This Week at Amtrak 2005-12-12
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- Come February, don’t get on certain Amtrak trains when you’re hungry. You likely won’t have your appetite appeased by what is being served – or, perhaps, what is not being served. Amtrak is preparing its dining car crews for serious cutbacks in February 2006 with the instigation of one of Amtrak’s worst concepts: “diner lite.”Diner lite will be instituted on the Crescent (still, despite every effort by Amtrak’s dining car department, one of the railroad’s best diners), one of the two Florida trains, the City of New Orleans, Texas Eagle, the Cardinal, and most likely one of the Western transcontinental trains (probably the Sunset Limited). This disaster-in-the-making program was first pulled from under a slimy rock earlier this year when Amtrak was in one of its “wannabe airline” disaster modes.
Diner lite will be an overblown lounge car, such as used to be featured on the old Montrealer before that train was discontinued, and in the combination first class lounge and diner of the old Night Owl before that train lost its sleepers (do we see a pattern here of discountenances?). The meals served are “plated” meals, meaning it’s a non-changeable preset offering on a plastic tray (visualize a public school cafeteria) that is warmed either in a microwave or convection oven. It’s a take it or leave it offering, with little consideration for those with special dietary needs, or those who prefer real food freshly prepared.
In yet another soon-to-be failed scheme to save money, Amtrak is trying yet once again to cut its way to prosperity. Instead, it will once again (don’t these people every learn?) cut its way to doom and failure. For the money Amtrak is charging sleeping car passengers, this barely concealed worst of airline-style food will not be a huge hit with passengers, who are expecting a real menu with real choices with real food. Coach passengers, who regularly dine in the lounge car due to the exorbitant prices in the dining car, will probably not feel the shock of this change. We don’t know yet if a feature of diner lite will be charging sleeping car passengers for food instead of including the cost in the accommodations charge.
Again, Amtrak is choosing to forget that civilized travelers – at least those with any sense of the delights and joys of eating morally admirable meals versus those automatons who just eat for the fuel value – consider meals an integral part of the social and cultural travel experience. The food and beverage experience is considered a desirable part of travel, not just a necessity two or three times a day.
How expensive is it to eat in the dining car today for coach passengers who do not have the cost of their meals included in the cost of their accommodations as the sleeping car passengers now do? For a family of four traveling together, a typical dinner in the dining car will run around $100.00, plus tip. A little high, you say? Particularly so when you consider the average Amtrak per passenger ticket price of $50.15. That means it costs a family of four $200.60 to travel, and $100.00 to eat dinner, plus, regrettably, often putting up with a grumpy wait staff, too. What’s wrong with this picture?
We know that Congress attached strings to this year’s crop (FY 2006) of free federal monies that includes making improvements in the cost of doing business in food service. Naturally, Amtrak’s knee jerk reaction is to cut costs instead of increasing revenues. Heaven forbid these bureaucrats would take passenger service into consideration. As usual, the safety and comfort of the average Amtrak passenger is taking a back seat to any type of intelligent business solution to this problem. With silly programs like this, Amtrak Acting President David Hughes has almost as much chaos to clean up after his martyred predecessor, as his predecessor did when he arrived in 2002.
- While we’re talking about a bad case of corporate poisoning of the Amtrak dining car department, let’s talk about sleeping car passengers. Since every sleeping car passenger receives their dining car meals included in the cost of their sleeping accommodations, these passengers are the major benefactors of the dining cars (see above for who else could possibly afford to eat in an Amtrak dining car). Amtrak sleeping car revenue for FY 2004 was $128,109,534, the last year audited figures are available for; the FY 2005 unaudited figure is about the same, $128, 673,406, an increase of just less than $600,000. Total revenue for FY 2004 for the 16 long distance trains was $407,800,000; the sleeping car passenger revenue represented 31.4% of that total, a substantial amount.Amtrak does not break out how much of the $128 million went to the dining cars, but an educated guess of 10 to 20% of the revenue, or $12 to $25 million of the revenue was assigned to the dining cars for passenger meals. Total Amtrak food and beverage revenue for FY 2004 was $80,394,000.
Together, Amtrak sleeping car and food and beverage income totals around $175,000,000 a year (allowing for sleeping car passenger revenues flowing to dining cars so as to not count those monies twice).
That means that roughly 11% of Amtrak’s total revenues comes from a combination of sleeping cars and food service/dining cars. While to some (such as the USDOT inspector general) this may seem a disturbing and insignificant amount, what the real intrinsic value of this amount is can’t be told under Amtrak’s present accounting system. How many people take the train for the full service of amenities, including sleeping and dining car service? What value would train service have to potential new passengers if these services became any less than they are today? Do people travel by train because of the uniqueness of train travel with full amenities, the necessity of train travel in some rural areas, or because of a fear of flying?
Of course, one way to find out would be to cancel these services and let the traveling public vote with their wallets and choice of travel modes. That happened once before, in the late 1960s, and was one of the reasons Amtrak was formed to be a nationwide passenger rail service. Have we forgotten history enough to have to repeat it?
- As usual, there is much talk about the NEC when talking about Amtrak’s future. Along with this, there is also talk about who the next permanent president of Amtrak will be in 2006. The two topics are usually intertwined and mentioned in the same breath.One railroad industry publication editor went on record in his magazine saying that only a “railroader,” and not a businessman is qualified to be president of Amtrak.
Also, many rational people realize that the financial problems of the NEC are the same now as they were when the original private railroad owners of the NEC went into bankruptcy in the dark railroading days of the 1960s and 70s. Here is what one wit had to say about the next Amtrak president, which pretty well sums it all up:
“Would those be the railroaders who ran the Pennsylvania Railroad? Or the ones who planned the PennCentral merger, and then ran it into the ground? Or the railroad geniuses who bankrupted the New Haven, largely on the strength of the passenger rail markets in New England? Or possibly those USRA visionaries who dumped the NEC ‘asset’ onto Amtrak’s balance sheet (for free, remember, and ‘no backs’)? Or the professional rails who bid and paid more of their bankers’ and shareholder’s money for Conrail than the entire industry was worth (in balance sheet book value at the time)? Yes, do bring on those railroad geniuses and let them have access to a billion and a quarter dollars a year of public money to run subsidized transit services in a handful of urban markets at a negative rate of return on invested capital. That is truly a great plan.”
Nothing more needs to be said on that part of the topic.
Here is what a Central Florida wag had to say about Amtrak, in general:
“One Amtrak apologist and cultist and alarmist said, ‘Consider this, when Amtrak goes away, nothing will replace it.’
“Let’s go further with that. Consider this, when Amtrak goes away, who’s even going to notice? All the residents of Phoenix, or Houston, or Tampa? Amtrak is way in the background there. Ah, but what about all the commuters on the NEC? Okay let’s get real for a minute. The commuter trains will undoubtedly still run. Beside that, how much useful transportation [on a national basis] are we really talking about?
“Here’s the same question through a looking glass.
“What percentage of the population in the heavy population areas use trains? (High)
“What percentage of the population in the low population areas use trains? (Low)
“Well enough. Now let’s add a filter:
“What percentage of those in the heavy population areas who use trains use Amtrak? (Low)
“What percentage of those in the low population areas who do use trains use Amtrak? (Higher)
“And then we can have a debate over ‘Where is Amtrak most irrelevant’!”
Add a California voice to the mix:
“Isn’t what’s really all behind this is if Amtrak goes, the NEC States know they get the whole bill for the corridor? The long distance trains for over 30 years have been used for political leverage to scare people to subsidize Amtrak with most of the money going into polishing the rails of the NEC. No local town wants to ‘lose’ anything, even rail service. If people were logical, no city would pay to build new sport stadium to ‘keep’ their team in their town.”
