By Andrew Selden
President of the Minnesota Association of Railroad Passengers
Amtrak is facing yet another major financial crisis. Information developed by United Rail Passenger Alliance suggests that in the first half of its fiscal year 2016 (the 12 months ending 9/30/16), Amtrak’s financial results may be as much as $130 million worse than its budget, due mostly to reduced revenue, combined with the unrelenting costs of its ownership of the NEC.
An Employee Advisory in early February blames the revenue losses on cheap gasoline (inducing more people to drive rather than use trains), weather disruptions, a weak Thanksgiving, and a strong US Dollar hurting foreign sales. The Advisory mentions Amtrak’s failure to constrain its “fixed costs” and cites as an example “salaries, wages and overtime.” (Labor costs are not “fixed costs.”) CEO Joe Boardman states: “Our company needs cash to pay our daily expenses, and our cash position is becoming a concern.”
Management has imposed a hiring barrier that requires Joe Boardman’s personal approval of any new hires. Other steps include draconian new cost controls, including sharply downgraded housing for train and engine crews at various crew bases and turn-back points, severe cutbacks in business travel, extensions of reduced passenger food services on board trains, downgraded food service on the Cardinal, permanent elimination of dining car service on the Silver Star, and consideration of sharp cutbacks in amenities for passengers on the crown jewel, AutoTrain. The Employee Advisory hints at the prospect of layoffs.
None of this will solve the problem.
The problem is that Boardman is not addressing the real source of Amtrak’s financial distress. This should be familiar ground by now to readers of this author, but this is the issue in a nutshell: Amtrak generates revenues of $3.2 billion, but it spends $4.3 billion doing it. The deficit, about $1.1 billion, is made up by taxpayers in the annual subsidy. If Amtrak is $130 million off its budget at year-end, the deficit will exceed the subsidy by that much, or about 12%. It will probably be worse than that. In the last three or four years, Amtrak has faced similar issues and covered them up by deferring both maintenance and capital spending in the NEC (totaling several hundreds of millions of dollars). They may be running out of NEC expenses to put off, thus creating the current crisis as revenue drops.
Contrary to Amtrak’s propaganda, often uncritically parroted by the Media, the long distance trains do not cause or even contribute to the annual deficits, and neither do the regional corridors around the country. The regional corridors are all contracted to states at Amtrak’s “fully-allocated” (and thus over-stated) costs and therefore are all net cash generators for Amtrak. And Amtrak itself told Congress that the long distance trains also are net cash generators (Amtrak’s statement was that its annual subsidy would go UP not down if all the LD trains were to be eliminated). The deficit therefore can only arise out of the ownership and operation of the NEC.
The annual subsidy ($1.4 billion) is larger than the deficit ($1.1 billion) primarily because Congress chooses to fund excess contributions from taxpayers to the separate railroad retirement fund through the Amtrak budget. These are not Amtrak’s dollars.
The problem in the NEC is twofold. First, we believe that the trains themselves are in fact profitable “above the rail,” i.e., before charging any of the NEC’s huge costs for stations, track and bridge repair, electric power generation and distribution, and for police, insurance, headquarters, commissaries, and “free” food given away to Acela first class passengers. But those costs exist even if Amtrak pretends that they don’t in their propaganda about the NEC. These costs are necessary to support NEC train operations, and the trains could not operate without most of them. Amtrak can put off some maintenance – the oldest accounting game in railroading and it can slow down slightly the delivery, and the bills for, its costly fleet of new electric locomotives, for a time, but eventually the work has to be done to keep the railroad from falling apart, and the bills will come due for the new engines. And all the stations and power plants have to be staffed, and the trains themselves inspected and repaired. And on and on.
The NEC is a hugely expensive railroad to maintain and operate. And, Amtrak is politically compelled to maintain tracks, interlockings and structures that it does not need for its own trains, for the benefit of the several commuter agencies that also run trains on the NEC. This hidden subsidy to SEPTA, MARC, NJT and MBTA amounts to about $250 million (or more) every year. Amtrak gets no benefit from these costs. It is all but impossible for Amtrak to reduce these costs.
The other issue with Amtrak owning the NEC is that its own business strategy compels it to maintain far more NEC infrastructure than Amtrak itself would need if it pursued a different operating plan. More on this below.
What is left? Boardman can’t “starve the horse” by squeezing employee layover costs and passenger amenities on long haul trains and get anywhere near the $130 million or more that Amtrak will come short this year. That’s not where the losses are occurring, and there aren’t enough dollars there to solve the shortfall.
The solution is to restructure the NEC’s train operations in a way that continues to generate all of the $1.2 billion in revenue that they earn now, but to do so at a sharply reduced cost. THAT is where the money is to absorb the shortfall. How can that be done?
First, Amtrak wastes huge amounts carrying empty seats around the NEC. Their load factor overall is only 53%, and south of Philadelphia and north of New Haven, the load factor does not exceed 25%. Second, Amtrak wastes tens if not hundreds of millions a year in track and signal maintenance to allow Acela trains to run at high top speeds that do not contribute materially to trip time reductions or passenger revenues. The combination of half-empty conventional trains and needlessly costly higher speed trains adds up to the near-billion dollar loss that Amtrak incurs every year in the NEC. Cut back on that without forfeiting revenue, and the $130+ million deficit disappears.
How can that be done? First, Amtrak cannot sell more tickets now for passengers going to or from New York (its busiest station) because all trains are nearly full between Philadelphia and New Haven – they are “short-blocked.” This also precludes sale of even higher-revenue tickets to passengers who want to travel through New York on longer trips. The solution is to reinstate a shuttle train service between Philadelphia and New Haven (only), timed to depart Philly or New Haven just ahead of the next through train. This will take all of the semi-commuter passengers off the through trains and open up thousands of seats every day for re-sale, many for higher-revenue, longer-distance trips.
Next, the business that exists for these trains outside of Philadelphia-New York-New Haven is simply not enough to justify running three and sometimes four short trains an hour out of Washington and Boston as Amtrak does now. If these are consolidated into uniform 8- to 10-car trains that run on a uniform hourly “memory” schedule, both operating and infrastructure costs can be reduced substantially. Acela trains with their fixed consists (302 seats) can be run as rush hour supplemental express trains making limited stops and running at no more than 110-125 MPH. This will also slash operating, maintenance and infrastructure costs. About the same trip times can be achieved, partly due to reduced congestion, and capacity will actually be increased slightly, so revenues should stay the same, or even grow. Taking these steps mimics how railroads operate in Europe. They will also quickly close the $130+ million deficit that has Joe Boardman in a panic.