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The Business and Politics of Passenger Rail; 2014-02-04

February 4th, 2014

A Companion Digest of Events, Opinions, and Forecasts to
This Week at Amtrak

By J. Bruce Richardson,
United Rail Passenger Alliance, Inc.

America’s foremost passenger rail policy institute

Jacksonville, Florida • United States of America
Telephone 904-636-7739, Electronic Mail info@unitedrail.orgwww.unitedrail.org

Volume 4, Number 1

Founded in 1976 by the late Austin Coates, URPA is a nationally known policy institute which focuses on solutions and plans for passenger rail systems in North America. Headquartered in Jacksonville, Florida, URPA has professional associates in Minnesota, California, Arizona, New Mexico, Virginia, Texas, New York, and other locations. For more detailed information, along with a variety of position papers and other documents and a compendium of This Week at Amtrak, visit the URPA web site.

URPA is not a membership organization.

Today, Andrew Selden takes a comprehensive look at Amtrak accounting and its financial results for the completed 2013 fiscal year. He has put together a fascinating, in-depth analysis of Amtrak’s performance. Here’s a summary and a link to the full URPA Special Report.

Amtrak is a conundrum. Despite tens of billions of public dollars invested over the last 40 years, its financial results continue to decay, its market share for intercity transportation erodes steadily, and its relevance to American mobility remains in doubt. Yet, its prospects – in some areas – are better than they have ever been.

Amtrak’s FY 2013 annual operating results were published recently, and URPA took a close look to see what they might teach us about Amtrak as a business organization. (Amtrak can be viewed as a social service provider, like many commuter rail services, or even as a federal public works project funded for the benefit of its labor organizations; URPA chooses to regard it as being in the business of providing intercity surface transport, and evaluate it strictly from that perspective.) In order to remove commuter traffic from the equation, “intercity travel” is defined as non-recurring trips over 100 miles.

What we found didn’t surprise us, but it may surprise you. Indeed, much of what most people – including Amtrak’s management – believe they know about Amtrak and how its various trains perform, operationally and financially, is not just wrong but completely backwards.

The key understanding involves using the right metrics.

Performance of an intercity transport company should be measured primarily by its output: how much transportation did it produce, and with what financial result? This is true of any business: how many widgets did it produce and with what financial result? The number of discrete sales transactions doesn’t help very much in most cases, because some buyers buy widgets one at a time, others in carload lots. Each transaction involves one “buyer.” Should the widget maker be content to measure and report its results just by reference to the number “buyers”? Or is its (and its stakeholders’) understanding of the results of its widget-making better served by reporting several sales of one widget each plus another few sales of 10,000 widgets each?

Thus, with Amtrak, we should be far more concerned with output, measured by revenue passenger miles, than simple transaction volume, or “ridership.”

We looked at Amtrak’s own 2013 numbers and focused on output, load factors and financial results, rather than the numbers of tickets sold. To better understand the financial results, we looked at each segment separately, and isolated its own revenues and costs, but only the costs in each segment that were required to produce the revenues in that segment, regardless of arbitrary labels. But we included all of the costs needed for each segment. In common business terms, we included not only the variable costs of each segment, but also the fixed facility costs needed to operate those trains (which Amtrak largely omits in its internal reports for the NEC segment). This analysis leads to a very different picture from what Amtrak reports, and what many people expect to see.

This link will take you to a Special Report that opens the books on how Amtrak itself reported the results of how its trains actually performed last year, and the results may give you a very different perspective on the real role that Amtrak plays in providing intercity mobility in this country, on what its strengths and weaknesses are, and where its growth prospects actually lie.

After reading the Special Report, imagine that you are Amtrak’s investment banker, and ask where you would want the next billion dollars of your capital to be invested.

J. Bruce Richardson
United Rail Passenger Alliance, Inc.
Jacksonville, Florida USA
Telephone 904-636-7739

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