This Week At Amtrak 2004-11-23
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Vol. 1, No. 13 – November 23, 2004
- This week marks the official beginning of what’s predicted to be a record setting holiday travel season. Already the news stories have begun about local airport congestion and highway congestion. Conspicuous by its absence outside of the Northeast is any mention of Amtrak in the holiday rush stories, even in cities like Jacksonville that feature daily service from two trains in each direction and triweekly service from the Sunset Limited. Amtrak has got to start getting in front of the news media on a more aggressive basis to remind Americans there are passenger trains. Amtrak is losing millions of dollars a year in revenue because it doesn’t take the news media seriously unless it’s begging for more free federal money.
- Somehow, even though Amtrak got a little over $1.2 billion from Congress and the Bush Administration this week, it’s still continuing its annual begfest, and, in the process, scaring off revenue passengers because they think Amtrak will shut down any minute. Amtrak and its wholly owned lapdog organizations, plus the Department of Transportation’s Inspector General continue the idiotic drumbeat that the Amtrak national system is in peril because of regional problems in the Northeast, along the Northeast Corridor.
While it’s true these capital expenditure projects on the NEC in some cases are urgently needed for the sake of safety, Amtrak continues its lame attempt to hold the entire system hostage so it can prop up the regional NEC infrastructure. Amtrak still hasn’t figured out that passengers in Alabama, Missouri, Nebraska, Montana, or Arizona don’t care about the woes of the NEC. National system passengers just want what little scraps of service they have (and one day hope to have more), without the hysterics and drama.
- Last week, we began a short series featuring the keynote address Minnesota Association of Railroad Passengers President Andrew Selden, who is also the Vice President of Law and Policy for URPA, to the National Railway Historical Society annual meeting last July.
While this segment of the speech is out of order as originally presented, it addresses this week’s topic of free federal money for Amtrak. To view the speech and accompanying graphs in its entirety, visit the URPA web site at http://www.unitedrail.org.
“Which brings me to my (next) radical idea: Amtrak gets too much federal subsidy. The corollary to this is: ‘It’s not what you’ve got, it’s how you use it, that matters.’
Currently, Amtrak begins each year with about $1.3 billion in free federal subsidy. Mr. Gunn, incidentally, wants $1.8 billion, but that’s just his standard method of operation: he’s been making the “Chicken Little” threat that the railroad will collapse if he doesn’t get all the money he demands in every job he’s held in the last 20 years.
But, what is it exactly that $1.3 billion in free capital ‘isn’t enough’ for? We know where part of the money goes: $300 million goes to cover the fully allocated costs of the national system (the direct, cash costs of the national system by the way are closer to $200 million); and according to Amtrak’s own budget for this year, about $468 million will go to cover the NEC’s operating loss.
That leaves $500 million left over, for management’s discretionary use and investment. Where does all that cash go?
I’ll give you a hint, it’s not propping up the Sunset Limited; we already paid for that train. By now, it should be clear: it’s going to the NEC, and in fact, Amtrak’s FY04 budget shows that the NEC is scheduled to receive about 90% of that discretionary half billion, despite it’s continuing negative ROI on previous investments.
Having that much available money is what enables Amtrak to perpetuate its obsolete and foolish business strategy. That’s why I say that a half billion a year in free federal capital is too much, not too little money.
On the other hand, since Congress seems disposed to spend that much, what could we expect to accomplish with $500 million a year?
Well, what if we reexamined the assumptions? What if we changed the business model? What if we, for the first time, focused Amtrak’s investment capital FIRST, in markets with the greatest output, and the greatest potential incremental revenue passenger miles, and the segments with the highest load factors, which is to say, the greatest unmet demand?
What if we put the available capital into applications where we could expect a positive return on investment? Come to think of it, that’s a pretty radical idea, too.
How would we know where that is?
Well, you remember I mentioned at the beginning a ‘powerful mathematical tool’? Let’s apply it now to prioritize the application of available capital. By the way, those of you who might be interested in following the math that lies behind what we called ‘matrix theory’ can find an explanation at the URPA web site, http://www.unitedrail.org.
Since 1970, Amtrak has been crippled by an ‘endpoint’ mentality and a focus, and obsessive attention, on discrete routes, usually the short corridors. Amtrak has paid lip service only to network connectivity, and in fact many connections have been deliberately severed. Take a look at its timetable: why is it that the northbound train going up into Vermont leaves Springfield just minutes before the arrival of the Lakeshore Limited, or why the northbound Talgo train for Vancouver leaves Everett, Washington just minutes before the arrival of the Empire Builder from the east?
