Part 2 “STATE-SUPPORTED CORRIDORS: AMTRAK’S LAST HURRAH”

Tags

Amtrak, California, Capitol Corridor, Pacific Surfliner, San Joaquins

Defining its “Core Network” as the NEC has Terminated the “National” in its Name, NRPC

By M.E. Singer

The real collusion at the nation’s expense: how Amtrak purports its monopoly status as a state-owned enterprise to willfully neglect and sacrifice the state corridors. We have a binary choice–to allow the economic unfeasible perpetuation of Amtrak’s unfettered abandonment of state corridors and continuing their condition of disrepair. Or, instead, to seize upon identifying and integrating solutions towards building a viable 21st century business model not focused on end points, but rather, run thru routes, extensions beyond current end points, and increased frequencies to inter-connect intra-state and inter-state regions. The devastation of the Midwest Corridors and restoration are the focus here, clearly with the intent of the application of this proposed template for other state/regional corridors.

Background-Evolution of State Corridor Problems Created by Amtrak
Demonstrating an historical lack of vision and strident mentality favoring the status quo are not favorable characteristics of how a typical marketing-focused firm competes in the marketplace. Yet, we find how Amtrak has historically been unsupportive of state and regional economic development, particularly with the Midwest Corridors, by holding to a fixed operation. As evidenced by consists (influence of union crewing rules?); end-point to end-point devoid of run thru schedules in Chicago; not extending routes to include suburbs as end- points; not expanding beyond traditional end-points to link regions; offering minimal frequencies dissuading day trippers (except over Thanksgiving); now, ignoring the vast number of colleges to discontinue the student discount. Perhaps this explains how once again Amtrak is advertising for a Senior Marketing Manager for state corridors (Indeed: 4/18/18). Historically, Amtrak has even evidenced its consistent inability to competently operate short haul commuter corridors, as it has lost contracts with: VRE and Caltrain; NCTD (Amtrak did not re-bid) and MBTA (Amtrak elected not to bid); and its recent bid to operate for Connecticut DOT its CTrail between New Haven-Hartford-Springfield.

What happened to the corporate mindset created by those at the beginning of Amtrak who clearly had the right vision to disregard the prior mindset of routes? This included Kevin McKinney creating the most successful concept of linking the multiple regional/inter-state end-points of Los Angeles-Oakland-Portland- Seattle with the “Coast Starlight;” how Jim McClellan fought the naysayers by running NEC trains thru New York City; how that team introduced the first run thru between Milwaukee-St. Louis via Chicago’s Union Station (“Abraham Lincoln” and “Prairie State“).

No thanks to Amtrak, what is possible is evidenced today by California’s Joint Powers Authorities who have successfully disregarded the end-point mentality of Amtrak by operating three intra-state regional extended routes with ever increasing frequencies, augmenting their reach utilizing a network of ThruWay bus connections:
“Pacific Surfliner”: San Diego-Los Angeles-Santa Barbara-San Luis Obispo.
“San Joaquin”: Bakersfield-Fresno-Merced- Sacramento-Oakland-Emeryville.
“Capitol”: Auburn-Sacramento-Emeryville- Oakland-San Jose.

Amtrak’s business model today is foisted upon the states in a one-two punch to clearly disincentivize seizing growth enhancement opportunities by increasing corridor frequencies, and to expand or extend regional routes. Amtrak has impeded this growth by:
1) Amtrak convinced Congress apparently of yet another “glide path towards solvency” by having the Passenger Rail Investment & Improvement Act of 2008 (PRIIA) passed, which cocooned the NEC states from the intent to charge all other states 85% of annual costs–as determined by Amtrak’s own cost methodology.
2) This unique cost methodology to exclusively serve the narrow interests of Amtrak as a state-owned enterprise disregards the universally acceptable concept of applying just the incremental costs to increasing frequencies or route extensions. Instead, Amtrak treats each frequency as its own full cost center by disregarding any thought of shared costs, or amortizing fixed costs against increased frequencies. Apparently, GAAP (Generally Acceptable Accounting Principles) is a verboten four letter word Amtrak adamantly rejects and refuses to be conversant with, or adhere to, in the world of accounting and finance.