- Amtrak’s Chicago mechanical forces didn’t waste anytime this year getting into their usual winter patterns. On December 8th, train no. 347, the Illini, was late leaving Chicago due to the entire consist being frozen, and having to be thawed. And, it’s not even the first day of winter, yet. What’s it going to be like in January and February? Guys, as said before, go down to the local hardware store and pick up some rock salt and snow shovels. Don’t forget to plug those empty trainsets into the shore power electric grid that is specifically for the purpose of keeping heat and air in trainsets waiting for service. This isn’t rocket science. We know you can do better.
- We reported in this space earlier that Amtrak NEC officials are closely monitoring the performance of Wondertrain Acela. Taking a leaf out of the Empire Builder monitoring book, Amtrak has added an entire new page to the internal operations daily report, monitoring a couple of dozen reasons for any type of delay from mechanical to weather to passenger train interference for Wondertrain Acela.This type of specific monitoring has been used for the Empire Builder experiment these last few months since the wonderful service upgrade experiment began.
Both of these are excellent starts to what appears to be a welcome renewed emphasis on passenger service and taking responsibility for delays and problems in certain segments of the company.
- NARP, the National Association of Railroad Passengers, is the organization that has had its allegiance to Amtrak senior management bought and paid for through the thousands of dollars Amtrak has paid NARP to run its customer advisory council and through long time favors of access to executives on all levels and internal information. Amtrak, which, for the non-rational reason of solely because NARP members like to ride trains, offers NARP members a 10% Amtrak rail fare discount (all other affinity groups such as senior citizens, veterans, and college students, have a legitimate reason for being rewarded an Amtrak discount, versus just paid membership in a railfan hobbyist organization). NARP is once again hamming it up that the sky is falling and grave crisis is afoot in the land.NARP chose a most sacred day, December 7th, Pearl Harbor day, to launch its own unwanted attack (seemingly somewhat obviously at the behest of Amtrak) on part of new requirements by Congress to micro manage Amtrak.
Congress went a bit too far in the recent authorization of Amtrak’s free federal money subsidy for FY 2006 by decreeing that Amtrak may not offer a discount of more than 50% from any peak fare offered by the railroad. If Amtrak would have behaved itself in the first place, there would be no reason for Congress to put such silliness into actual legislation. However, it’s there, and NARP is leading the charge to have it repealed. This is hardly an issue most members of Congress are going to get worked up over anytime soon.
NARP said, in a communication to members,
"The appropriations law … contains a provision that will make rail travel unaffordable for many Amtrak passengers, reduce Amtrak’s revenue, harm bottom line performance and possibly place routes and trains in jeopardy of discontinuance.
“The provision prohibits Amtrak from selling … tickets at fares that are less than half the normal, peak fare. Currently, 40% of Amtrak’s regular revenue-managed fares and many promotions – including some that are written into Amtrak’s contracts with states – fall below that level.”
Whew! Did they forget to mention, too, that the sky will now be green, grass will now be blue, and there won’t be a chicken in every pot?
It’s this type of demagoguery that tells you why so often this organization is not taken seriously by many in charge in official Washington.
Look at some facts, first. For far too long, Amtrak has been diluting its average fare and average revenue passenger mile value by a combination of deep discounts and buy one-get one or two free promotions. Always relying on the unimportant and incorrect method of bragging about the number of riders instead of the only true measure that common carriers use – revenue passenger miles – Amtrak has been fooling itself and its bankers (the USDOT and Congress) about its actual performance.
Amtrak’s average fare in FY 2004 was $50.15, a grossly low number, considering that over $128 million of the total fares collected by Amtrak in that year came from overly high sleeping car fares. The average value of a revenue passenger mile was 22.61 cents.
Much of this dismal performance was achieved by deep discounts, such as the now banished 70% discounts for multi-pass riders on the NEC. On the Left Coast, commuter riders on the Capitol Corridor, San Joaquins, and Pacific Surfliners have had similar discounts, too. Along with Amtrak habitual recidivism in managing its fare structure to attract ridership instead of revenue, all of this has resulted in a need for high amounts of free federal monies and state subsidies instead of Amtrak attempting to reasonably collect fares that reflect the true value of the service Amtrak is providing. In other words, the socialist approach has been taken: don’t worry about income, just provide a service and let the taxpayers pick up the difference. To many socialists, rational people have taken this to be the wrong view.
The squawking has been the loudest from Northern California, where apparently, the thought is that somehow cheap passenger train service is part of our nation’s constitutional guarantees, and the worry is more about high cost and low investment return commuters instead of more profitable long distance train passengers. There is no requirement nor mandate for Amtrak to be a public service. It is a viable transportation choice as part of our domestic transportation network, not a necessity that must be provided at any cost to the taxpayer.
Here’s the basic message: for a business (and, make no mistake about it, Amtrak is a real business) to flourish, grow, and provide good service, there must be a flow of adequate revenues, even (gasp!) profits are desirable. Realizing that it’s difficult for Amtrak apologists and cultists to grasp this concept, here’s some further explanation.
Do not forget the “Braniff factor.” Back in the early 1980s, Braniff Airlines was one of the best airlines flying, with a flair for good service. Some marketing mastermind with Braniff invented the one day giveaway sale, where tickets on Braniff sold at up to 90% and more discounts. The ploy was meant to call attention to the airline and to fill otherwise empty seats, hopefully with people who would fly later at regular prices (does this sound familiar?). The sale worked, the planes were chocked full of travelers, and Braniff became [in]famous in the airline and travel industry.
Braniff liked this so much, the airline continued to have the sales. The flying public was ecstatic. The marketing scheme had one drawback. It worked too well. In the process of all of this, Braniff trained its passengers to wait for any type of vacation or discretionary flying until the next sale happened. Regular ticket sales fell off; planes and seats were empty. The inevitable result? This once well thought of and prosperous airline flew into bankruptcy and liquidation. The moral of the story is that you cannot promote yourself to prosperity by giving away your product. The public begins to perceive that your product is only worth the lower value of the deeply discounted price, not the value of the real price.
Let’s get academic for a moment (stay with us here; it will only last for a moment, and it won’t hurt, too much). There is a proven concept in business economics called “elasticity.” Here is the definition: The degree to which a price change for an item results from a unit change in supply (called supply elasticity) or a unit change in demand (called demand elasticity). Opposite of inelasticity.
The demand elasticity – in layman’s terms, please – is the degree by which a price can increase and the resulting purchases will maintain a volume to which it still worth it for both the supplier and the consumer. In other words, the price can increase to a certain point (which in a chart would signify the degree of elasticity) where there are still enough consumers purchasing the product to produce a profit for the supplier. A product has elasticity when the price can increase and the demand remains. There exists inelasticity when the price basically doesn’t change demand – i.e., gasoline (in the short run).
When the elasticity is pushed too far – price outpaces the demand and purchases drop below that quantity which produces a profit for the supplier. The consumer number of purchases drops below what is adequate for the supplier.
In the opposite view, when a product has so many purchasers (demand) that the supplier has trouble providing that “much” product (seats), the elasticity allows that the price increase to the point where the supply meets demand – consumers are happy and suppliers are happy (full seats).
The elasticity of the product/service actually determines the price level at specific levels of supply. One may turn that around and say that too low a price allows more demand than can profitably be met by supply.
Well, that’s clear as mud to us normal people. Here is another example, in addition to the Braniff factor. Back in the late 1980s, a new hotel was built in Lake Buena Vista, a resort community flanking Walt Disney World in Orlando. When the hotel started accepting reservations, it set a certain price for its rooms. Every couple of days, the yield manager for the hotel would raise the price of the rooms a few dollars. This went on for about a month. Finally, when the price of a room reached a certain price, reservations started falling off, and demand slackened. The hotel yield manager realized that the hotel was now priced slightly too high, reduced the rate a few dollars a night, and higher demand ensued. Through this process, the hotel determined how much the traveling public was willing to pay for a room in the hotel and it could keep the hotel full. When the price got too high, the tariff was lowered, and high demand resumed.
