United Rail Passenger Alliance

Volume 4 Number 2

1. Last week’s This Week at Amtrak brought some interesting comments this week. One, from a middle-aged wag in California noted how difficult it often is to find an Amtrak train station in any given city or town. He, and another gentleman noted that road signs appear for almost any reason these days along public right-of-way, announcing the smallest and most insignificant public park, tourist trap, or commercial venture, yet, rarely do signs appear directing the general population to the nearest Amtrak station.This problem was solved a number of years ago here in Jacksonville because URPA founder Austin Coates made it his mission to badger the Florida Department of Transportation into erecting signs along Interstate 95 and other feeder roads to the specific Jacksonville Amtrak station. In North Carolina, a state which has a high interest in passenger rail, many signs are present along I-95 directing drivers to the various stations in the state. This is true elsewhere, but not everywhere.Is this yet another worthy and inexpensive mission Amtrak has failed to spend the salary of a junior manager on to reap hundreds of thousands of dollars worth of free publicity by announcing to all drivers directions to the nearest Amtrak station? Isn’t this something that could become a motivating project for a rising young star in the Amtrak firmament; a year’s worth of effort that would produce incalculable amounts of revenue for years to come? Can someone start working on this, today?
2. Another area of consideration are official state tourism Internet sites. Every state has one, but not every state mentions Amtrak as a way or getting to or getting around the state. This is another case of “Amtrak blindness,” where travel planners and promoters have no idea Amtrak exists, or, if it does, it goes anywhere someone may want to travel. The same holds true for state department of transportation Internet sites. Lots of things about highways and interstate highways, but, often, not a word about passenger rail. At least, we could hope Amtrak becomes an afterthought, instead of no thought at all.
3. If you love to go to the movies, you know it has become common practice to screen commercials before the movies, in addition to previews. Some of this movie theater commercials, such as the famous Coca-Cola Christmas bears are great fun and have a huge impact. These commercials are generally considered institutional advertising, versus a specific type of advertising which has a call to action.A dark movie theater with a huge screen provides the most conducive atmosphere for absorbing visual images accompanied by high quality sound. Imagine what an impact a wide screen movie theater commercial for Amtrak could have on people who have never ridden a passenger train, much less seen a train. A clever marketer could find a way in a short commercial to introduce the high points of train travel such as accommodations, scenery, the ability to move around, food service, and much more. All on a huge movie screen in a slickly produced advertisement.
4. Here in Florida, tourism is big business. In fact, we rely on tourism so much that everything we do in Florida is geared to the Yankee tourists. We don’t have rain in Florida - we have liquid sunshine, so we don’t scare the tourists away.As a result of this we’ve learned a few things about reaching tourists. One of the best way to reach tourists is through the paid brochure racks at Florida Welcome Centers and in motel lobbies. These racks feature all sorts of tourist attractions, discount books, and more. The racks are found not only in Florida, but almost anywhere there are travelers. The cost of stocking these racks is cheap, and the cost of printing in huge bulk quantities is often much cheaper than reaching targeted demographics in traditional publications.If Amtrak used these racks, it’s doubtful anyone already on a trip would change their mode of travel. However, we know materials picked up from these racks are read and absorbed (and can be tracked through coupon codes and other ways) and acted upon. A brochure read today may not cause an instant reaction, but a brochure read today may cause a reservation for the next holiday trip.
5. Let’s go through an exercise together as to how Amtrak can greatly improve its financial fortunes with a relatively small cash investment.Here are some things we know:
   • Amtrak’s greatest potential for growth, in terms of both revenue and profits is in the national system, outside of short distance corridors. The trains and routes involved, and the FY 06 load factors for each train are the Coast Starlight, 56%; Empire Builder, 59%; California Zephyr, 50%; Southwest Chief, 63%; Sunset Limited, 44%; Texas Eagle, 49%; City of New Orleans, 49%; Lake Shore Limited, 63%; Capitol Limited, 61%; Cardinal, 51%; Auto Train, 53%; Silver Meteor, 57%; Silver Star, 55%; Palmetto, 44%; and the Crescent 49%. All of these trains, with the exception of two, are traditional long distance trains with baggage cars, coaches, sleepers, diners, and lounges. The Palmetto has no sleepers, and food service is limited to a lounge car. The Auto Train, has no baggage service, but does handle the carriage of automobiles, vans, and motorcycles along with all other long distance train amenities.
   • All of the above named trains are running with relatively small consists, with limited sleeping car and coach space.
   • The average load factor on these trains for FY 06 was 53%. A long distance train is considered “sold out” at a load factor of 65% due to on/offs and seat/berth turnover.
   • The total revenue produced by these 15 trains for FY 06 was $382,200,000, solely from ticket revenue and food and beverage sales.
   • Advertising and sales expense for these 15 trains was $18,900,000. In a normal company, advertising and sales costs would be budgeted at roughly 10% of revenue, or $38,000,000.
   • We want to increase revenue/income without dramatically increasing expenses. Since the 15 trains are running an average load factor of 53%, and a sold out train runs at a 65% load factor, we should be able to raise the load factor by 10% without adding any additional equipment or onboard employees, except in the dining car where 10% larger crowds could be expected.
   • For mathematical equation purposes, let’s divide the revenue by the advertising cost to determine that under present conditions, it costs $1.00 in advertising and sales costs for every $20.00 in revenue generated. Expressed another way, every percentage point of load factor costs $356,603 to generate.
   • We know this is simplistic, because like every other costs, advertising and sales costs are not measured on a dollar-for-dollar basis. However, for hypothetical purposes, this model is the simplest way to demonstrate an approximate cost to increase revenue passenger miles and load factor on Amtrak’s 15 long distance trains.
   • If we want to increase the long distance train load factor by 10%, by this formula we must increase the long distance train advertising and sales budget by $356,603 x 10, to equal an increase of $3,566,030 in advertising cost to generate an increase of long distance train revenue by $71,320,600, without adding any additional equipment to existing train sets, no additional stations or route changes, and only minimal costs for additional onboard supplies such as sheets and pillowcases, dining and lounge car food, and additional dining car personnel. This requires no new concessions by the host freight railroads, no new union agreements, no experimentation in new programs, and no new management structure.It’s always prudent to be conservative when estimating costs and income. Let’s triple the amount in advertising and sales costs to generate another 10% load factor. That will make the new figure $10,698,090, or 15% of the anticipated revenue.So, using the conservative cost figure, this simply requires an increase of $10,698,090 in Amtrak’s long distance train advertising and sales budget, which is .003 of Amtrak’s FY 06 expenses. In other words, it’s pocket change in the overall Amtrak universe of spending, which would generate an additional $71,320,600 in high profit revenue.Amtrak long distance train revenue passenger miles for FY 06 were 2,430,166,000. The average revenue passenger mile generated just under 15 cents per mile. To generate $71,320,600 in additional revenue for a long distance system increase of 10% of the load factor, 475,470,666 additional revenue passenger miles will have to be generated (about 19% of the revenue passenger miles now generated).

