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January 2012


Why Amtrak loses money and why eliminating trains doesn’t save money

By Noel T. Braymer

(W. Graham Claytor, Amtrak President 1982-1993) was credited with helping to revive the ailing passenger railroad by many experts, and even some critics of its operations. By the time he retired, fares and other revenues covered 80 percent of Amtrak’s expenses, up from 42 percent in 1980. Mr. Claytor predicted that Amtrak might be able to cover all of its operating costs, something that no national railroad system in the world does now, by the year 2000. (From the New York Times obituary for W. Graham Claytor of May 15, 1994.)

From Amtrak’s start over 40 years ago politics and misleading information has swirled over the funding of passenger rail service in the U.S. Once again there is talk of eliminating long distance trains to end the “waste of taxpayers money.” The “common wisdom” in Washington is that the trains on Amtrak’s Northeast Corridor (NEC) between Boston and Washington are “profitable” while the long-distance trains are losing a fortune. This conclusion is fed by the accounting practices of Amtrak. W. Graham Claytor was the most successful Amtrak President. The following quote explains how he did it.

“That is one of the ways we hope to reach it and to get additional equipment in order to increase our revenues faster than our costs. That spread is what counts. With the new order for locomotives already in [to General Electric], and with the orders for new Superliner cars we hope to make this year, these would give us the additional capacity to increase our revenues. We are up against the stops on many ways, because many times of the year we can’t carry more people. We have more people wanting to go than we can carry, because we do not have the capacity .{emphasis added} The first priority is to get more capacity on the routes we serve. The second priority will be to start new routes that we think have a good possibility of working.” – Interview with Graham Claytor, Trains magazine, June 1991  Note: Amtrak has fewer long distance cars today than under Claytor. NB

From Mr. Claytor’s own words we see that he saw the long-distance trains as valuable for increasing revenue. Before Mr. Claytor came to Amtrak it was facing massive cost increases. Amtrak costs went from 306 million in Fiscal year 1972 up to 891 million by fiscal year 1978. This led to a deficit of 578 million dollars for 1978. It should be noted after April 1, 1976 Amtrak, by act of Congress, was given ownership of the Northeast Corridor between Washington and Boston which greatly increased its costs. To “save money” train service was cut in 1979, all of it outside of the NEC. This included four long-distance trains. By 1981 Amtrak’s deficit had risen to 729 million dollars.

After Claytor left the company the management of Amtrak concentrated its resources on the Acela “high speed” train between Boston and Washington. Buying new trainsets capable of speeds up to 150 miles per hour and track improvements cost a great deal of money, much of which was borrowed. At the same time management cut 2 more long distance trains to “save money.” By 2002 after the inauguration of the Acela, Amtrak with high debt costs and flat revenues almost ran our of cash and faced shutdown.

During the build up to Amtrak’s near shutdown in 2002, Congress created the Amtrak Reform Council in 1997. The ARC gave it’s final report with suggestions of how to get Amtrak to break even. This is from that final report given in 2002.

Ownership and maintenance of the Northeast Corridor divert Amtrak’s attention and resources from its primary mission as a service provider. The Northeast Corridor will require $20 billion in capital funding over the next 20 years for a wide range of capital improvements and to put the southern portion of the Corridor in a state of good repair. The Council believes Amtrak’s management should be spending its time on improving passenger operations and customer satisfaction rather than on infrastructure maintenance. Ownership and control of the NEC rail infrastructure is not essential to Amtrak’s operations. Of the 1,200 trains operating daily on the corridor, only about 100 are Amtrak trains. The Council believes that a reasonable remedy to this problem is to appropriately separate Amtrak’s train operations from ownership and maintenance of the Northeast Corridor and other infrastructure.

The ARC suggested that ownership of the NEC should be transferred to a separate agency with funding for needed capital improvements. Amtrak has resisted any attempt to have the NEC taken from it. The NEC involves a great number of Amtrak employees and is in the Northeast which is the center of much of Amtrak’s political support. The states of the NEC have joined Amtrak in opposing transferring the NEC to a new agency. This maybe because these states fear they would be expected to pay part of capital burden with the Federal Government for the NEC and see the charges for using the tracks for their commuter trains raised as well. Much of the overhead cost of Amtrak and of the subsidy the Federal Government pays to it is related to the high cost of the NEC. Amtrak hides much of this cost by charging it to their other trains. Overhead costs are charged by route miles at Amtrak, and since Long Distance Trains have long routes they are charged more. Years ago an absurd example of placing NEC costs on other trains was found for the COAST STARLIGHT trains for maintenance of all-electric locomotives which are only used on the NEC.

Mr. Claytor knew the best way to improve Amtrak’s cost recovery was by increasing revenue with more passengers, not by cutting service. Mr Claytor knew the best way to do that would be to improve the long-distance trains that criss-cross the American heartland. After he left the new management bet the farm and lost hoping for increased revenue from the Acela trains would make Amtrak profitable. Amtrak’s debt costs with government help have come way down over the last nearly 10 years and with record ridership Amtrak’s cost recovery is now back up to 76 percent, almost what it was 20 years ago. But if Amtrak is to break even it either has to improve long-distance service with more cars to handle traffic they still often turn away and expand to new markets, or lower their overhead cost which are dominated by the NEC. The NEC is a critical part of the transportation system in the East for commuter rail. It needs to be funded to keep the infrastructure in good shape. But, passengers in the country’s heartland should not be held hostage to fund the NEC in order to keep Amtrak service.