Penny Wise and Pound Foolish February 1st, 2009
Editorial By Noel T. Braymer
After retiring as President of Southern Railway, W. Graham Claytor took over as President of Amtrak in 1982. At that time Amtrak recovered only 48 percent of its costs from revenue. Eleven years latter when Mr. Claytor retired from Amtrak in 1993 Amtrak’s cost recovery was 75 percent. Shortly before retiring Mr. Claytor predicted that Amtrak could recover all of its operating costs from revenues by the year 2000. In 2002 Amtrak was deeply in debt and so short of cash that it almost shutdown.
After Mr. Claytor retired, Amtrak management was dominated mostly by people with no experience in the private sector, but instead from public transit. Expectations were high that Amtrak could continue Mr. Claytor’s success to eliminate its subsidy for operations. What happened instead were examples of being “pound foolish”. A good example of this is Amtrak Express when Amtrak went into the freight business shortly after Claytor left. It made good sense and it still does for Amtrak to make extra money carrying small packages and less than carload shipments. But Amtrak tried to make most of its money from express instead of passengers and got into a business that they didn’t know what they were doing. Amtrak ordered a lot of roadrailers and box cars with borrowed money. By 2004 Amtrak admitted defeat and shut the service down.
Another “pounds foolish” fiasco was the Acela equipment program. New equipment is usually a good idea leading to ridership growth and reduced operating costs. The program got off to a good start in the early 1990’s under Claytor with high speed trainsets from Sweden, Denmark, Germany and Spain brought over to the United States for Amtrak to evaluate for possible use to replace the Metroliner trains. Instead of buying one of these off the shelf trains, post Claytor Amtrak decided instead to order a wholly new train which is very expensive for a small order as the one for Acela. Central to the Acela was the use of tilt train technology which would allow higher speeds in comfort in places with curvy trackage thus allowing faster running times. Amtrak failed to realize until construction began that the Acela trains were 4 inches too wide to use train tilting on most of the NEC. The Acela also became quite heavy as the trains were designed to meet American crash strength standards. High Speed Trains are light because weight increases operating and maintenance costs. The State of Washington was able to buy the Spanish light weight high speed Talgo trains and have them approved by the FRA after modification for use between Washington and Oregon. Shortly after being put in service all the Acela’s were pulled out of service in 2002 when it was discovered that the brackets holding yaw dampers on the power cars trucks were in danger of breaking off. Again in 2005 Acela service was suspended when the FRA discovered that the brake routers where wearing out twice as fast as they should have and that most of them had to be replaced. Amtrak knew about the problem but ignored it. When the old Metroliner equipment was used to replace the Acela’s, not only was the old equipment just as fast as the Acela, but the operating cost were also lower.
Amtrak borrowed a great deal of money to buy the equipment for Amtrak Express, the Acela equipment and to make up for shortfalls in revenues. Massive money borrowing and poor train revenue combined to almost shut down Amtrak. What did Claytor do that his successors failed to do? Claytor pushed very hard and was able to get additional cash for capital from Congress. With that money he bought new equipment. He bought 140 Superliner II cars and 2 prototype Viewliner sleepers. Claytor understood that the Western Long Distance Trains were the cash cows of Amtrak. The new equipment increased the revenue production of the trains equipped with them and released low level equipment to be used for other trains. Claytor also listened to the advice of people like RailPAC’s Byron Nordberg and Dr. Adrian Herzog. Claytor extended the Palmetto from Savannah, Georgia to Miami, Florida and the Sunset east of New Orleans to Orlando Florida. In 1988 after years of work by Caltrans and others the first San Diegan was extended north of Los Angeles to Santa Barbara. The results were amazing. The additional revenue of the Santa Barbara extension pushed the cost recovery of the State Subsidized San Diegan trains to over 100%. For a few years Amtrak could not charge the State for subsidy payments for the San Diegan trains because the trains covered their costs. Later Amtrak changed the way they calculated their costs and the Surfliner now recover around 60 percent of cost according to Amtrak.
Claytor’s successors didn’t learn from the past. Back in 1979 Amtrak tried being “penny wise” by eliminating several trains, mostly long distance trains. The results were Amtrak lost more money and is a reason its cost recovery was only 48% in 1982. By 1997 as Amtrak was getting into fiscal trouble, they tried cutbacks again. Employees were removed from stations, train crews were reduced and Amtrak eliminated service on the Seattle- Salt Lake City Pioneer train and the Los Angeles-Las Vegas- Salt Lake City Desert Wind train. Even after the near shutdown of Amtrak, it has continued to cut back on service, take equipment out of service and reduce its fleet size to record lows. Since 2002 Amtrak has stabilized financially, but only because of increased Federal subsidy. The lesson of the past is Amtrak as a whole needs the long distance trains. The long distance trains are not the problem they are often portrayed but are the solution. If we follow the success of W. Graham Claytor we will order more Superliner equipment, extend trains to new markets, add more routes and provide a decent level of service. The result will be more cash and freedom for Amtrak from constant political criticism. If Amtrak continues the way they have been there will be less service and Amtrak will be totally dependent on Washington for survival.