     Now that we have demonstrated how much passenger revenue is just waiting to be harvested, when each of these trains consistently start reaching about 60% load factors, start adding sleeping cars and coaches to the consists. Again, the incremental costs of adding these cars to existing trains with no new train miles, but an increase in seat miles, can make more of a dramatic difference in income for Amtrak’s long distance national network. All Amtrak passenger trains, be it a single level train with Viewliner sleeping cars, Heritage diners and Amfleet coaches, or a Superliner train with every car configuration available, can run up to 18 cars per consist without having an impact on the hotel power head end electrical supply from the locomotive (In Canada during the heavy summer travel months, the Canadian, from Toronto to Vancouver, using the same electrical system as Amtrak, regularly runs 20 and 21 car consists.). It is rare today to see a typical Amtrak long distance train with more than nine or 10 cars. When you double that number of cars, you double the number of revenue opportunities, but don’t double the costs because of static train mile costs, station costs, and headquarters overhead costs.

     Let’s be blunt. With Amtrak’s present anemic long distance system (with the caveat of having the Sunset Limited and Cardinal run daily), it is not unreasonable to determine that the long distance system, with better marketing and longer consists, could generate a much higher return on investment and positive cash flow for the railroad than any other part of the company, including the Northeast Corridor and the obviously cooked books of the Acela service. By doing this, Amtrak would be living up to its original mandate and mission to operate a viable long distance train network and provide a service to those Americans and visitors to America who wish to choose passenger rail as their preferred mode of intercity travel. All without continuing handouts of free federal money.