From an Amtrak perspective, somewhere between Amtrak’s peak fares and its deepest discounts, there is an ideal fare to be determined for each class of Amtrak service that will bring in the most riders at the highest possible fare they are willing to pay to use Amtrak. This will provide for the highest utilization of equipment and revenues, and the most money flowing into Amtrak’s often near-empty coffers.
When the fare is too low through deep discounting just to fill seats, no purpose is served, other than transporting warm bodies. Deep discounts hurt the average ticket price, the value of revenue passenger miles, and create unrealistic expectations from passengers who will come to expect and demand these untenable fares. If you’re a socialist that believes government should control and pay for many things, none of this will bother you. If you live in the real world and understand that Amtrak is financially accountable to its bankers (the USDOT and Congress), these concepts are very important to you for the viable future of Amtrak.
Many people may call it capitalism, which is not, in the minds of most people, a dirty word.
The discovery of the perfectly valued fare with increase both ridership and revenues, and will not – under any circumstances – result in “mak[ing] rail travel unaffordable for many Amtrak passengers, reduce Amtrak’s revenue, harm bottom line performance and possibly place routes and trains in jeopardy of discontinuance.” That is hogwash designed to scare people.
Amtrak does not devote enough resources to basic marketing. It only has a budget of around $75 million, about half of what a normal company would have, based on revenues. Most of that $75 million goes for salaries and overhead (including telephone reservations centers), not actual advertising, Advertising accounts for about $30 million of the budget, a pitifully small amount.
As said often before, Amtrak is America’s best kept secret, sadly often at it own inept marketing hand. The long distance national system, which produces the greatest return on investment for the fewest dollars spent, usually receives no or very little of Amtrak’s advertising budget. High cost and low return services such as the NEC receive the lion’s share of advertising. This goes hand in hand with Amtrak’s overall philosophy of investing its financial resources in all of the wrong places, providing the lowest possible return. One has to presume that when the American taxpayer willingly coughs up free federal money every year, that such accountability on how Amtrak spends the money isn’t important.
Until now.
The new strings attached by Congress, forcing Amtrak to better yield manage its fares and stop these socialist discounts designed to just get warm bodies on trains, hopefully will bring more needed scrutiny to the fare process, and up the average ticket price and value of a revenue passenger mile. None of this micro managing would be necessary if Amtrak would force itself to act more like a real company like Amtrak Chairman of the Board David Laney is trying to do and less like a socialist provider of transit and commuter services. After all, Amtrak is America’s national passenger railroad first, and the provider of corridor services second. At least, supposedly so.
- Last week’s TWA, using Amtrak figures provided for each individual state in which the railroad has operations, the amount of expenditures, number of employees, and gross payroll for each state was listed. For Florida, the listing included,
Ridership 913,553 Expenditures $13,689,114 Employment 990 residents Payroll $43,924,411 This prompted a reply from a South Florida TWA reader:
“If so much money is being poured into Florida trains, I would like to see where the money is going. That … [Mr.] Gunn discontinued the Florida segment of the Palmetto and now, one of the fastest growing areas of our state, Central Florida, from Ocala north, is without train service. It is possible to use an Amtrak bus, but pardon my ignorance, I thought Amtrak was a passenger rail company, not a bus company. It is quite obvious the resources are being wasted.”
Well said.
- Certainly, you’ve noticed the high-volume Christmas season is upon us (And, yes, it is the Christmas season, not the annoyingly politically correct heathen Winter Holiday). Passengers laden with Christmas presents (but, please, no more than two pieces of luggage per passenger since for some inexplicable reason baggage cars are now few and far between as an Amtrak “service improvement”) are boarding long distance trains bound for home and hearth and loved ones.How ready is Amtrak’s mechanical department for this known in advance onslaught? Let’s take a look at Amtrak’s daily report for December 8th.
- Fleetwide, there are 1,371 active Amtrak passenger cars, with a daily requirement of 1,112, and 1,145 available for service, a margin of 33 spare cars to cover the entire North American continent.
- On the NEC, there are 419 active cars, a daily requirement of 372, but only 364 available for service on December 8th, a shortage of eight cars.
- For single level Viewliner sleeping cars, there are 48 active cars, a daily requirement of 39, and 40 available for service, a margin of just one car to cover five trains on different routes.
- Superliner coaches are wanting; there are 158 cars on the roster, a daily requirement of 128 cars, but only 126 cars available for service, a deficit of 32 cars out of service.
- Superliner sleepers are in better shape than coaches. There are 106 active cars, a daily requirement of 73, with 83 cars available for service, a margin of 10 cars nationwide, including the Auto Train. Twenty-three sleepers are out of service.
- Superliner diners have a safety margin of five extra cars, nationwide, with 13 diners out of service.
- On the Wondertrain Acela front, all 20 trainsets are active, there is a daily requirement of 14 sets, and 19 sets are available for service.
- For Auto Train, there are eight bi-level van carriers required, but none are active, and none are available.
This is just the middle of the third month of the fiscal year, usually when money is plentiful. How close is Amtrak planning to cut the margin, and still accommodate everyone who has bought a ticket for Christmas travel? If it’s this close now, what will it be like at the beginning of the peak travel season next summer when the budget year is near an end?
- Come February, don’t get on certain Amtrak trains when you’re hungry. You likely won’t have your appetite appeased by what is being served – or, perhaps, what is not being served. Amtrak is preparing its dining car crews for serious cutbacks in February 2006 with the instigation of one of Amtrak’s worst concepts: “diner lite.”Diner lite will be instituted on the Crescent (still, despite every effort by Amtrak’s dining car department, one of the railroad’s best diners), one of the two Florida trains, the City of New Orleans, Texas Eagle, the Cardinal, and most likely one of the Western transcontinental trains (probably the Sunset Limited). This disaster-in-the-making program was first pulled from under a slimy rock earlier this year when Amtrak was in one of its “wannabe airline” disaster modes.
Diner lite will be an overblown lounge car, such as used to be featured on the old Montrealer before that train was discontinued, and in the combination first class lounge and diner of the old Night Owl before that train lost its sleepers (do we see a pattern here of discountenances?). The meals served are “plated” meals, meaning it’s a non-changeable preset offering on a plastic tray (visualize a public school cafeteria) that is warmed either in a microwave or convection oven. It’s a take it or leave it offering, with little consideration for those with special dietary needs, or those who prefer real food freshly prepared.
In yet another soon-to-be failed scheme to save money, Amtrak is trying yet once again to cut its way to prosperity. Instead, it will once again (don’t these people every learn?) cut its way to doom and failure. For the money Amtrak is charging sleeping car passengers, this barely concealed worst of airline-style food will not be a huge hit with passengers, who are expecting a real menu with real choices with real food. Coach passengers, who regularly dine in the lounge car due to the exorbitant prices in the dining car, will probably not feel the shock of this change. We don’t know yet if a feature of diner lite will be charging sleeping car passengers for food instead of including the cost in the accommodations charge.
Again, Amtrak is choosing to forget that civilized travelers – at least those with any sense of the delights and joys of eating morally admirable meals versus those automatons who just eat for the fuel value – consider meals an integral part of the social and cultural travel experience. The food and beverage experience is considered a desirable part of travel, not just a necessity two or three times a day.
How expensive is it to eat in the dining car today for coach passengers who do not have the cost of their meals included in the cost of their accommodations as the sleeping car passengers now do? For a family of four traveling together, a typical dinner in the dining car will run around $100.00, plus tip. A little high, you say? Particularly so when you consider the average Amtrak per passenger ticket price of $50.15. That means it costs a family of four $200.60 to travel, and $100.00 to eat dinner, plus, regrettably, often putting up with a grumpy wait staff, too. What’s wrong with this picture?