What the mathematics underlying matrix theory demonstrates is that additive incremental growth in the network of origin/destination pairs drives not additive, but multiplicative, growth in the density of flow through the entire network, even at constant levels of market penetration.
Matrix theory: a) Additive growth in scale of network multiple growth in density of flow through network and b) Flow density increases as nearly the square of the number of O/D pairs in the network: U= N2-N
In interregional long distance markets, the effects of scale are enormous. We use the term ‘utility’ as an expression of the traffic potential, i.e., the flow and flow density, in a network where we used ‘n’ to represent the number of stations in the network. The utility of a network is nearly the square of the size of the network. For examples with which you are all familiar, think about the telephone system, urban freeway grids, or the Internet. All of the flow density through the network is an exponential function of network scale.
For example, connecting two long distance routes does not increase the network by the sum of the origin destination pairs added, it more than doubles the number of origin destination pairs, and appears to well more than double the output of the network.
Extending or adding a branch to a long distance route does the same thing. One early model that we analyzed of the Southwest Transcontinental Corridor (the Chicago-Albuquerque-Los Angeles route) showed that if we modified that route by the simple splitting of the train westbound at Barstow, to send a section over Tehachapi and up the valley, in effect, re-inventing the San Francisco Chief, and on the east end splitting the train at Kansas City, with one section operating on its current route, and the other to Chicago via St. Louis, and adding a section – really just a thru coach and sleeper – to drop off the train at Flagstaff to operate down to Phoenix and Tucson, resulted in a prediction that ridership on that train would increase by a factor of six, assuming constant levels of market penetration in the new markets opened up by those changes.
Increasing ridership by a factor of six is a real problem: no Superliner train can handle that many passengers.
So we asked, what if that is wildly optimistic, and the actual yield of those changes was only half what the computer model forecasted?
Well even at the level of tripling the existing ridership (remember that this train has very high load factors already) leaves us with the same problem: it’s almost impossible to handle 600 customers at any one time on a western Superliner train. That means right away you need a second frequency just to handle the ridership generated by the new markets served by the simple adjustments I mentioned. But that creates a problem, too, because doubling the frequencies increases the utility of the network, driving even further increases in ridership. It’s a real serious problem: an upward spiral in ridership, output and revenue.
Even the short corridors are sensitive to the effects of scale. I mentioned the southern California example, where output, average trip lengths and revenue shot up disproportionately with the expansion north of Los Angeles to Santa Barbara.
One objection we often hear is that it’s unrealistic to make a blanket assertion that increasing the scale of the network will drive exponential yields in ridership, output and revenue, because the size of the various stations varies considerably. What we have found is that at national or transcontinental scales, these effects wash out: the differences are not significant, because the large number of small stations tends to balance out the very small number of large stations.
Matrix mathematics also shows us that operating two existing routes to connect with one another versus not adds nothing or almost nothing to operating costs, but can drive usage through the ceiling. Let me give you an example.
This graph shows Amtrak’s current operation of two trains that come out from New York every morning and follow each other up the Hudson River Valley as far as Albany and then Schenectady, where one goes west to Buffalo and Toronto, while the other, the Adirondack, turns north to Montreal. In Amtrak’s operation, these trains do not interact with each other at all – there is no synergism beyond doubling the frequencies between New York and Schenectady.
But what if we were to take one of those trains – I don’t think it matters which one, but let’s arbitrarily say the Montreal train – and have it originate in Boston instead of New York, and operate on a schedule that would enable it to be in Albany at the same time as the Maple Leaf, allowing cross-platform transfers between the two trains. Yes, Boston is almost 60 miles farther from Albany than New York, so there will be increased operating expenses: an hour of crew labor, and a small increment of fuel costs and track rent. But in the scale of operation of these routes, those increases are almost immeasurably small.
Matrix mathematics suggests that making this one simple extremely low-cost change in operation, by enabling potential passengers to get from anywhere east and south of Albany to anywhere north and west of Albany, and vice versa in the afternoon, will more than double the usage of the two trains making up this very small network. It would open up for the first time in many years a thru service directly from Boston to Montreal, and also allow further connections at Springfield up and down the central New England route.
