By Noel T. Braymer
Recently Amtrak’s President Joseph Broadman stated that Amtrak’s top priority was building the Gateway Tunnel Project. This project includes adding 2 tracks in a new tunnel under the Hudson River and rehabilitation of the two 106 year old existing single track tunnels that serve Penn Station in Manhattan. My question is does Amtrak need 4 tracks to Penn Station from New Jersey? With the current 2 tracks in the existing tunnels up to 24 trains an hour can be run. At most Amtrak now runs 4 trains an hour into Penn Station while during rush hours New Jersey Transit runs up to 20 trains an hour. In any organization, particularly a for-profit company which Amtrak is suppose to be, the usual top priority is increasing revenues and improving efficiency as much as possible. Amtrak gets no financial benefit to its core business of operating a National Rail Passenger service by increasing track capacity for New Jersey Transit to carry more commuters to Manhattan.
What is the financial shape of Amtrak today? Amtrak’s 2015 fiscal year ended at the end of September 2015. Amtrak still hasn’t issued its annual report for 2015, or for 2014 for that matter. What is public is that Amtrak lost about $1.2 billion dollars with revenues of roughly $3.2 billion dollars and with expenses of around $4.4 billion dollars. Compared to fiscal year 2014 Amtrak losses increased by about $85 million dollars for 2015. In real terms this loss is likely greater because like many troubled railroads in the past, Amtrak deferred paying for maintenance so these costs wouldn’t show up on the 2015 Fiscal year which makes the losses seem smaller. Amtrak’s labor costs were about $2.138 billion dollars which is more than their ticket revenues of $2.124 billion.
A major reason why Amtrak is focused on the Northeast Corridor (NEC) is that a majority of Amtrak’s employees work there since the majority of Amtrak trains run on it. If Amtrak didn’t own the NEC, that alone would greatly reduce Amtrak’s labor costs. It takes many Amtrak employees to dispatch trains, maintain tracks, signals, stations and so on with the NEC with over 7,000 commuter trains as well as Amtrak and freight trains which are not directly involved in the operation of Amtrak’s trains. If Amtrak didn’t have the NEC it would greatly reduce its labor costs. This doesn’t mean that these employees working on the NEC would lose their job. It makes more sense economic for Amtrak to transfer their jobs and the NEC to a new organization to dispatch and maintain instead of Amtrak.
Transferring the NEC to a new organization from Amtrak has been talked about since 1986. The magazine Railway Age recently had a article about a proposal to relieved Amtrak of the costs of owning the NEC by creating a new Federally owned organization called the National Railroad Infrastructure Corporation or NRIC. The basic plan for the NRIC is to sign a 50 year lease for the NEC, borrow $30 billion dollars from the Federal Government and borrow an additional $30 billion with private sector guaranteed loans over a 50 year period to improve and expand service on the NEC. There were no details how the NRIC would pay off for these loans. The advantage of borrowing money is it wouldn’t require approval from Congress or show up on the Federal Budget as is the case now with Amtrak’s subsidies. But Amtrak so far has been unable to support the costs of operation of the NEC from its revenues. How would the NRIC break even, even with improved revenues from expanded service it is proposing? How will it pay off $60 billion dollars in loans?
Passenger Rail service has never been highly profitable. But railroads made money with land development made possible by passenger rail service. Railroads are much like elevators. No one expects to make money, let alone charge people to ride elevators. But without elevators hi-rise buildings wouldn’t be profitable. Several railroads and rail transit agencies around the world are profitable because they own and develop property around their stations. If NRIC has any expectation of breaking even, it will need to redevelop land for revenue on the NEC. So far after 40 years of NEC ownership, Amtrak has done little to improve its revenues with development of its property on the NEC. Recently at a Congressional Hearing, Rep. Elijah Cummings criticizes Amtrak President Boardman about the years of delay of plans to redevelop Baltimore’s Penn Station.
The big question is what can Amtrak do now to get more passengers on its trains and earn more money? In California the Pacific Surfliner and San Joaquin trains are often full in Summer and on weekends. Crowding is often reported on the NEC between Philadelphia and the New York Metro area. On the Long Distance Trains sleeping cars are often sold sold out weeks in advance. But other times Amtrak often has space available for more riders and revenues. In rough numbers Amtrak often has load factors system wide of less than 50%. The Long Distance Trains have load factors of 58%, the NEC has load factors of 55% and the local regional trains load factors are at 42%. It would be unreasonable to expect Amtrak to have 100% load factors on all trains, every day. But more can be done to fill up more empty seats with paying passengers.
The airlines view empty seats on their airplanes as lost money. For an airline even getting $1 dollar filling a seat is better than leaving a seat empty on a flight. The key to the airlines filling their seats and profits is called Yield Management. This has spread to almost all airlines, hotels, car rental agencies, bus lines and now even at Disneyland. Around the world yield management is used by most passenger rail services, but not Amtrak. Yield Management is based on pricing seats on a plane, bus or train on demand for that seat for a specific time and date. This is why the price of airfares change from day to day and passengers often pay different fares on the same flight based on when they bought their tickets. The point is to charge more when demand is high for a seat on a plane and to discount tickets when demand is low. Doing so has greatly increased total revenues for those businesses that have used Yield Management. This has become possible with online ticketing where with computers price adjustments can be made all through the day.
Much is made of ridership counts on Amtrak. The NEC does carry the most passengers. But transportation businesses other than Amtrak generally measure their productivity in terms of Passenger Miles. The business of transportation is based on the miles you carry goods or people. For fiscal year 2015, the NEC had Passenger Miles of 1.949 billion miles. But with fewer passengers, the Long Distance Trains had 2.714 billion passenger miles. The remaining local Regional services had 1.938 billion passenger miles. Generally longer travel means higher prices tickets and more revenue. There is a large untapped demand for more Long Distance Rail Passenger service in this Country. There are plenty of places without good air or bus service. There is increasing local support for more long distances passenger rail service in many towns and states. Amtrak is creating more stops for Long Distance trains in towns which are willing to supply the stations and Amtrak doesn’t have to staff. This is improving revenues and public support for Amtrak. But expanding Long Distance service is held back by a lack of equipment, much of it is over 30 years old and need for track improvements for decent service on existing and proposed new Amtrak services. We have seen local regions already work to raise fund to improve tracks in North Dakota and in the States of New Mexico, Colorado and Kansas to save existing Long Distance Rail Passenger service. The States along the coast of the Gulf of Mexico are working very hard to return rail passenger service that was suspended over 10 years ago after Hurricane Katrina. For much less than $60 billion dollars, major improvements can be made for Long Distance Rail Passenger service in this Country, which would have a higher return on investment for Amtrak than what it gets on the NEC.