6. To augment our brief exercise above, review this article from Andrew Selden which ran in TWA issue number 3-45 on November 8, 2006.
   

   By Andrew Selden

   Some of the data that no one (including Amtrak itself) seems to understand about the Empire Builder, and the interregional trains generally, includes these points:

   • The Empire Builder is, by a wide margin, the highest grossing (in ticket revenue) single train that Amtrak operates, despite being …
   • … the most geographically-isolated train in the country, and traversing the least-populated route in the country.Isn’t that remarkable? How could those two conditions co-exist?
   • The Empire Builder also generates, by a VERY wide margin, the highest output of any single train Amtrak operates. Output is measured by revenue passenger miles, not ridership. Ridership (which is a measure only of transaction volume) is almost irrelevant to any meaningful measure of performance of any passenger transportation service (except in cases like urban transit systems where fares are not variable with distance, and headcount is a valid proxy for revenue, but still not output).
   • The Empire Builder’s remarkable results come about because it has the longest average trip length of any train in the system, over 800 miles. That means that the average passenger is on board for about 18 hours. Some traverse the entire route, and some even travel beyond by connecting to or from other trains at the three end-points. This average trip length is functionally identical to the average trip length in the U.S. commercial aviation industry. Every seat and every berth on this train turns over on average two to three times every trip.
   • Calculations made by the Minnesota Association of Rail Passengers, before Amtrak stopped carrying mail and express on this train, the Empire Builder contributed from its revenues about $20,000,000 a year in free cash flow, after paying all of its direct operating expenses, towards Amtrak systemwide overhead and fixed costs.
   • The Empire Builder would do even better commercially if Amtrak would add capacity to the train. It runs with one fewer coach and sleeper lately than it used to in the 1990s. That is not because demand is lower — in fact, demand is very high and growing — but because Amtrak does not have, or chooses not to assign, additional cars to this train.
   • The Empire Builder, year in and year out, has extremely high utilization. Its load factor (the proportion of available seat miles that are occupied by paying passengers, i.e., available seat miles divided by revenue passenger miles) is in the range of about 60%. A long distance train is functionally sold out at about 65% (because of all of the many on-and-off boardings across its long itinerary), and the Builder is in fact sold out during the summer and holiday peak periods, especially in the sleepers. This compares well to the regional corridors, including the Northeast Corridor, where load factors range from the high 20% range to about 35-40%, which means Amtrak cannot sell, or even give away, well over half of its inventory in the short corridors, where it competes with private automobiles.
   • As a group, the long distance trains require (depending on whom one asks) between $100 million and $300 million a year in subsidy (at Amtrak’s current and bloated fixed costs; Amtrak refers to the $300 million figure, while a Federal Railroad Administration study a few years ago pegged the losses at under $100 million); the rest of the $1.3 billion annual subsidy goes to subsidizing the Railroad Retirement Fund and debt service (from borrowings used for the Northeast Corridor eight years ago), totaling a little over $200 million, and the rest — about $750 million a year — subsidizes Amtrak’s short distance corridor services. Of that $750 million, more than 90% goes to support the Northeast Corridor. The long distance trains collectively produce about half of Amtrak’s total output of transportation, on less than a quarter of the annual federal subsidy, while the short distance corridors produce the other half of system output on about three quarters of the subsidy. The long distance trains are nearly full, while the short distance corridor trains, statistically speaking, are more than half empty. Which of these services is “successful”? Which has the greater growth potential? In which segment does the federal government pay more subsidy in the aggregate, or per passenger mile of output?
   • Despite the foregoing, Amtrak has always plowed, and continues to this day to plow, the vast majority (historically, nearly 95% of its available investment capital — its annual free subsidy from the federal government) into the short corridors, and 90% of that has gone into the Northeast Corridor, where over the last two decades, in purely financial terms, Amtrak has achieved a negative rate of return on invested capital — it loses more money there every year than it ever has, and the annual losses are continuing to increase.
   • In terms of capital investment, while the Northeast Corridor has received more than $20 billion over the last 25 years (which is equal to nearly $55 billion in today’s dollars), the Empire Builder has received NO net capital investment at all. Amtrak has never addressed what performance metrics the Empire Builder — and its sister trains — could achieve if they were to add carrying capacity to match latent public demand for this service, and especially if they were to be networked into reliable interconnections with other existing trains and routes to allow usage by people in still more origin-destination city pairs than can now use these once-a-day (or less) services.Thus, when we see discussions along the lines of, “What is to be done with this train/these long distance trains? It/they cost(s) so much, yet seem(s) so popular,” it’s perplexing, because no one ever wants to get into the actual results of operations of the Empire Builder, which by ordinary business standards are very, very good. If Amtrak were being run like a business, instead of a subsidized public transit service for the Northeast, it would be pouring capital into the Empire Builder and the other long distance trains, rather than starving them and then wondering why they aren’t doing well, by Amtrak’s distorted measures of performance.

