United Rail Passenger Alliance

Volume 4 Number 24 — June 04, 2007Overview

Amtrak says on its web site, “No country in the world operates a passenger rail system without some form of public support for capital costs and/or operating expenses.”

Amtrak apologists and cultists and those who believe only the government can reasonably provide some services have taken this statement to heart and turned it into gospel. As with other gospels, any factual statement can, through continued angular interpretation and slanted thinking, be misunderstood and distorted. In some minds, the above sentence becomes, “No passenger rail system can, or should ever attempt to, operate without massive public subsidies.”

This is patently wrong, even using Amtrak’s own reported figures. Starting with those numbers, let’s look at how a healthier Amtrak can reduce, if not entirely eliminate, the need for annual systemwide operating subsidies. This can be accomplished by running longer trains, adding more frequencies to existing routes and adding some new routes, by better marketing, and by offsetting infrastructure expenses (which also benefit the host freight railroads) to federal, state, and local levels.

1. First, consider revenues. Amtrak reports FY 2006 revenues of approximately $2.05 billion, and expenses of approximately $3.0 billion. That leaves a deficit of almost $950 million, which is most circles is considered real money.Let’s break things down further. Revenue from all train operations in FY 2006 was $1,357,106,100. The remainder of the revenue came from providing operating services for commuter agencies, and other ancillary businesses.

   All of the trains on the Northeast Corridor, including Acela, the remaining Metroliners (in FY 2006), and regional trains had an availability of 3,278,673,030 seat miles for sale. A seat mile is defined as one “space” or seat or accommodation/berth in one car on one train, traveling for a distance of one mile. The total is computed by taking all of the available space for sale on a train, and multiplying that by the length of the route. If a train has 10 coach seats and 10 sleeping car berths for sale, and the train travels 100 miles, you would calculate 20 seat miles multiplied by 100 miles, which would generate 2,000 seat miles available for sale.

   To determine revenue, you then calculate what is charged per mile for each seat or berth, and multiply that by the amount of seat miles occupied by travelers. This is known as calculating revenue passenger miles. It does not matter how many warm bodies are on a train; that figure is not relevant except for body counts for publicity purposes. Revenue seat miles are the only true indication of prosperity or failure.

   Some who are unfamiliar with true transportation economics try to pin on Amtrak a “loss per seat mile,” which is almost as silly as the “loss per passenger” misinformed politicians and journalists attempt to use to make some sense of Amtrak losses. Those who use such a stand-alone figure merely demonstrate their utter lack of knowledge regarding real accounting and real accountability.

   Let’s get some facts on record, and then go into some theory. Amtrak operates three classes of trains:

   1. NEC trains, consisting of Acelas, the former Metroliners (used for our purposes here because we are working with FY 2006 figures when the dependable and passenger-recognized Metroliners were still running), and regional, or “local” trains. Also included in the FY 2006 figures are the special train movements on the NEC.
   2. Short distance trains throughout the country include all corridor trains and abbreviated intercity trains outside of the NEC. Included are the Ethan Allen, Vermonter, Albany/Niagara Falls/Toronto, Downeaster, New Haven/Springfield, Keystone, Empire Service, Chicago/St. Louis, Hiawathas, Wolverines, Illini, Illinois Zephyr, Heartland Flyer, Surfliners, Cascades, Capitols, San Joaquins, Adirondack, Blue Water, Washington/Newport News, Hoosier State, Kansas City/St. Louis, Pennsylvanian, Pere Marquette, Carolinian, Piedmont, and, just as on the NEC, some special train movements. Because FY 2006 figures are used, the new trains operating in Illinois are not included.
   3. Long distance trains, the true heroes of Amtrak, include the Silver Star, Cardinal, Silver Meteor, Empire Builder, Capitol Limited, California Zephyr, Southwest Chief, City of New Orleans, Texas Eagle, Sunset Limited, Coast Starlight, Lake Shore Limited, Palmetto, Crescent, and Auto Train. There were no special long distance train movements.

   Looking at seat miles for each of these three classes,

   1. In FY 2006, all NEC trains together hauled 3,278,673,030 seat miles. The load factor on all of those trains averaged 45.2%. The total revenue passenger mile figure for all trains was 1,482,448,000. The revenue per passenger mile was 48.95 cents, and the total revenue was $725,653,800.
   2. All short distance trains together hauled 3,556,491,514 seat miles. The load factor on all of those trains averaged 40.7%. The total revenue passenger mile figure for all trains was 1,448,903,000. The revenue per passenger mile was 18.87 cents, and the total revenue was $273,431,300.
   3. All long distance trains together hauled 4,410,537,143 seat miles. The load factor on all of those trains averaged 55.1%. The total revenue passenger mile figure for all trains was 2,430,166,000. The revenue per passenger mile was 14.73 cents, and the total revenue was $358,021,000.