We know that Congress attached strings to this year’s crop (FY 2006) of free federal monies that includes making improvements in the cost of doing business in food service. Naturally, Amtrak’s knee jerk reaction is to cut costs instead of increasing revenues. Heaven forbid these bureaucrats would take passenger service into consideration. As usual, the safety and comfort of the average Amtrak passenger is taking a back seat to any type of intelligent business solution to this problem. With silly programs like this, Amtrak Acting President David Hughes has almost as much chaos to clean up after his martyred predecessor, as his predecessor did when he arrived in 2002.
- While we’re talking about a bad case of corporate poisoning of the Amtrak dining car department, let’s talk about sleeping car passengers. Since every sleeping car passenger receives their dining car meals included in the cost of their sleeping accommodations, these passengers are the major benefactors of the dining cars (see above for who else could possibly afford to eat in an Amtrak dining car). Amtrak sleeping car revenue for FY 2004 was $128,109,534, the last year audited figures are available for; the FY 2005 unaudited figure is about the same, $128, 673,406, an increase of just less than $600,000. Total revenue for FY 2004 for the 16 long distance trains was $407,800,000; the sleeping car passenger revenue represented 31.4% of that total, a substantial amount.Amtrak does not break out how much of the $128 million went to the dining cars, but an educated guess of 10 to 20% of the revenue, or $12 to $25 million of the revenue was assigned to the dining cars for passenger meals. Total Amtrak food and beverage revenue for FY 2004 was $80,394,000.
Together, Amtrak sleeping car and food and beverage income totals around $175,000,000 a year (allowing for sleeping car passenger revenues flowing to dining cars so as to not count those monies twice).
That means that roughly 11% of Amtrak’s total revenues comes from a combination of sleeping cars and food service/dining cars. While to some (such as the USDOT inspector general) this may seem a disturbing and insignificant amount, what the real intrinsic value of this amount is can’t be told under Amtrak’s present accounting system. How many people take the train for the full service of amenities, including sleeping and dining car service? What value would train service have to potential new passengers if these services became any less than they are today? Do people travel by train because of the uniqueness of train travel with full amenities, the necessity of train travel in some rural areas, or because of a fear of flying?
Of course, one way to find out would be to cancel these services and let the traveling public vote with their wallets and choice of travel modes. That happened once before, in the late 1960s, and was one of the reasons Amtrak was formed to be a nationwide passenger rail service. Have we forgotten history enough to have to repeat it?
- As usual, there is much talk about the NEC when talking about Amtrak’s future. Along with this, there is also talk about who the next permanent president of Amtrak will be in 2006. The two topics are usually intertwined and mentioned in the same breath.One railroad industry publication editor went on record in his magazine saying that only a “railroader,” and not a businessman is qualified to be president of Amtrak.
Also, many rational people realize that the financial problems of the NEC are the same now as they were when the original private railroad owners of the NEC went into bankruptcy in the dark railroading days of the 1960s and 70s. Here is what one wit had to say about the next Amtrak president, which pretty well sums it all up:
“Would those be the railroaders who ran the Pennsylvania Railroad? Or the ones who planned the PennCentral merger, and then ran it into the ground? Or the railroad geniuses who bankrupted the New Haven, largely on the strength of the passenger rail markets in New England? Or possibly those USRA visionaries who dumped the NEC ‘asset’ onto Amtrak’s balance sheet (for free, remember, and ‘no backs’)? Or the professional rails who bid and paid more of their bankers’ and shareholder’s money for Conrail than the entire industry was worth (in balance sheet book value at the time)? Yes, do bring on those railroad geniuses and let them have access to a billion and a quarter dollars a year of public money to run subsidized transit services in a handful of urban markets at a negative rate of return on invested capital. That is truly a great plan.”
Nothing more needs to be said on that part of the topic.
Here is what a Central Florida wag had to say about Amtrak, in general:
“One Amtrak apologist and cultist and alarmist said, ‘Consider this, when Amtrak goes away, nothing will replace it.’
“Let’s go further with that. Consider this, when Amtrak goes away, who’s even going to notice? All the residents of Phoenix, or Houston, or Tampa? Amtrak is way in the background there. Ah, but what about all the commuters on the NEC? Okay let’s get real for a minute. The commuter trains will undoubtedly still run. Beside that, how much useful transportation [on a national basis] are we really talking about?
“Here’s the same question through a looking glass.
“What percentage of the population in the heavy population areas use trains? (High)
“What percentage of the population in the low population areas use trains? (Low)
“Well enough. Now let’s add a filter:
“What percentage of those in the heavy population areas who use trains use Amtrak? (Low)
“What percentage of those in the low population areas who do use trains use Amtrak? (Higher)
“And then we can have a debate over ‘Where is Amtrak most irrelevant’!”
Add a California voice to the mix:
“Isn’t what’s really all behind this is if Amtrak goes, the NEC States know they get the whole bill for the corridor? The long distance trains for over 30 years have been used for political leverage to scare people to subsidize Amtrak with most of the money going into polishing the rails of the NEC. No local town wants to ‘lose’ anything, even rail service. If people were logical, no city would pay to build new sport stadium to ‘keep’ their team in their town.”
- Amtrak’s Chicago mechanical forces didn’t waste anytime this year getting into their usual winter patterns. On December 8th, train no. 347, the Illini, was late leaving Chicago due to the entire consist being frozen, and having to be thawed. And, it’s not even the first day of winter, yet. What’s it going to be like in January and February? Guys, as said before, go down to the local hardware store and pick up some rock salt and snow shovels. Don’t forget to plug those empty trainsets into the shore power electric grid that is specifically for the purpose of keeping heat and air in trainsets waiting for service. This isn’t rocket science. We know you can do better.
- We reported in this space earlier that Amtrak NEC officials are closely monitoring the performance of Wondertrain Acela. Taking a leaf out of the Empire Builder monitoring book, Amtrak has added an entire new page to the internal operations daily report, monitoring a couple of dozen reasons for any type of delay from mechanical to weather to passenger train interference for Wondertrain Acela.This type of specific monitoring has been used for the Empire Builder experiment these last few months since the wonderful service upgrade experiment began.
Both of these are excellent starts to what appears to be a welcome renewed emphasis on passenger service and taking responsibility for delays and problems in certain segments of the company.
- NARP, the National Association of Railroad Passengers, is the organization that has had its allegiance to Amtrak senior management bought and paid for through the thousands of dollars Amtrak has paid NARP to run its customer advisory council and through long time favors of access to executives on all levels and internal information. Amtrak, which, for the non-rational reason of solely because NARP members like to ride trains, offers NARP members a 10% Amtrak rail fare discount (all other affinity groups such as senior citizens, veterans, and college students, have a legitimate reason for being rewarded an Amtrak discount, versus just paid membership in a railfan hobbyist organization). NARP is once again hamming it up that the sky is falling and grave crisis is afoot in the land.NARP chose a most sacred day, December 7th, Pearl Harbor day, to launch its own unwanted attack (seemingly somewhat obviously at the behest of Amtrak) on part of new requirements by Congress to micro manage Amtrak.
Congress went a bit too far in the recent authorization of Amtrak’s free federal money subsidy for FY 2006 by decreeing that Amtrak may not offer a discount of more than 50% from any peak fare offered by the railroad. If Amtrak would have behaved itself in the first place, there would be no reason for Congress to put such silliness into actual legislation. However, it’s there, and NARP is leading the charge to have it repealed. This is hardly an issue most members of Congress are going to get worked up over anytime soon.
NARP said, in a communication to members,
"The appropriations law … contains a provision that will make rail travel unaffordable for many Amtrak passengers, reduce Amtrak’s revenue, harm bottom line performance and possibly place routes and trains in jeopardy of discontinuance.
“The provision prohibits Amtrak from selling … tickets at fares that are less than half the normal, peak fare. Currently, 40% of Amtrak’s regular revenue-managed fares and many promotions – including some that are written into Amtrak’s contracts with states – fall below that level.”