7. Going back to last week’s TWA and the ABC News story about the changing Amtrak dining cars, it’s tough not to consider what a 10% increase in load factor would do for Amtrak’s food and beverage business on long distance trains.Superliner dining cars were designed for a crew of 11 employees. The cars were designed to be full service rolling restaurants offering full menus of freshly prepared food. Amtrak is currently running crews of less than half of that under the new Dining Car Lite program. Those numbers will be decreased further by the combination of the dining and lounge cars into one car.The only bright spot from a passenger perspective (and, lest we forget, providing service and transportation to passengers is Amtrak’s sole reason for existence) is the extended hours of the new cars, from early morning to late at night. In other words, when the car is out on the road, other than for the few hours of night time rest the crew has, the car is making money. That is not the case with today’s dining cars, which are only open a very limited number of hours, mostly for the convenience of the crews instead of the passengers.Since Amtrak says it loses about $300 million a year on long distance train operations (but the FRA says that figure is less than $100 million a year), what would an increase of over $71 million a year in revenue with only minimal, incremental increases in expenses, do to the Amtrak long distance system? That extra $71,000,000 may make decision makers sit up and take notice how important the long distance system is, and how a minimal amount of investment in the system produces far greater return on investment than any possible amount of money invested into short distance corridors.

   A huge potential for Amtrak is sitting right under its corporate nose. Let’s hope someone doesn’t sneeze and blow it away.

8. As noted late last year in TWA, the cost of making the Sunset Limited and Cardinal into daily trains is minimal in relation to the high cost of continuing the trains under tri-weekly service. When you consider the above scenario about filling existing trains to capacity, it’s a natural progression to think about all of the lost revenue, matrix connections for passengers, and how poor tri-weekly service is in relation to daily service on any route. It is a minimal equipment requirement to move the Cardinal into the daily category, but a full turn of the Sunset Limited from Los Angeles to Orlando requires one trainset for every departure from Los Angeles. To take the train daily will require four more train sets. Looking at Amtrak’s current equipment roster, that is possible.
9. The next big question beyond that is putting the Sunset Limited, or a substitute for the Sunset back into service between New Orleans and Orlando (or Tampa). This continuing gaping, embarrassing hole in Amtrak’s national system only exists because Amtrak management is unwilling to make a return of the Sunset a reality. In just another 100 days, it will be a full year since CSX released the track between New Orleans and
   Jacksonville for use by Amtrak. The old canard about stations closed due to hurricane damage we know is a smokescreen, because so many other Amtrak stops are a mere “wide spot in the ballast” along a railroad main line. All of the platforms at the existing Amtrak stops are still in place, and useable. All of the stations east of Mobile, Alabama are in full working order. Most of the stations to the west of Mobile, such as Bay St. Louis and Biloxi, received no damage.Amtrak played an important role in the rehabilitation of New Orleans after Hurricane Katrina. While the rest of America supports the Gulf Coast, why is Amtrak snubbing this important region, and why is it continuing to hinder a resurgence of tourism (many of the casinos are back open) by not providing a train, such as the Sunset Limited, or a replacement train running between New Orleans and Jacksonville or Orlando?