   Start doing some addition. Total seat miles for sale systemwide were 11,245,701,687. Total seat miles sold were 5,361,517,000.

   The available seat miles (if every seat on every train for every mile the train operated) unsold were 5,884,184,687. The average revenue per passenger mile, systemwide, was 27.52 cents. If we multiply the unsold seat miles by the average revenue generated if they had been sold, we reach an unsold revenue figure of $1,619,327,625.86.

   Amtrak received free federal monies in FY 2006 of $1.3 billion. You may notice that figure is less than what Amtrak would have generated if it had sold every seat mile available.

   Is Amtrak going to sell every seat mile available? No. Never. It’s impossible to do so. The maximum load factor is somewhere in the 65% to 70% range, because some passengers board and detrain at each station. But, this does show that in theory, even with Amtrak’s current skeletal national system, and with the densely populated corridor systems which are relatively over-served with frequencies, it theoretically could support itself without any federal subsidies.

2. So much for theory. Now, back to reality. What would it take to cover Amtrak’s subsidies in the real world?Again, let’s visit some Amtrak figures. Load factors help tell the story of where problem children are for specific routes. Acela/Metroliner load factors are 51.2%, but all other NEC regional trains are only 42.9%. This is despite these services being illogically labeled by the media as Amtrak’s flagship service, and the most marketing money in Amtrak’s budget being poured into these services.

   Other corridor services, which are state supported (which the NEC is not, for some odd reason), also have low load factors. California’s Capitols only have a load factor of 28.5%. The golden state’s San Joaquins do slightly better, at 35% load factor, and at southern end of the state, the Pacific Surfliners come in at a 33.1% load factor. In New York state, the Empire Service has a 33% load factor. In Illinois and Wisconsin, the Hiawathas have a 38.6% load factor. Pennsylvania’s Keystone service does slightly better at a 40.7% load factor.

   The reality of commuter service is you need a high amount of trains operated to provide convenience and incentive for passengers to ride, but because of all of the trains run under this criteria, many non-peak trains operate with very low load factors. All of the California trains operate with state assistance, as do the Hiawathas and Keystone service. New York’s Empire Service is the only one of these corridor services which operates without state assistance.

   Many other trains, such as those in Illinois, in New York, the Adirondack; in Vermont the Vermonter and Ethan Allen Express; in North Carolina the Carolinian and Piedmont; and trains in Michigan are all state supported. The Downeaster in New England receives funds from the Northern New England Passenger Rail Authority. Missouri and Oklahoma also provide operating funds for short distance trains.

   Most of the state subsidy trains also have low load factors, such as 29.9% on the Vermonter, 32.6% on the Downeaster, 33.3% on Kansas City/St. Louis trains, and 36.5% on Oklahoma’s Heartland Flyer.

   In North Carolina, the state funded Carolinian runs a strong 67.5% load factor, which essentially means this train is sold out, due to entraining and detraining passengers at intermediate station stops. The Piedmont also has a load factor of 49.5%.

   If states want to take the risk of paying Amtrak money to run local trains with low load factors, that’s fine. California, and later North Carolina, however, learned if they take passenger rail marketing matters into their own hands, and control the budget and content, ridership goes up, and the state contribution goes down because of a stronger ticket sale recovery.

3. How does all of this calculate to a subsidy-free Amtrak?First, it is impossible to rely on very short distance trains and corridors to make money when real accounting is used and the books aren’t cooked, as Amtrak does for the Acela trains. To repeat the facts, Acela trains, running on the same infrastructure using the same stations and support personnel and corporate resources as NEC regional trains do, cannot possibly and honestly show an alleged positive cash flow, or profit, when the regional trains do not.

   However, again, the saving grace for Amtrak is the collection of longer short distance trains (such as the Carolinian) and the long distance system.

