This Week at Amtrak 2006-03-16
Volume 3 Number 13
- From a TWA reader:
“Opening lines from a story in The Wall Street Journal, reprinted in today’s [local daily newspaper], on how cruise lines are positioning their ‘discretionary travel’ product: ‘A number of cruise lines are upgrading their amenities to attract more luxury-focused cruise-goers. … Carlson Companies … Seven Seas Cruises … plan[s] a new suite design, upgraded furnishings, down comforters, brand-name linens, … flat screen TVs and iPod music systems. Other lines promising more luxurious cruising include Celebrity Cruises, which ordered two ships last month that will have larger standard staterooms, more balconies and new ‘guest-inspired’ service and amenities. Holland America Line, which started a $225 million upgrade for its fleet, … will include more plush mattresses and flat screen TV sets.’
“I diligently searched the story for word of simplified dining options and reduced staffing to ‘cut costs’ of this profligate industry, but, alas, found none.”
This was forwarded to TWA from a reader in California, who has verified the contents of this letter:
“Mr. David Hughes
Acting President and CEO
National Railroad Passenger Corporation“March 9, 2006
“Dear Mr. Hughes,
“I have accumulated over 67,000 Guest Reward points since the beginning of the Reward program. I redeemed 40,000 points on a previous trip. I travel first class on long distance and corridor trains plus Acela Express.
“I have one question concerning your system-wide first class service. Why on Acela Express do you have additional onboard staff, expanded breakfast and dinner menus, delivered on china with silverware? Then on the long distance trains (The Sunset Limited) I cannot get bacon and eggs for breakfast, there is less staff except for an additional supervisor who is no help, and food that tastes like garbage.
“Is this an attempt to kill off the service, because if it is, it is working? To replace cooks with managers is not the way to address the congressional mandate. I believe that providing food service that is fresh and healthy, not full of sodium and preservatives, shows more respect for your guest than what is now being substituted for Diner Service.
“James R. Smith, Los Angeles”
- TWA received an internal Amtrak financial document outlining the profit and losses on system food service. Here is a breakdown, by route, of food service margins for last year’s budget, through the end of May, 2005.”Margin” is defined as the amount of money left over when costs are subtracted from revenues. In the real world, this term is also known as “gross profit.” The systemwide goal is to have a margin - or gross profit - of 46%.
Each route, and the amount of margin is shown.
Acela 28.8% Metroliner 23.7% Ethan Allen Express 80.2% Vermonter 50.5% Regional, including the Federal (NEC) 48.0% Maple Leaf 44.7% Empire Service 56.1% Adirondack 48.2% Carolinian 43.4% [None of these trains have dining cars] Average of Short Distance Eastern Routes 38.4% Silver Star 55.1% Three Rivers/Pennsylvanian 33.7% Cardinal 10.5% Silver Meteor 50.0% Capitol Limited 44.3% Lake Shore Limited 30.2% Palmetto 21.5% Crescent 51.6% Auto Train 45.9% [All of these trains except the Palmetto and Three Rivers have dining cars] Average of Long Distance Eastern Routes 45.1% Average of Eastern Routes Total 41.6% Texas Eagle (Chicago Hub) 56.3% Hiawathas 71.2% Wolverine 58.4% Illini 60.1% Illinois Zephyr 60.3% Heartland Flyer 18.5% Pacific Surfliners 41.8% Cascades 39.3% Capitols 26.6% San Joaquins 21.8% Blue Water 56.6% Kansas City Mule 56.7% Pere Marquette 56.0% [These trains have a mixture of cafe and lounge and cars, but no dining cars] Average of Short Distance Western Routes 39.5% Empire Builder 48.4% California Zephyr 55.7% Southwest Chief 64.2% City of New Orleans 53.7% Texas Eagle (Western) 51.1% Sunset Limited 53.3% Coast Starlight 55.2% [These trains all have dining cars] Average of Long Distance Western Routes 54.9% Average of Western Routes Total 50.7% Average of Short Distance Total 38.8% Average of Long Distance Total 50.8% Average of Systemwide Total 45.6% Some important notes: The numbers above include costs for food, comp food, liquor, non-consumables, re-useables, intra-company issues, condemnage, LSA overages/shorts, and other costs.