Whew! Did they forget to mention, too, that the sky will now be green, grass will now be blue, and there won’t be a chicken in every pot?
It’s this type of demagoguery that tells you why so often this organization is not taken seriously by many in charge in official Washington.
Look at some facts, first. For far too long, Amtrak has been diluting its average fare and average revenue passenger mile value by a combination of deep discounts and buy one-get one or two free promotions. Always relying on the unimportant and incorrect method of bragging about the number of riders instead of the only true measure that common carriers use – revenue passenger miles – Amtrak has been fooling itself and its bankers (the USDOT and Congress) about its actual performance.
Amtrak’s average fare in FY 2004 was $50.15, a grossly low number, considering that over $128 million of the total fares collected by Amtrak in that year came from overly high sleeping car fares. The average value of a revenue passenger mile was 22.61 cents.
Much of this dismal performance was achieved by deep discounts, such as the now banished 70% discounts for multi-pass riders on the NEC. On the Left Coast, commuter riders on the Capitol Corridor, San Joaquins, and Pacific Surfliners have had similar discounts, too. Along with Amtrak habitual recidivism in managing its fare structure to attract ridership instead of revenue, all of this has resulted in a need for high amounts of free federal monies and state subsidies instead of Amtrak attempting to reasonably collect fares that reflect the true value of the service Amtrak is providing. In other words, the socialist approach has been taken: don’t worry about income, just provide a service and let the taxpayers pick up the difference. To many socialists, rational people have taken this to be the wrong view.
The squawking has been the loudest from Northern California, where apparently, the thought is that somehow cheap passenger train service is part of our nation’s constitutional guarantees, and the worry is more about high cost and low investment return commuters instead of more profitable long distance train passengers. There is no requirement nor mandate for Amtrak to be a public service. It is a viable transportation choice as part of our domestic transportation network, not a necessity that must be provided at any cost to the taxpayer.
Here’s the basic message: for a business (and, make no mistake about it, Amtrak is a real business) to flourish, grow, and provide good service, there must be a flow of adequate revenues, even (gasp!) profits are desirable. Realizing that it’s difficult for Amtrak apologists and cultists to grasp this concept, here’s some further explanation.
Do not forget the “Braniff factor.” Back in the early 1980s, Braniff Airlines was one of the best airlines flying, with a flair for good service. Some marketing mastermind with Braniff invented the one day giveaway sale, where tickets on Braniff sold at up to 90% and more discounts. The ploy was meant to call attention to the airline and to fill otherwise empty seats, hopefully with people who would fly later at regular prices (does this sound familiar?). The sale worked, the planes were chocked full of travelers, and Braniff became [in]famous in the airline and travel industry.
Braniff liked this so much, the airline continued to have the sales. The flying public was ecstatic. The marketing scheme had one drawback. It worked too well. In the process of all of this, Braniff trained its passengers to wait for any type of vacation or discretionary flying until the next sale happened. Regular ticket sales fell off; planes and seats were empty. The inevitable result? This once well thought of and prosperous airline flew into bankruptcy and liquidation. The moral of the story is that you cannot promote yourself to prosperity by giving away your product. The public begins to perceive that your product is only worth the lower value of the deeply discounted price, not the value of the real price.
Let’s get academic for a moment (stay with us here; it will only last for a moment, and it won’t hurt, too much). There is a proven concept in business economics called “elasticity.” Here is the definition: The degree to which a price change for an item results from a unit change in supply (called supply elasticity) or a unit change in demand (called demand elasticity). Opposite of inelasticity.
The demand elasticity – in layman’s terms, please – is the degree by which a price can increase and the resulting purchases will maintain a volume to which it still worth it for both the supplier and the consumer. In other words, the price can increase to a certain point (which in a chart would signify the degree of elasticity) where there are still enough consumers purchasing the product to produce a profit for the supplier. A product has elasticity when the price can increase and the demand remains. There exists inelasticity when the price basically doesn’t change demand – i.e., gasoline (in the short run).
When the elasticity is pushed too far – price outpaces the demand and purchases drop below that quantity which produces a profit for the supplier. The consumer number of purchases drops below what is adequate for the supplier.
In the opposite view, when a product has so many purchasers (demand) that the supplier has trouble providing that “much” product (seats), the elasticity allows that the price increase to the point where the supply meets demand – consumers are happy and suppliers are happy (full seats).
The elasticity of the product/service actually determines the price level at specific levels of supply. One may turn that around and say that too low a price allows more demand than can profitably be met by supply.
Well, that’s clear as mud to us normal people. Here is another example, in addition to the Braniff factor. Back in the late 1980s, a new hotel was built in Lake Buena Vista, a resort community flanking Walt Disney World in Orlando. When the hotel started accepting reservations, it set a certain price for its rooms. Every couple of days, the yield manager for the hotel would raise the price of the rooms a few dollars. This went on for about a month. Finally, when the price of a room reached a certain price, reservations started falling off, and demand slackened. The hotel yield manager realized that the hotel was now priced slightly too high, reduced the rate a few dollars a night, and higher demand ensued. Through this process, the hotel determined how much the traveling public was willing to pay for a room in the hotel and it could keep the hotel full. When the price got too high, the tariff was lowered, and high demand resumed.
From an Amtrak perspective, somewhere between Amtrak’s peak fares and its deepest discounts, there is an ideal fare to be determined for each class of Amtrak service that will bring in the most riders at the highest possible fare they are willing to pay to use Amtrak. This will provide for the highest utilization of equipment and revenues, and the most money flowing into Amtrak’s often near-empty coffers.
When the fare is too low through deep discounting just to fill seats, no purpose is served, other than transporting warm bodies. Deep discounts hurt the average ticket price, the value of revenue passenger miles, and create unrealistic expectations from passengers who will come to expect and demand these untenable fares. If you’re a socialist that believes government should control and pay for many things, none of this will bother you. If you live in the real world and understand that Amtrak is financially accountable to its bankers (the USDOT and Congress), these concepts are very important to you for the viable future of Amtrak.
Many people may call it capitalism, which is not, in the minds of most people, a dirty word.
The discovery of the perfectly valued fare with increase both ridership and revenues, and will not – under any circumstances – result in “mak[ing] rail travel unaffordable for many Amtrak passengers, reduce Amtrak’s revenue, harm bottom line performance and possibly place routes and trains in jeopardy of discontinuance.” That is hogwash designed to scare people.
Amtrak does not devote enough resources to basic marketing. It only has a budget of around $75 million, about half of what a normal company would have, based on revenues. Most of that $75 million goes for salaries and overhead (including telephone reservations centers), not actual advertising, Advertising accounts for about $30 million of the budget, a pitifully small amount.
As said often before, Amtrak is America’s best kept secret, sadly often at it own inept marketing hand. The long distance national system, which produces the greatest return on investment for the fewest dollars spent, usually receives no or very little of Amtrak’s advertising budget. High cost and low return services such as the NEC receive the lion’s share of advertising. This goes hand in hand with Amtrak’s overall philosophy of investing its financial resources in all of the wrong places, providing the lowest possible return. One has to presume that when the American taxpayer willingly coughs up free federal money every year, that such accountability on how Amtrak spends the money isn’t important.
Until now.
The new strings attached by Congress, forcing Amtrak to better yield manage its fares and stop these socialist discounts designed to just get warm bodies on trains, hopefully will bring more needed scrutiny to the fare process, and up the average ticket price and value of a revenue passenger mile. None of this micro managing would be necessary if Amtrak would force itself to act more like a real company like Amtrak Chairman of the Board David Laney is trying to do and less like a socialist provider of transit and commuter services. After all, Amtrak is America’s national passenger railroad first, and the provider of corridor services second. At least, supposedly so.