   The NEC can be partially fixed by cutting down on the number of short distance passenger trains operated on the NEC (There is no realistic reason to operate trains NEC trains less than hourly other than at selected peak times; the argument of New Yorkers and others wanting to know they can go to Penn Station and get on a train anytime is hubris at the expense of the health of the rest of the Amtrak system.), by increasing the length of trains (it takes the same number of train and engine personnel to operate a nine car train as it does a four or six car train), and opening up national system long distance trains operating on the NEC to local riders, making reservations available 48 hours or less before train time.

   Another way of “fixing” the NEC comes from a former Amtrak manager, who made the simple statement, “the NEC should be humming 24 hours a day.” It’s the simple things which are the most stunning things. As this manager said, many Amtrak executives have considered the NEC their personal football, and haven’t wanted to dirty it up by using it for those annoying freight trains which keep the nation moving.

   Opening up the NEC to full freight movements (with the reverse of what is found on Amtrak’s host railroads, where passenger trains wait for freight trains; on the NEC the freights would have to wait) could be a huge cash windfall for Amtrak, even with the higher costs of track maintenance.

   What is the magic of having very expensive infrastructure, if it isn’t used to its full potential? The builder and original owner of the NEC, the Pennsylvania Railroad, which until its final two decades was considered the model on which all other railroads were based, understood that even its robust Pennsylvania Railroad passenger traffic on the NEC, plus all of the foreign line trains it carried such as for the Seaboard, Atlantic Coast Line, Southern, and others, there still needed to be a balance between passenger and freight trains to fully cover the infrastructure costs of such an expensive piece of railroad.

   Amtrak pays non-fully allocated costs to its host freight railroads for use of freight tracks. That means the host freight railroads do not receive enough income from Amtrak to pay for the wear and tear on their infrastructure from Amtrak trains.

   Amtrak, however, does charge the freight trains moving over its NEC infrastructure fully allocated train mile costs, which means the freight trains pay a much higher rate for using the NEC than Amtrak pays for using freight tracks. This inequitable situation needs a major overhaul, with new agreements which will have benefits for all contractual parties.

   Another area of improvement on the NEC which has been gaining some momentum is forcing the local commuter systems, such as New Jersey Transit, and others, to pay a fair share of the costs of maintaining the NEC for its use. Amtrak is the minority user of the NEC; the commuter train systems all combined are the majority users of the NEC, yet Amtrak pays for the majority of the upkeep and maintenance of the NEC.

4. Amtrak needs to generate 9,523,809,524 additional revenue passenger miles at an average of 16.8 cents each in revenue (the average of all long distance and short distance train revenue per passenger mile) to generate $1.6 billion, or $300 million more than the FY 2006 federal subsidy. The extra $300 million could easily go towards Amtrak’s mechanical department to get the rolling slums off of the train routes, and replace them with refurbished equipment no one needs to issue an apology for before passengers board trains.Long distance and short distance trains together already generate 3,879,069,000 revenue passenger miles per year. The long distance and short distance systems need to generate just under 2.5 times the number of revenue passenger miles generated today for Amtrak to be free of any federal subsidy for any reason, beyond extraordinary circumstances like anti-terrorism protections, or the replacement of large assets like the tunnels leading from New Jersey into New York City’s Penn Station. But, to generate those defined new revenue passenger miles, we also need to add some more revenue passenger miles for a balance between expenses and income.

   First, what would it cost to generate 2.5 times the number of revenue passenger miles generated today by Amtrak? Not as much as you think. In FY 2006, Amtrak reports it spent $1,381,000,000 to run the short distance and long distance fleet of trains (this includes all corridors outside of the NEC).

   To operate more trains, there will be little, if any increase in corporate headquarters costs. If Amtrak theoretically sticks to its present route system and just increases trains on present routes or only adds minor modifications from present routes, no new station costs will appear, and no new maintenance facilities need to be built.

   To take things in steps and to keep math simple, first plan on reducing the national operating subsidy, which totals $485,100,000. Without any increase in operating costs, and with just better marketing, Amtrak should be able to raise the average load factor on long distance and short distance trains by 18%, or sell an additional 18% of currently available seat miles, adding an additional 1,434,065,158 revenue passenger miles at 16.8 cents each, for total additional income of $240,922,946, or 49.6% of the current systemwide operating subsidy.

   To eliminate the rest of the systemwide operating subsidy, we need to double those figures, and sell another $241 million of revenue passenger miles, or, another 1,434,065,158 revenue passenger miles. This will require new trains, all operating on current routes, providing additional frequencies. This will only add incremental costs, such as actual train operations and marketing, versus any new overhead costs, reservations system costs, or additional headquarters costs.