Not included is the cost of labor, which Amtrak claims is 60% of the overall loss of providing food and beverage services.
Why is the cost of labor not included in these figures? Because, Amtrak keeps its labor figures separately from other costs. We do know some labor costs are assigned to food and beverage because the company says what a high figure the cost of labor is for dining cars. We do know the figures above are for all food service, including cafe and lounge cars.
One of the reasons (but not a very good one) for keeping labor costs separate is the versatility of some employees. It is not unusual for a chef to be trained - and work as needed - as a chef, a lead service attendant, sleeping car attendant, or even an Onboard Services Chief when those positions were still being used, and switch jobs from departure to departure. So, someone made a corporate decision to charge labor to different accounts, and not apply it directly to labor intensive accounts such as food and beverage. Obviously, this clouds the financial picture considerably when trying to decode actual costs.
However, as shown above, dining, cafe, and lounge cars were very successful for Amtrak as the company’s accounting system showed and was designed for all costs other than labor. This means the real goal of food and beverage reform should not be to change the dining car service into Diner Lite as is now being done, but rather to mine the depths of Amtrak’s flawed accounting system to determine real costs of labor as applied to food and beverage service accounts.
The margins shown above represent millions of dollars of gross profit before labor costs, and any other corporate overhead which may be arbitrarily applied to food and beverage service.
Certainly, as shown, with a systemwide average of a margin of 45.6% out of revenue (and this is not for a full year, but just eight months of a year, not including the peak summer travel season) of $49,117,752, that leaves $22,397,694 for costs against labor. With an average cost (including benefits) of $35,000 for an eight month period (to match the eight months of revenue figures) for each dining, cafe, and lounge car employee, $22,397,694 will cover the cost of 640 onboard employees, including lead service attendants, service attendants, chefs, line cooks, and dishwashers.
As an estimate, there are 1,400 onboard employees (prior to Diner Lite) systemwide for food and beverage service, in all categories. Using the unrefined Amtrak accounting system, the figure above accounts for roughly half of those employees, leaving the cost of an additional 700 employees to be covered. Also, as an estimate, there are less than 600 employees working directly in dining cars systemwide. A rough calculation indicates that instead of cutting costs - which has wide ranging effects as demonstrated above, including unhappiness by both passengers and employees - the obvious choice beyond better accounting controls is to find a way to increase food and beverage revenues, thereby increasing the margin, thereby lowering the alleged loss. Under the system present before Diner Lite, there was large available capacity for the same number of employees to serve more passengers more meals, snacks, and beverages, forcing only an upward cost in direct consumable items such as food and paper goods, and no increase in labor costs.
Amtrak has approached the problem of food and beverage costs exactly backwards, with an already disastrous result, slashing food service and creating grumpy and disgruntled passengers.
Next week, TWA will address issues about how Amtrak can improve its food and beverage services while still maintaining full service dining, cafe, and lounge cars.
- This Week at Amtrak is often honored by readers with unsolicited comments. One such comment arrived this week.
“I recently came across your web site while perusing ‘Trainweb’ [on the Internet].
“I’ve been a casual Amtrak traveler for many years and have enjoyed most every experience I’ve had on the train. I live in Fargo, ND, so I must utilize the Empire Builder to begin my trips. Over the years I’ve traveled on the Capitol Limited, the Lakeshore Limited, The Cardinal, the City of New Orleans, the Sunset Limited, the Silver Star, the Carolinian, the Talgo, the Metroliner, and the Acela. I recently completed a round trip, Fargo - Whitefish MT - Fargo.
‘I’m a strong supporter of passenger rail. I write my North Dakota congressional delegation regularly, write letters to the White House and Norman Mineta when I feel the need to emphasize a strong point regarding passenger rail.
“Along with all this, I’ve been a member of NARP for many years and have digested all that I’ve been told (read). I believed that NARP was ‘on the right track’ in their approach to supporting and strengthening passenger rail, including long distance passenger rail.
