What is Amtrak’s Problem?   July 15th, 2012

Opinion by Noel T. Braymer 

Amtrak’s problem is the same problem the railroads had for most of the 20th Century: too much overhead costs and not enough revenue. After the Civil War to just before World War I the railroads built many lines of questionable value. Local governments also often subsidized railroad construction to build in places which didn’t pay off. With government regulation the railroads had trouble eliminating money losing lines and rates were often too low to be profitable. After World War II the railroads lost many freight customers to trucking and new highways while stuck with surplus pre-war infrastructure. These problems for the railroads were greatest in the Northeast and Mid-West. This came to a head in 1970 with the bankruptcy of the PennCentral and only turned around with railroad deregulation after 1980.

Amtrak was created mainly to bail out the PennCentral. The original plan for Amtrak was simple: Amtrak would have minimal overhead. It would have few employees and own very little property. Amtrak by law wasn’t allowed to run commuter rail service because that was not profitable. The model for this was the Pullman Company. The plan was Amtrak would own passenger cars and Amtrak employees would be the on board staff. But the locomotives and road crews would belong to the host railroad. Amtrak would lease the stations and create a unified ticketing system and organize the trains to connect with each other. By consolidating the different railroad passenger services to save money, keeping overhead costs low and eliminating the weaker rail passenger services the hope was that Amtrak would make a modest profit. What went wrong is first Amtrak was greatly under capitalized to go into business and second the PennCentral was still in trouble.

By 1976 Congress gave Amtrak the North East Corridor to help Conrail the reorganized PennCentral have a chance at profitability. The cost of running the NEC with little freight and most of the commuter rail traffic in the county was a major reason PennCentral was in the red. Shortly after this happened Amtrak’s costs exploded and by 1979 there was political pressure to reduce Amtrak’s costs. Amtrak cut several mostly long distance trains in an effort to save money. The result was losses went up. The reason for this was revenue was reduced more than costs by cutting trains. In July of 1982 Dr. Ron Sheck then Geography Professor at New Mexico State published a paper after years of research of European Rail Passenger services that had an operating profit. The solution for Amtrak according to Dr. Sheck was run more trains while increasing ridership faster than costs. That meant running trains more frequently on existing lines with connecting services and running sections of trains to open more markets for Amtrak. This plan required spending money including adding over 3,000 new passenger cars for a total of 4,500 for Amtrak in order to carry enough passengers to break even. On a small scale we had seen this work by 1982 on the San Diegans as more service was added passenger counts and revenues increased faster than expenses. This happened again later on the Capitol Corridor. Dr Sheck’s report called Amtrak 90: A Route to Success showed how these changes could lead to Amtrak covering costs by 1990. You can read the Executive Summary at the URPA website.

But Amtrak remained fixated on the East Coast. Amtrak owned the NEC which came with a solid voting block of 18 Senators plus had the majority of Amtrak’s trains and employees. Amtrak’s efforts for most of its existence have been centered on getting Congress to give it enough money to keep running. To keep the NEC as is Amtrak has been more than willing to cut trains anywhere else or demand more money to keep local non NEC services running. Also Amtrak has been trying to create a High Speed Rail service on the NEC. A major problem with running high speed rail service on the NEC is it has little surplus capacity because of heavy commuter rail traffic. Of the roughly 1600 trains a day on the NEC 153 belong to Amtrak. Bypass tracks would be needed to run fast express trains around commuter trains. But adding track capacity on the NEC is expensive because of lack of space to add tracks without viaducts or tunneling. Amtrak’s start up of the Higher Speed Acela around 2002 almost put the company out of business. It was also during the late 90’s while Amtrak was in trouble from the start up of the Acela that the operating costs Amtrak charged for the San Diegans went from $13.3 million in 1992 to $37.5 million by 1999. Today Amtrak claims that the 15 long distance trains cost it $530 million dollars a year in losses. But past experience shows eliminating those trains wouldn’t save money. Yet Amtrak is responsible for the majority of the costs of the NEC and claims it almost breaks even despite being a minority user.

The result of this is Amtrak lives a day to day existence with little security since it has failed to come to terms with what it needs to do to succeed: increase revenues faster than costs. Instead for most of Amtrak’s existence its efforts to reduce costs have resulted in holding back or reducing revenues more than costs. A good example of trying to save money resulting in higher costs is deferred equipment maintenance. It is not unusual for Amtrak to have over 20 percent of its locomotives out of service with regions like the West to have up to 30 percent out of service. In France a high standard to be sure the TGV has less than 10 % of its equipment out of service. Amtrak has no plans to expand its car fleet outside of the NEC, only to replace existing equipment which is keeping them from expanding ridership and revenue needed to cover overhead. The result of Amtrak’s deferred maintenance is more breakdowns, late and cancelled trains and lost revenues. The Long Distance Trains are often crowded but additional equipment is not available to take more willing customer’s money. Amtrak has 433 active Superliner Cars of which Amtrak uses 326 daily to run their current schedule. That is 107 available Superliner Cars that Amtrak isn’t using because it thinks it is saving money leaving equipment idle. If Amtrak used 376 Superliner cars a day that would be 50 more cars on the Long Distance Trains carrying more passengers and still leave 57 cars available for maintenance.

This entry was posted on Sunday, July 15th, 2012 at 8:31 AM and is filed under Editorials.