- Last week’s TWA, using Amtrak figures provided for each individual state in which the railroad has operations, the amount of expenditures, number of employees, and gross payroll for each state was listed. For Florida, the listing included,
Ridership 913,553 Expenditures $13,689,114 Employment 990 residents Payroll $43,924,411 This prompted a reply from a South Florida TWA reader:
“If so much money is being poured into Florida trains, I would like to see where the money is going. That … [Mr.] Gunn discontinued the Florida segment of the Palmetto and now, one of the fastest growing areas of our state, Central Florida, from Ocala north, is without train service. It is possible to use an Amtrak bus, but pardon my ignorance, I thought Amtrak was a passenger rail company, not a bus company. It is quite obvious the resources are being wasted.”
Well said.
- Certainly, you’ve noticed the high-volume Christmas season is upon us (And, yes, it is the Christmas season, not the annoyingly politically correct heathen Winter Holiday). Passengers laden with Christmas presents (but, please, no more than two pieces of luggage per passenger since for some inexplicable reason baggage cars are now few and far between as an Amtrak “service improvement”) are boarding long distance trains bound for home and hearth and loved ones.How ready is Amtrak’s mechanical department for this known in advance onslaught? Let’s take a look at Amtrak’s daily report for December 8th.
- Fleetwide, there are 1,371 active Amtrak passenger cars, with a daily requirement of 1,112, and 1,145 available for service, a margin of 33 spare cars to cover the entire North American continent.
- On the NEC, there are 419 active cars, a daily requirement of 372, but only 364 available for service on December 8th, a shortage of eight cars.
- For single level Viewliner sleeping cars, there are 48 active cars, a daily requirement of 39, and 40 available for service, a margin of just one car to cover five trains on different routes.
- Superliner coaches are wanting; there are 158 cars on the roster, a daily requirement of 128 cars, but only 126 cars available for service, a deficit of 32 cars out of service.
- Superliner sleepers are in better shape than coaches. There are 106 active cars, a daily requirement of 73, with 83 cars available for service, a margin of 10 cars nationwide, including the Auto Train. Twenty-three sleepers are out of service.
- Superliner diners have a safety margin of five extra cars, nationwide, with 13 diners out of service.
- On the Wondertrain Acela front, all 20 trainsets are active, there is a daily requirement of 14 sets, and 19 sets are available for service.
- For Auto Train, there are eight bi-level van carriers required, but none are active, and none are available.
This is just the middle of the third month of the fiscal year, usually when money is plentiful. How close is Amtrak planning to cut the margin, and still accommodate everyone who has bought a ticket for Christmas travel? If it’s this close now, what will it be like at the beginning of the peak travel season next summer when the budget year is near an end?
Volume 2 Number 41 — December 12, 2005
- Come February, don’t get on certain Amtrak trains when you’re hungry. You likely won’t have your appetite appeased by what is being served – or, perhaps, what is not being served. Amtrak is preparing its dining car crews for serious cutbacks in February 2006 with the instigation of one of Amtrak’s worst concepts: “diner lite.”Diner lite will be instituted on the Crescent (still, despite every effort by Amtrak’s dining car department, one of the railroad’s best diners), one of the two Florida trains, the City of New Orleans, Texas Eagle, the Cardinal, and most likely one of the Western transcontinental trains (probably the Sunset Limited). This disaster-in-the-making program was first pulled from under a slimy rock earlier this year when Amtrak was in one of its “wannabe airline” disaster modes.
Diner lite will be an overblown lounge car, such as used to be featured on the old Montrealer before that train was discontinued, and in the combination first class lounge and diner of the old Night Owl before that train lost its sleepers (do we see a pattern here of discountenances?). The meals served are “plated” meals, meaning it’s a non-changeable preset offering on a plastic tray (visualize a public school cafeteria) that is warmed either in a microwave or convection oven. It’s a take it or leave it offering, with little consideration for those with special dietary needs, or those who prefer real food freshly prepared.
In yet another soon-to-be failed scheme to save money, Amtrak is trying yet once again to cut its way to prosperity. Instead, it will once again (don’t these people every learn?) cut its way to doom and failure. For the money Amtrak is charging sleeping car passengers, this barely concealed worst of airline-style food will not be a huge hit with passengers, who are expecting a real menu with real choices with real food. Coach passengers, who regularly dine in the lounge car due to the exorbitant prices in the dining car, will probably not feel the shock of this change. We don’t know yet if a feature of diner lite will be charging sleeping car passengers for food instead of including the cost in the accommodations charge.
Again, Amtrak is choosing to forget that civilized travelers – at least those with any sense of the delights and joys of eating morally admirable meals versus those automatons who just eat for the fuel value – consider meals an integral part of the social and cultural travel experience. The food and beverage experience is considered a desirable part of travel, not just a necessity two or three times a day.
How expensive is it to eat in the dining car today for coach passengers who do not have the cost of their meals included in the cost of their accommodations as the sleeping car passengers now do? For a family of four traveling together, a typical dinner in the dining car will run around $100.00, plus tip. A little high, you say? Particularly so when you consider the average Amtrak per passenger ticket price of $50.15. That means it costs a family of four $200.60 to travel, and $100.00 to eat dinner, plus, regrettably, often putting up with a grumpy wait staff, too. What’s wrong with this picture?
We know that Congress attached strings to this year’s crop (FY 2006) of free federal monies that includes making improvements in the cost of doing business in food service. Naturally, Amtrak’s knee jerk reaction is to cut costs instead of increasing revenues. Heaven forbid these bureaucrats would take passenger service into consideration. As usual, the safety and comfort of the average Amtrak passenger is taking a back seat to any type of intelligent business solution to this problem. With silly programs like this, Amtrak Acting President David Hughes has almost as much chaos to clean up after his martyred predecessor, as his predecessor did when he arrived in 2002.
- While we’re talking about a bad case of corporate poisoning of the Amtrak dining car department, let’s talk about sleeping car passengers. Since every sleeping car passenger receives their dining car meals included in the cost of their sleeping accommodations, these passengers are the major benefactors of the dining cars (see above for who else could possibly afford to eat in an Amtrak dining car). Amtrak sleeping car revenue for FY 2004 was $128,109,534, the last year audited figures are available for; the FY 2005 unaudited figure is about the same, $128, 673,406, an increase of just less than $600,000. Total revenue for FY 2004 for the 16 long distance trains was $407,800,000; the sleeping car passenger revenue represented 31.4% of that total, a substantial amount.Amtrak does not break out how much of the $128 million went to the dining cars, but an educated guess of 10 to 20% of the revenue, or $12 to $25 million of the revenue was assigned to the dining cars for passenger meals. Total Amtrak food and beverage revenue for FY 2004 was $80,394,000.
Together, Amtrak sleeping car and food and beverage income totals around $175,000,000 a year (allowing for sleeping car passenger revenues flowing to dining cars so as to not count those monies twice).
That means that roughly 11% of Amtrak’s total revenues comes from a combination of sleeping cars and food service/dining cars. While to some (such as the USDOT inspector general) this may seem a disturbing and insignificant amount, what the real intrinsic value of this amount is can’t be told under Amtrak’s present accounting system. How many people take the train for the full service of amenities, including sleeping and dining car service? What value would train service have to potential new passengers if these services became any less than they are today? Do people travel by train because of the uniqueness of train travel with full amenities, the necessity of train travel in some rural areas, or because of a fear of flying?
Of course, one way to find out would be to cancel these services and let the traveling public vote with their wallets and choice of travel modes. That happened once before, in the late 1960s, and was one of the reasons Amtrak was formed to be a nationwide passenger rail service. Have we forgotten history enough to have to repeat it?
- As usual, there is much talk about the NEC when talking about Amtrak’s future. Along with this, there is also talk about who the next permanent president of Amtrak will be in 2006. The two topics are usually intertwined and mentioned in the same breath.One railroad industry publication editor went on record in his magazine saying that only a “railroader,” and not a businessman is qualified to be president of Amtrak.