   The number of revenue passenger miles we need is equal to 59% of the revenue passenger miles generated in FY 2006 by the long distance system alone. That will cost approximately $195 million to generate, so, again, we have to increase revenue passenger miles to cover this additional cost. By the time the math is completed, at the rate of $195 million in expenses generating $241 million in revenue, we need to generate 4.25 the amount of revenue to equal the amount of expenses, or 6,094,776,921 revenue passenger miles at 16.8 cents each. This would equal running 78 new trains equal to the revenue passenger mile potential of the current Carolinian. Before you panic, that is equivalent to only 5.5 new daylight frequencies on parts or all of every long distance route in the system, with the exception of the Auto Train. Many of those frequencies could be spread out among other routes such as the Adirondack, the Vermonter, and other opportunities.

   Amtrak does not have enough equipment to start this many new frequencies; a new equipment leasing program would be needed to fully populate this many routes.

   If Amtrak was generating this kind of income, passenger car manufacturers would be standing in line to accept new car orders under favorable lease or purchase terms, based on the earning power of the equipment.

5. Keep in mind what we have just accomplished. We have determined that half of Amtrak’s total national operating deficit can be covered by existing trains, using existing equipment which is on the road, today. The only missing ingredient is a competent marketing and promotional program which would end Amtrak being America’s best kept secret.To go further towards eliminating the rest of Amtrak’s national operating deficit, putting the rest of Amtrak’s fleet back on the road by either lengthening existing trains, or adding new daylight frequencies on existing routes at a low cost can come close to an operating subsidy free Amtrak, that includes operating subsidies (as defined today) on all parts of Amtrak, including the NEC.

   To finish the job, some new equipment would be needed.

   We can realistically see an operating subsidy-free Amtrak with very little imagination.

6. Here is where the tough part comes in; what about Amtrak becoming completely free of all subsidies, including capital infrastructure costs? We saw how it could theoretically be done, but we have to come up with real figures that includes the costs of systemwide new train operations to eliminate the very high costs of maintaining the NEC.This vividly demonstrates why Amtrak so desperately needs to be out of the infrastructure business, and just in the operating business. It’s the infrastructure costs that suck up all of capital resources, not the operating costs.

   Using our same example of the Carolinian, to make up the additional $814,900,000 of Amtrak’s last federal subsidy that mostly goes to NEC infrastructure, but some going to corporate debt reduction and federal railroad retirements costs, we need to instigate another 264 frequencies that are equivalent to the length and operating characteristics of today’s Carolinian. That, again, equals to approximately an additional 19 new frequencies (in addition to the 5.5 frequencies outlined above to cover operating expenses only) on part or all of every Amtrak long distance route except the Auto Train.

   How would/could that happen? Lots of new equipment, a new partnership with host freight railroads, pioneering of new routes, federal assistance in some form to freight railroads to help upgrade their infrastructure, and, of course, adequate marketing and promotions. The most important factor is a management and ownership (the federal government) that understands the potential, understands the rocky road it will take to make this happen, and understands the commitment to operating an Amtrak that is in a positive growth mode versus a “woe is me” defeatist mode that is happy to exist eternally on someone else’s money in the form of annual subsidies of free federal monies.

   Simply putting the ownership of the NEC and the responsibility for upkeep elsewhere would eliminate the need for 264 more Carolinian frequencies, give a take a train, or two.

   Why should it matter who owns and operates the NEC? As long as Amtrak, local commuter agencies, and freight railroads all have access to the rail highway, why is it so critical that Amtrak be the owner? Does a track gang worker care if his or her paycheck comes from Amtrak or another federal agency? Does the union representing that worker care if they are negotiating on the member’s behalf with a subsidiary of the Federal Railway Administration or Amtrak?

   Getting the NEC off of Amtrak’s books, and allowing Amtrak to become purely an operating company that owns or leases locomotives, passenger equipment, yards, and stations demonstrates how realistic it is for Amtrak to be a healthy, growing company.

7. How does this process begin? First, by recognizing Amtrak doesn’t always have to be a stepchild of government. It has to potential to stand on its own, but that potential must be exploited.Second, Amtrak needs to look inside its own house and make better use of its existing assets. This totally wrong concept Amtrak is using of shortening train consists to maintain a smaller fleet of passenger equipment to cut costs is exactly the opposite of what it should be doing. Amtrak should be lengthening consists as it builds ridership; longer consists only incur incremental costs, not full costs of new routes or additional trains.