Thus, as illustrated by the Albany hub example, Amtrak’s greatest shortcoming is not a shortage of free federal cash, but a lack of network intra-connectivity, a lack of carrying capacity in its highest output markets, and a lack of vision.
We know the consistent results of the Downs/Warrington/Gunn strategy: financial ruin. The national system has shrunk: we have lost routes, cities (this is the gang that can’t figure out how to tap into the thirty million people who visit Las Vegas every year), network capacity, and especially connectivity.
There has been no capital support to the national system: the newest Superliner rail cars are now older than the youngest cars Amtrak inherited were in 1980. Many of you understand that many Viewliner sleeping car lines were annulled this winter due to lack of roadworthy cars.
Yet, despite all this, Amtrak’s five-year capital spending plans call for no new passenger cars whatsoever. Only a handful of Superliner and Viewliner cars are being grudgingly repaired under Mr. Gunn’s budgets, and even those using only ‘last dollars.’
What would my priorities be for the free half billion a year that Congress seems willing to offer Amtrak?
First, I would use significant operational reform (designed to drive up load factor without sacrificing output; i.e. match capacity to demand) and asset sales in the Northeast Corridor to raise $150 to $200 million a year. With that, plus about a hundred million from the five hundred we could fund the capital needs of the NEC at a steady rate of about $250 to $300 million a year. Remember, this is over and above the NEC’s annual net operating loss, which is now approaching a half billion a year by itself.
I would use the rest of the available discretionary capital to focus on markets with real growth potential. First, I would invest – and it will cost as much as $40 to $50 million – in a totally new management information system. Amtrak’s Route Profitability System is worse than useless.
Second, I would undertake an urgent rehabilitation of all rescuable Superliner and Viewliner rail cars.
Third, I would put out a semi-urgent solicitation of two proposals from the worldwide rail vehicle industry:
First, a hundred new Viewliner sleepers in ‘bed and breakfast’ configuration (sacrificing one standard bedroom for a small galley facility; remember, all of these cars will be used in one-night markets), and about a hundred new long distance single-level coaches and associated lounge-type food service cars.
Second, I would negotiate an open-ended Superliner production line designed to produce cars at a rate of about one a week, which we could accelerate later, and I would begin with sleeping cars. In total, the network expansion throughout the national system would require a fleet of as many as 1,500 new Superliner rail cars.
Fourth, I would begin to put available federal capital into national system infrastructure, investments which I would leverage through tax credit-financed joint ventures with host railroads, and with state partners, to fix terminals, to create route intra-connectivity, and to make minor route extensions. We would ask states to invest only in capital projects, not subsidizing train operations.
Network density creates flow density, and it will grow rapidly … even at constant levels of market penetration. Growing train lengths will absorb all available new cars in the first few years, and demand will drive frequencies next. Then, and only then, and this is probably five to ten years out, we would look to add carefully selected routes, such as Washington, D.C. to Atlanta to Jacksonville to Miami, or restoring the Desert Wind.
Other, easy, near-term network enhancements, the real low hanging fruit, would include such things as a daily Sunset Limited; the Albany hub; sending the Silver Star to Montreal – do you realize that nearly 10 million Canadian visitors go to Florida every year? Amtrak’s share of that market is also zero; extending the California Zephyr to run down the coast line overnight to Los Angeles, partly to provide a second thru frequency on that route, but mainly to consolidate western Superliner maintenance at Los Angeles; I’d fix the terminal trackage at such locations as San Antonio, Minneapolis-St. Paul – if you have a chance, you really should go out and watch the Empire Builder tiptoe through the class 1 track leading into Midway Station – Phoenix, which as I said I would reach from the north from Flagstaff, not necessarily using the Sunset, and Portland; remember when Amtrak ran the thru sleeping car from New Orleans to Kansas City? Why wasn’t that extended 200 miles farther no rth to Omaha, where the train would have connected perfectly with the California Zephyr? That is networking.
Another possibility with excellent network implications would be to operate a train from St. Paul to St. Louis on BN via Galesburg, which we could call the Train of the Saints, which would interconnect all four of the major western transcontinental routes, taking all of the connecting pressure off of Chicago. Or, we could operate the Ann Rutledge to Dallas via Newton, Kansas.
With this kind of vision, and an investment strategy focused on real business results and real growth, in as little as five years Amtrak will be at a genuine operational breakeven in its national system precisely because, for the first time in its history, it would be operating a large, robust, and growing national network of intercity passenger services.”
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.
