus passengers had more excitement than they bargained for yesterday, November 17th. The bus, making its regular run from the beautifully restored downtown Tampa Amtrak station to St. Petersburg and south down to Fort Myers on Florida’s West Coast, nearly ran off the Sunshine Skyway Bridge and dropped 200 feet down into Tampa Bay.
The driver of the bus, while traveling at speed over the bridge, apparently collapsed from a heart attack, according to the Associated Press. The bus slammed into a wall which is designed to prevent just such accidents from happening. Three of the five passengers on the bus jumped out of their seats and ran to the front of the bus. One passenger grabbed the wheel and another slid into the driver’s seat and hit the brake pedal. The bus stopped just before arriving at the highest point on the bridge. Using cell phones, the passengers, all unharmed, dialed 911 and Amtrak. The bus driver later died at a local hospital.
The Sunshine Skyway bridge is the same bridge that was struck in early morning fog by a huge freighter trying to transit Tampa Bay from the Gulf of Mexico in the early 1980s. The freighter caused the bridge to collapse, and several motorists, as well as a bus full of passengers perished into the bay. Today’s bridge is a modern replacement for the old bridge.
Some of the broadcast national news media, apparently unable to comprehend that there is another viable form of transportation other than by air, reported that the Amtrak bus was an airport shuttle bus.
- Some good news on the advertising front. A Washington resident reports hearing an Amtrak ad on his car radio this week extolling the virtues of Amtrak’s dining cars, with complete sit-down meal service. The ad even mentioned wine. This is a most pleasant surprise.
- Minnesota Association of Railroad Passengers President Andrew Selden, who is also the Vice President of Law and Policy for URPA, was the keynote speaker at the annual meeting of the National Railway Historical Society this past July in Minneapolis. His speech was titled “Three Radical Ideas Concerning Amtrak.” Here are excerpts from his speech. Other excerpts will follow next week and in later weeks.
“… I … offer three radical ideas concerning Amtrak, and use them to show why rail passenger service in America is so poor, financially and qualitatively, and then show how it could be radically improved, at declining public cost.
This is not about social or political philosophy, rather, this represents a vision to put America’s rail passenger service on a sound economic footing.
… (A)ll of this is an outgrowth of the Carter Administration’s ‘massacre’ of the long distance system in 1979, when we lost five long distance routes, yet Amtrak’s costs kept climbing afterwards.
Several of us began to ask a basic question: “What would it take to immunize the national system from its political and fiscal vulnerability due to its reliance on public subsidy?”
Eventually, our delving into this question lead to two basic insights, and a surprisingly powerful mathematical tool developed by Dr. Adrian Herzog of California State University, which we dubbed “matrix theory,” which explains mathematically how Amtrak’s network operates.
Combined with research done by Byron Nordberg, Dr. Bill Hamilton, former Amtrak board member, Joe MacDonald, me, and others concerning Amtrak’s business accounting, we made two powerful discoveries:
One, if one were to use the same measures of performance that are universally used in the business world to evaluate Amtrak’s performance, we discovered that Amtrak’s routes’ performance was the exact opposite of what Amtrak reported, and what most politicians believe; and
Two, no law of nature mandates that intercity rail passenger services must lose money.
The rail industry, American society, and the competitive environment have all changed profoundly since the 1960s, such that today, carefully developing the national network unavoidably leads to financial breakeven in that network, everywhere except in the NEC.
Now, we all understood that these discoveries fly in the face of two generations of “received wisdom” about intercity rail passenger service, and they also confound the foundation of Amtrak’s 40-year-old business model.
But, understanding the implications of these insights explains why Amtrak is such a chronic loser; why we have so little rail passenger service in this country for so much public cost; and, how we can turn it all around.
Let’s explore this with three radical propositions:
Amtrak’s strategies cause its results. That is to say, Amtrak’s results occur precisely because of, and not in spite of, the business strategy that Amtrak pursues. There is a corollary to this and it is: trains still cannot outrun 737s.
Make no mistake, Amtrak’s financial results are truly awful, relentlessly persistent, and they are getting worse.
In a typical year, Amtrak takes in about $2 billion in revenue, offset by more than $3 billion in costs, leaving a net operating loss of between $1.1 and $1.4 billion.
Amtrak’s labor costs alone exceed its gross ticket revenue. Amtrak’s labor productivity is the worst in the business; by some measures, trunk airlines have three and a half times the labor productivity that Amtrak does.
And as bad as these results are, the trend is negative: Amtrak’s net operating loss continues to rise steadily over the last five years, despite billions of free federal capital. The roughly $27 billion that Amtrak has been handed in the last 25 years is worth more than $50 billion, in constant 2004 dollars.
Now, it’s true that a billion dollars just isn’t what it used to be … but, what exactly does the nation get for all these billions of capital, and endless losses? Operationally and financially? The answer is: not much.
Financially: Amtrak’s net operating loss is climbing steadily; even after full deployment of Acela high speed service, in what Amtrak regards as rail’s ‘strongest market,’ during a period when long distance services were steady to declining slowly, Amtrak’s financial results have worsened.