“Upon reading much of the material of yours (via your web site), I’m amazed by the drastically more thorough approach, insight, and ideas that your organization has towards passenger rail. It appears that not only myself, but the American public have been kept in the dark on the matter of passenger rail. I’ll continue reading your material from your web site so I can educate myself a bit more in depth.”
Our thanks to the writer. If you have comments to send about TWA or the URPA web site, forward them to brichardson@unitedrail.org for consideration for publication.
- News item found this week: China announced that it will use high speed rail technology rather than Maglev for an all-new, 820 mile line between Beijing and Shanghai. Estimated cost: $17.4 billion. Speed goal: 220 mph. No word on catchy brand names, such as “Acela.”
- The Amtrak Marketing Department is at it again, giving away seats in a buy two, get one free deal, this time on the Northeast Corridor’s Wondertrain Acela service. Time and again we have seen this same strategy used, as if there is no other solution than giving seats away.Let’s look at this strategically. One item that Amtrak has at a fixed cost is the number of seats and berths it operates on a daily basis; this number is static as long as train consists don’t change. In the passenger transportation biz, the most perishable item found is a seat. Once the train leaves the station, that sale opportunity for that seat has vanished. So, the conventional wisdom is that since these seats are vacant anyway, it doesn’t cost anything to give them away, and hopefully bring on board new passengers who will come back again, credit card in hand.
That is a proven theory, but the huge problem is when too many of these seats are given away, there are ripple effect ramifications throughout the company. All accounting that leads to the companywide accounting of the average value of a ticket on Amtrak is based on the number of passengers and the amount of income derived from those passengers. When passengers ride for free through promotions such as this, it raises the passenger count, but produces no revenue, so it lowers the average value of each ticket sold. Since the average value of a ticket is one of the measures of Amtrak’s success, the lower the value, the less success achieved. The less success achieved, the grumpier Amtrak owners and bankers - the United States Department of Transportation and Congress - are about continuing to support a money-losing proposition.
We know that Amtrak likes to improperly emulate transit agencies and measure its success by the number of riders. We also know the only true measure of success is revenue passenger miles generated, making the number of actual riders a meaningless statistic used for cosmetic purposes, only. So, this type of promotion may work to bring in new passengers at allegedly no cost, but overall, it hurts the company in the big picture because it lowers the average value of a ticket for success measurement purposes, and it also trains the traveling public to wait and travel when deals like this are offered, instead of paying full fare when travel is desirable.
Many other successful marketing strategies can be employed other than use of high discounts or free tickets. Many successful companies use these strategies every day, especially when selling to high demographic markets like premium Wondertrain Acela passengers.
One other fact needs to be mentioned. This is the high season for business travel on the NEC. Sales like this demonstrate sales are soft, and load factors are low. Why is Wondertrain Acela, allegedly the greatest success in the Amtrak system and the alleged flagship of the fleet, suffering low revenue passenger miles in the heaviest demand time for business travel?
- A touch of humor for today: A grossly inept socialist started spreading a rumor on the Internet this week that one of URPA’s officers had been appointed to a federal panel working on freight transportation issues. This caused something of a look of exclamation among those of us at URPA, particularly the gentleman in question that had allegedly been appointed to the federal panel, since he was pretty sure that he hadn’t been appointed to anything, other than his wife telling him to clean up the kitchen after dinner the night before.What we are all pretty sure of is the real person appointed to the federal panel on freight transportation issues is the distinguished conservative, former Amtrak Board of Directors member, Vice Chairman of the former Amtrak Reform Council, and founder of the Free Congress Foundation, Paul M. Weyrich. Mr. Weyrich is always an excellent choice for any endeavor that requires someone of wisdom, knowledge, and foresight.
By the way, the same inept socialist that started this rumor also previously breathlessly and incorrectly said that former Amtrak Board of Directors member Amy Rosen was imminently going to be the next president of Amtrak last Fall. We all appreciate the comic relief provided by his always hilariously wrong comments.