Also, many rational people realize that the financial problems of the NEC are the same now as they were when the original private railroad owners of the NEC went into bankruptcy in the dark railroading days of the 1960s and 70s. Here is what one wit had to say about the next Amtrak president, which pretty well sums it all up:
“Would those be the railroaders who ran the Pennsylvania Railroad? Or the ones who planned the PennCentral merger, and then ran it into the ground? Or the railroad geniuses who bankrupted the New Haven, largely on the strength of the passenger rail markets in New England? Or possibly those USRA visionaries who dumped the NEC ‘asset’ onto Amtrak’s balance sheet (for free, remember, and ‘no backs’)? Or the professional rails who bid and paid more of their bankers’ and shareholder’s money for Conrail than the entire industry was worth (in balance sheet book value at the time)? Yes, do bring on those railroad geniuses and let them have access to a billion and a quarter dollars a year of public money to run subsidized transit services in a handful of urban markets at a negative rate of return on invested capital. That is truly a great plan.”
Nothing more needs to be said on that part of the topic.
Here is what a Central Florida wag had to say about Amtrak, in general:
“One Amtrak apologist and cultist and alarmist said, ‘Consider this, when Amtrak goes away, nothing will replace it.’
“Let’s go further with that. Consider this, when Amtrak goes away, who’s even going to notice? All the residents of Phoenix, or Houston, or Tampa? Amtrak is way in the background there. Ah, but what about all the commuters on the NEC? Okay let’s get real for a minute. The commuter trains will undoubtedly still run. Beside that, how much useful transportation [on a national basis] are we really talking about?
“Here’s the same question through a looking glass.
“What percentage of the population in the heavy population areas use trains? (High)
“What percentage of the population in the low population areas use trains? (Low)
“Well enough. Now let’s add a filter:
“What percentage of those in the heavy population areas who use trains use Amtrak? (Low)
“What percentage of those in the low population areas who do use trains use Amtrak? (Higher)
“And then we can have a debate over ‘Where is Amtrak most irrelevant’!”
Add a California voice to the mix:
“Isn’t what’s really all behind this is if Amtrak goes, the NEC States know they get the whole bill for the corridor? The long distance trains for over 30 years have been used for political leverage to scare people to subsidize Amtrak with most of the money going into polishing the rails of the NEC. No local town wants to ‘lose’ anything, even rail service. If people were logical, no city would pay to build new sport stadium to ‘keep’ their team in their town.”
- Amtrak’s Chicago mechanical forces didn’t waste anytime this year getting into their usual winter patterns. On December 8th, train no. 347, the Illini, was late leaving Chicago due to the entire consist being frozen, and having to be thawed. And, it’s not even the first day of winter, yet. What’s it going to be like in January and February? Guys, as said before, go down to the local hardware store and pick up some rock salt and snow shovels. Don’t forget to plug those empty trainsets into the shore power electric grid that is specifically for the purpose of keeping heat and air in trainsets waiting for service. This isn’t rocket science. We know you can do better.
- We reported in this space earlier that Amtrak NEC officials are closely monitoring the performance of Wondertrain Acela. Taking a leaf out of the Empire Builder monitoring book, Amtrak has added an entire new page to the internal operations daily report, monitoring a couple of dozen reasons for any type of delay from mechanical to weather to passenger train interference for Wondertrain Acela.This type of specific monitoring has been used for the Empire Builder experiment these last few months since the wonderful service upgrade experiment began.
Both of these are excellent starts to what appears to be a welcome renewed emphasis on passenger service and taking responsibility for delays and problems in certain segments of the company.
- NARP, the National Association of Railroad Passengers, is the organization that has had its allegiance to Amtrak senior management bought and paid for through the thousands of dollars Amtrak has paid NARP to run its customer advisory council and through long time favors of access to executives on all levels and internal information. Amtrak, which, for the non-rational reason of solely because NARP members like to ride trains, offers NARP members a 10% Amtrak rail fare discount (all other affinity groups such as senior citizens, veterans, and college students, have a legitimate reason for being rewarded an Amtrak discount, versus just paid membership in a railfan hobbyist organization). NARP is once again hamming it up that the sky is falling and grave crisis is afoot in the land.NARP chose a most sacred day, December 7th, Pearl Harbor day, to launch its own unwanted attack (seemingly somewhat obviously at the behest of Amtrak) on part of new requirements by Congress to micro manage Amtrak.
Congress went a bit too far in the recent authorization of Amtrak’s free federal money subsidy for FY 2006 by decreeing that Amtrak may not offer a discount of more than 50% from any peak fare offered by the railroad. If Amtrak would have behaved itself in the first place, there would be no reason for Congress to put such silliness into actual legislation. However, it’s there, and NARP is leading the charge to have it repealed. This is hardly an issue most members of Congress are going to get worked up over anytime soon.
NARP said, in a communication to members,
"The appropriations law … contains a provision that will make rail travel unaffordable for many Amtrak passengers, reduce Amtrak’s revenue, harm bottom line performance and possibly place routes and trains in jeopardy of discontinuance.
“The provision prohibits Amtrak from selling … tickets at fares that are less than half the normal, peak fare. Currently, 40% of Amtrak’s regular revenue-managed fares and many promotions – including some that are written into Amtrak’s contracts with states – fall below that level.”
Whew! Did they forget to mention, too, that the sky will now be green, grass will now be blue, and there won’t be a chicken in every pot?
It’s this type of demagoguery that tells you why so often this organization is not taken seriously by many in charge in official Washington.
Look at some facts, first. For far too long, Amtrak has been diluting its average fare and average revenue passenger mile value by a combination of deep discounts and buy one-get one or two free promotions. Always relying on the unimportant and incorrect method of bragging about the number of riders instead of the only true measure that common carriers use – revenue passenger miles – Amtrak has been fooling itself and its bankers (the USDOT and Congress) about its actual performance.
Amtrak’s average fare in FY 2004 was $50.15, a grossly low number, considering that over $128 million of the total fares collected by Amtrak in that year came from overly high sleeping car fares. The average value of a revenue passenger mile was 22.61 cents.
Much of this dismal performance was achieved by deep discounts, such as the now banished 70% discounts for multi-pass riders on the NEC. On the Left Coast, commuter riders on the Capitol Corridor, San Joaquins, and Pacific Surfliners have had similar discounts, too. Along with Amtrak habitual recidivism in managing its fare structure to attract ridership instead of revenue, all of this has resulted in a need for high amounts of free federal monies and state subsidies instead of Amtrak attempting to reasonably collect fares that reflect the true value of the service Amtrak is providing. In other words, the socialist approach has been taken: don’t worry about income, just provide a service and let the taxpayers pick up the difference. To many socialists, rational people have taken this to be the wrong view.
The squawking has been the loudest from Northern California, where apparently, the thought is that somehow cheap passenger train service is part of our nation’s constitutional guarantees, and the worry is more about high cost and low investment return commuters instead of more profitable long distance train passengers. There is no requirement nor mandate for Amtrak to be a public service. It is a viable transportation choice as part of our domestic transportation network, not a necessity that must be provided at any cost to the taxpayer.
Here’s the basic message: for a business (and, make no mistake about it, Amtrak is a real business) to flourish, grow, and provide good service, there must be a flow of adequate revenues, even (gasp!) profits are desirable. Realizing that it’s difficult for Amtrak apologists and cultists to grasp this concept, here’s some further explanation.
Do not forget the “Braniff factor.” Back in the early 1980s, Braniff Airlines was one of the best airlines flying, with a flair for good service. Some marketing mastermind with Braniff invented the one day giveaway sale, where tickets on Braniff sold at up to 90% and more discounts. The ploy was meant to call attention to the airline and to fill otherwise empty seats, hopefully with people who would fly later at regular prices (does this sound familiar?). The sale worked, the planes were chocked full of travelers, and Braniff became [in]famous in the airline and travel industry.