Amtrak’s subsidy ‘need’ is climbing steadily, even post-Acela; there appears to be no end of the subsidy needs of the NEC, while the national system seems remarkably steady. In the last three years, the Bush Administration has nearly doubled federal subsidy to Amtrak.
Operationally: After tens of billions of federal investment, Amtrak is still trivially irrelevant in all of its markets, with the possible exception of the New York – Philadelphia local market, where Amtrak generates nearly half of all Northeast Corridor ridership.
Amtrak’s market share is less than 1% in all of the markets it serves, including the Northeast Corridor. This market share is roughly equivalent to the market share of motorcycles in this country.
Since 1985, total travel in the U.S. has quadrupled; air has doubled since 1990. In the same period, Amtrak’s output has been essentially flat. The short corridors appear to fluctuate generally with the state of the national economy; the long distance services continue to suffer a slow decay, from a decreasing fleet and declining capacity; a disintegrating network; and increasingly hopeless train operations. Year-to-date, for example, Amtrak’s premier service, the Acela Express, operating over its own railroad, has been late more than 25% of the time, even by Amtrak’s loose definition of ‘on time’; and the Sunset Limited, out of 233 trainstarts, has been on time exactly 12 times.
One of the basic insights of life generally is that ‘it’s not how well you play the game, it’s who keeps score that matters.’ Any of you who has been involved in any kind of business activity knows how critical it is to measure performance in ways that are both accurate and useful, and to do so requires the use of the rights tools. Amtrak doesn’t get this right at even the most elemental level.
Does everyone understand the distinction between ridership and revenue passenger miles? Ridership is only a crude measure of transaction volume. Revenue passenger miles measures output, and in an intercity passenger transportation business, it is the only valid measure of output.
These are very different yardsticks.
Airlines always report their output in revenue passenger miles; Amtrak uses ridership. Why is this?
Amtrak uses ridership, not output, precisely because it masks the results of its operations, and masking results is necessary to enable it to justify its preordained obsession with short corridors in general, and particularly the Northeast Corridor.
Amtrak misrepresents NEC performance both by reporting ridership, and modal share versus the airlines, rather than revenue passenger miles and market share, or even load factor.
Load factor is a measure of capital efficiency. Airlines always report load factors; Amtrak never does. Load factor is simply revenue passenger miles divided by available seat miles, yielding a percentage occupancy value.
So, why are Amtrak’s financial and operational results so consistently awful? Why is it that I say that Amtrak’s strategies cause its results? Isn’t Amtrak’s problem that it receives ‘too little federal money,’ according to Mr. Gunn and the National Association of Railroad Passengers?
Again, consider that since 1975 more than $27 billion in free federal capital has gone into Amtrak. Over that period, 75% of that capital, and management attention, has gone to the NEC; more than 90% has gone to all of Amtrak’s short corridors; and less than 10% has gone to the long distance routes.
What is the justification for this allocation? These reflect, after all, management decision-making. The announced justification is ‘pursuit of ridership’ and the belief that high speed rail in particular will be the salvation for Amtrak.
Do you recall about five years ago how high speed rail was ‘going to save Amtrak’?
Acela Express was launched in late 2001, at a federal cost of more than $3 billion. By the way, none of that $3 billion is being amortized and charged against Acela’s revenues in Amtrak’s reports of Acela results.
Acela reached equilibrium ridership by about the second quarter of 2003, and that stable ridership level is surprisingly weak. Amtrak only discloses long cycle aggregate ridership numbers for Acela, never segment growth numbers or direct before-and-after comparisons.
Close analysis of Amtrak’s ridership numbers in the Northeast, however, show that there is almost no incrementality due to Acela’s higher speeds. The slightly positive ridership results in the Northeast in the last two fiscal years reflect network phenomena (mostly, more frequencies in New England and more frequencies operated through New York City), and, perhaps more importantly, correspond to the strong national economic recovery in the last 15 months.
But load factors remain very low: typical Acela Express trips in New England frequently operate with fewer than 100 passengers accommodated per trip.
In fact, since the full deployment of Acela Express, Amtrak’s Northeast Corridor and total net operating loss has increased, and continues to increase. We learn from Amtrak’s FY04 budget that the net operating loss in the Northeast Corridor will total $468 million this year.
From this data, it is clear that Acela Express has produced a negative return on investment of that $3 billion in federal capital, as well as an increased net operating loss and a declining market share.
We know that Acela caused these results, because the long distance operations were largely unchanged in the same period and the only other changes in Amtrak’s operations were slight improvements in California and Washington regional corridors.
The conclusion therefore is inescapable: 30 years of relentlessly consistent financial results based on a 1960s business strategy show irrefutably that these results do not come about despite Amtrak’s efforts, rather, the activities caused the results.
What a radical idea!”
More next week. The full text of Mr. Selden’s speech, along with an assortment of accompanying charts and graphs, is available today on the URPA web site, http://www.unitedrail.org.