   Third, Amtrak should implement a system of daylight, secondary trains on its existing routes as has been spelled out in recent issues of TWA (with more to come in the next few weeks). These inexpensive trains, all of which are based on creating positive cash flows (that means “profits”) and greater travel opportunities, mean more seat miles sold at lower operating expenses.

   A second phase of full service trains, based on the model of the Empire Builder, need to be planned for, and equipment orders readied. Every long distance route needs at least one “mirror” train to the existing service, on a schedule of eight to 12 hours different from the present schedule. Some routes could easily support three full service trains. The western transcontinental trains, the Coast Starlight, and routes in the east such as the Cardinal and Adirondack, are ripe for year round tourism and high revenue sleeping car business. Basic workhorse trains such as the City of New Orleans, Crescent, Texas Eagle, Silver Meteor and Silver Star all could support higher levels of business with proper marketing and more route frequencies. New routes, such as New Orleans-Dallas-Salt Lake City-Seattle have huge potential when planned and executed with a good business plan. Good marketing and operations planners could easily double Amtrak’s route structure (with minimal pain to host freight railroads), and still have room for expansion.

   Fourth, Amtrak has got to stop being America’s best kept secret. Amtrak’s annual sales and marketing budget of $75 million is woefully inadequate to properly promote America’s passenger train system. That figure should be doubled (which still would not bring it up to private corporate standards for what is typically spent on advertising by custom), and continue to be increased as ridership increases.

   Fifth, Amtrak needs to actually start a public relations and promotional effort, beyond what can be accomplished by paid advertising and marketing.

   And, lastly, Amtrak, which it has already begun to do, needs to completely get away from the “woe is me” attitude of the past, where it feels it always must go hat in hand to ask for government hand outs. The raw numbers show Amtrak has the potential to be on its own; it merely has become such a dependent child of government largess, much like a drug addict, that it needs to have the corporate confidence to solve its own problems, without government interference. Amtrak has also suffered from years from modal envy, where it has held its corporate breath and pounded the floor saying life is so unfair because other modes of transportation get subsidies, and Amtrak doesn’t. Envy, however, doesn’t count. What counts is only results of what can be done by accomplishment. Why be forever dependent on someone else’s handouts if you can be self dependent?

   In the 1990s, the late Dr. Adrian Herzog developed similar figures and a likely scenario for ending Amtrak’s dependence on federal subsidy. This was still the era of the ill-fated Warrington administration’s “glidepath to self sufficiency” for Amtrak, which placed the entire future of Amtrak in jeopardy by betting the farm on the success of the Acela trains in the NEC. Not only did this discredited theory nearly spell the end of Amtrak in any form, it also turned all attention away from the real money-makers at Amtrak, the long distance trains. It will take Amtrak a long time to disentangle itself from the silliness of the “glidepath to self sufficiency” and the accompanying idiotic dependence on short corridor trains for success, and redirect itself to the true saving grace of the company, long distance trains, which, in the end, will most likely subsidize the corridor trains.

8. The figures used above are all derived from Amtrak financial reports, and calculated based on Amtrak data. Many figures are rounded for easier comprehension, and are not intended to cover every detail, but to demonstrate theory and reality.
9. Since 2001, Amtrak apologists have created a thriving conspiracy theory the Bush Administration wants to kill Amtrak, and that the administration has done everything in its limited power to do so.Let’s talk a bit of reality. Anyone in government, or private industry, the news media, or policy institutes has all of the above facts and figures. It’s not difficult to come to determinations about Amtrak that show it is a viable institution, if only it would look towards a positive future, instead of an invalid future. Why would anyone in government want to continually hand billions of tax dollars over to Amtrak when it can eventually become self sufficient, if only it will create a realistic business plan? Why would anyone in government be excited about endless subsidies for a railroad which takes tens of millions of dollars of its best assets in rolling stock and intentionally mothballs those assets so it can balance an expense budget while forgetting the income budget?

   Anyone who thinks critically about Amtrak from an intellectual standpoint, understands the potential of Amtrak, and is horrified at the continuing waste and endless string of missed opportunities. No one in government should ever be criticized for trying to make something positive out of the Amtrak corporate mess through radical change.

   If there would have been a third as many lifeboats on the RMS Titanic as there are unused pieces of rolling stock in Amtrak’s car fleet, everyone on the ship would have been saved, with boats left over.