Braniff liked this so much, the airline continued to have the sales. The flying public was ecstatic. The marketing scheme had one drawback. It worked too well. In the process of all of this, Braniff trained its passengers to wait for any type of vacation or discretionary flying until the next sale happened. Regular ticket sales fell off; planes and seats were empty. The inevitable result? This once well thought of and prosperous airline flew into bankruptcy and liquidation. The moral of the story is that you cannot promote yourself to prosperity by giving away your product. The public begins to perceive that your product is only worth the lower value of the deeply discounted price, not the value of the real price.
Let’s get academic for a moment (stay with us here; it will only last for a moment, and it won’t hurt, too much). There is a proven concept in business economics called “elasticity.” Here is the definition: The degree to which a price change for an item results from a unit change in supply (called supply elasticity) or a unit change in demand (called demand elasticity). Opposite of inelasticity.
The demand elasticity – in layman’s terms, please – is the degree by which a price can increase and the resulting purchases will maintain a volume to which it still worth it for both the supplier and the consumer. In other words, the price can increase to a certain point (which in a chart would signify the degree of elasticity) where there are still enough consumers purchasing the product to produce a profit for the supplier. A product has elasticity when the price can increase and the demand remains. There exists inelasticity when the price basically doesn’t change demand – i.e., gasoline (in the short run).
When the elasticity is pushed too far – price outpaces the demand and purchases drop below that quantity which produces a profit for the supplier. The consumer number of purchases drops below what is adequate for the supplier.
In the opposite view, when a product has so many purchasers (demand) that the supplier has trouble providing that “much” product (seats), the elasticity allows that the price increase to the point where the supply meets demand – consumers are happy and suppliers are happy (full seats).
The elasticity of the product/service actually determines the price level at specific levels of supply. One may turn that around and say that too low a price allows more demand than can profitably be met by supply.
Well, that’s clear as mud to us normal people. Here is another example, in addition to the Braniff factor. Back in the late 1980s, a new hotel was built in Lake Buena Vista, a resort community flanking Walt Disney World in Orlando. When the hotel started accepting reservations, it set a certain price for its rooms. Every couple of days, the yield manager for the hotel would raise the price of the rooms a few dollars. This went on for about a month. Finally, when the price of a room reached a certain price, reservations started falling off, and demand slackened. The hotel yield manager realized that the hotel was now priced slightly too high, reduced the rate a few dollars a night, and higher demand ensued. Through this process, the hotel determined how much the traveling public was willing to pay for a room in the hotel and it could keep the hotel full. When the price got too high, the tariff was lowered, and high demand resumed.
From an Amtrak perspective, somewhere between Amtrak’s peak fares and its deepest discounts, there is an ideal fare to be determined for each class of Amtrak service that will bring in the most riders at the highest possible fare they are willing to pay to use Amtrak. This will provide for the highest utilization of equipment and revenues, and the most money flowing into Amtrak’s often near-empty coffers.
When the fare is too low through deep discounting just to fill seats, no purpose is served, other than transporting warm bodies. Deep discounts hurt the average ticket price, the value of revenue passenger miles, and create unrealistic expectations from passengers who will come to expect and demand these untenable fares. If you’re a socialist that believes government should control and pay for many things, none of this will bother you. If you live in the real world and understand that Amtrak is financially accountable to its bankers (the USDOT and Congress), these concepts are very important to you for the viable future of Amtrak.
Many people may call it capitalism, which is not, in the minds of most people, a dirty word.
The discovery of the perfectly valued fare with increase both ridership and revenues, and will not – under any circumstances – result in “mak[ing] rail travel unaffordable for many Amtrak passengers, reduce Amtrak’s revenue, harm bottom line performance and possibly place routes and trains in jeopardy of discontinuance.” That is hogwash designed to scare people.
Amtrak does not devote enough resources to basic marketing. It only has a budget of around $75 million, about half of what a normal company would have, based on revenues. Most of that $75 million goes for salaries and overhead (including telephone reservations centers), not actual advertising, Advertising accounts for about $30 million of the budget, a pitifully small amount.
As said often before, Amtrak is America’s best kept secret, sadly often at it own inept marketing hand. The long distance national system, which produces the greatest return on investment for the fewest dollars spent, usually receives no or very little of Amtrak’s advertising budget. High cost and low return services such as the NEC receive the lion’s share of advertising. This goes hand in hand with Amtrak’s overall philosophy of investing its financial resources in all of the wrong places, providing the lowest possible return. One has to presume that when the American taxpayer willingly coughs up free federal money every year, that such accountability on how Amtrak spends the money isn’t important.
Until now.
The new strings attached by Congress, forcing Amtrak to better yield manage its fares and stop these socialist discounts designed to just get warm bodies on trains, hopefully will bring more needed scrutiny to the fare process, and up the average ticket price and value of a revenue passenger mile. None of this micro managing would be necessary if Amtrak would force itself to act more like a real company like Amtrak Chairman of the Board David Laney is trying to do and less like a socialist provider of transit and commuter services. After all, Amtrak is America’s national passenger railroad first, and the provider of corridor services second. At least, supposedly so.
- Last week’s TWA, using Amtrak figures provided for each individual state in which the railroad has operations, the amount of expenditures, number of employees, and gross payroll for each state was listed. For Florida, the listing included,
Ridership 913,553 Expenditures $13,689,114 Employment 990 residents Payroll $43,924,411 This prompted a reply from a South Florida TWA reader:
“If so much money is being poured into Florida trains, I would like to see where the money is going. That … [Mr.] Gunn discontinued the Florida segment of the Palmetto and now, one of the fastest growing areas of our state, Central Florida, from Ocala north, is without train service. It is possible to use an Amtrak bus, but pardon my ignorance, I thought Amtrak was a passenger rail company, not a bus company. It is quite obvious the resources are being wasted.”
Well said.
- Certainly, you’ve noticed the high-volume Christmas season is upon us (And, yes, it is the Christmas season, not the annoyingly politically correct heathen Winter Holiday). Passengers laden with Christmas presents (but, please, no more than two pieces of luggage per passenger since for some inexplicable reason baggage cars are now few and far between as an Amtrak “service improvement”) are boarding long distance trains bound for home and hearth and loved ones.How ready is Amtrak’s mechanical department for this known in advance onslaught? Let’s take a look at Amtrak’s daily report for December 8th.
- Fleetwide, there are 1,371 active Amtrak passenger cars, with a daily requirement of 1,112, and 1,145 available for service, a margin of 33 spare cars to cover the entire North American continent.
- On the NEC, there are 419 active cars, a daily requirement of 372, but only 364 available for service on December 8th, a shortage of eight cars.
- For single level Viewliner sleeping cars, there are 48 active cars, a daily requirement of 39, and 40 available for service, a margin of just one car to cover five trains on different routes.
- Superliner coaches are wanting; there are 158 cars on the roster, a daily requirement of 128 cars, but only 126 cars available for service, a deficit of 32 cars out of service.
- Superliner sleepers are in better shape than coaches. There are 106 active cars, a daily requirement of 73, with 83 cars available for service, a margin of 10 cars nationwide, including the Auto Train. Twenty-three sleepers are out of service.
- Superliner diners have a safety margin of five extra cars, nationwide, with 13 diners out of service.
- On the Wondertrain Acela front, all 20 trainsets are active, there is a daily requirement of 14 sets, and 19 sets are available for service.
- For Auto Train, there are eight bi-level van carriers required, but none are active, and none are available.
This is just the middle of the third month of the fiscal year, usually when money is plentiful. How close is Amtrak planning to cut the margin, and still accommodate everyone who has bought a ticket for Christmas travel? If it’s this close now, what will it be like at the beginning of the peak travel season next summer when the budget year is near an end?