Not content to dissuade the pent-up corridor opportunities in the Midwest, Amtrak continues its philosophy to “charge more, give less” by blindsiding Chicago’s commuter line, Metra, with its recent stealthy takeover of all Union Station assets; thus, negating any positive influence conducted by the STB. As this was previously attempted and lost by Amtrak against VRE at Washington Union Station, the Chicago matter should have the same outcome. There is a strong sense in Chicago that Amtrak’s ‘middle of the night’ ploy was to simply eliminate Metra’s obvious role to implement the once and future O’Hare Express rail service.

Action Plan: How to Fix What Amtrak Broke
Former Speaker of the House Sam Rayburn’s advice, “if it ain’t broke, don’t fix it,” was never intended to ever be interpreted for bad legislation to be baked into concrete. PRIIA has been proven as a federal instrument to feed the NEC subsidy at the expense of state corridors. PRIIA has stunted the natural growth of state corridors by their non-GAAP payments to Amtrak, while Amtrak has utilized PRIIA as a cudgel against those very states to increase frequencies or expand regionally. Simply put, PRIIA is bad legislation that can no longer remain baked into preventing the common sense requires in our transportation policies and planning that require flexibility to meet changing demands and how to economically serve them.

Eliminating PRIIA

Attacking PRIIA Politically:
As Amtrak’s CEO Anderson has embraced the PRIIA Act of 2008 as his lodestar to enable Amtrak to fracture the national network comprised of the long distance and state-supported corridors, we must frontally attack PRIIA, whether now, or, after the 2018 elections. An effective organized political effort must be created to detract PRIIA by implicating its overt economic bias against all states, but favoring those of the NEC. Which of those non-NEC states and their federal representatives  actually voted in agreement to have their economic development and mobility stilted by increasingly higher annual payments for Amtrak to divert into its NEC subsidy? We cannot tolerate the PRIIA Act continuing to extort payment from the non-NEC states, just as we cannot leave unsettled properly interpreting within PRIIA the options offered in lieu of Amtrak.

Attacking PRIIA-Financial Impetus:
What is key here to protect and facilitate the growth of state corridors is how PRIIA cannot be allowed to be considered “permanent” as labor agreements are now viewed, where the union remains indefinitely certified and never again required to stand for re-election. Successfully attacking PRIIA concomitantly to the Administration’s current review of efficiencies and costs of the USPS, will enable the states west of the Potomac to politically demand:
1) Each NEC state must also be fully charged for its Amtrak corridor trains costs (including infrastructure), particularly  when it should be emphasized how the entire NEC is only 457 miles in length between Boston-Washington. Yet, PRIIA requires all states must pay for corridors under 750 miles.
2) Immediately, the state formulas and the full cost cost methodology must be reviewed by a trusted third party to provide the time for the non-NEC states to get their act together for the next step. In the meantime, all such PRIIA payments must be directed to be exclusively utilized in that state, or, by acknowledgment, within its inter-connecting region. This will also uncover the canard of just how “profitable” the NEC can be on its own.
3) If eliminating PRIIA requires an incremental approach, than the first step should be for every state, or, in agreement with their inter-connecting regional state partners, to be annually re-funded their payments. This will provide a grasp on their budget to enable states to determine if it is in their economic interest to continue their relationship with Amtrak, as expected by the NEC states. Or, as expected with the non-NEC states, they will proceed individually, or, to create viable inter-regional compacts, to pursue a non-Amtrak direction. The bottom-line is to legislatively and financially break Amtrak’s self-interpreted monopoly at the expense of state corridor development. This will also include eliminating the excessive corporate overhead costs assessed to the state-supported corridors, e.g., government relations, public relations, HR, as well as catenary repair, track and ballast gangs, etc.

Strategy for State-Supported Corridors to Pivot Post PRIIA/Amtrak:
On a very timely basis for pursuing this recommended course of action, we note how Connecticut has already elected to franchise its expanded New Haven-Hartford-Springfield route/schedule frequency to a joint venture of Transit America/Alternate Concepts; rejecting the infrastructure owner, Amtrak. This agreement calls for the franchisee to operate trains, provide customer service, and maintain depots, while Amtrak will handle dispatching, maintain  infrastructure, and continue its own trains. This state decision (within the NEC!) should be the stimulus to demand Congress to clearly interpret PRIIA to allow for states/regions to franchise their passenger services, or, as in Connecticut, operate as a mix with Amtrak in an open access concept.

What cannot be ignored is how the U.S. transportation market has evolved into an open market to compete, except for Amtrak. Forget for a moment our argument how the federal treasury built interstate highways to facilitate re-engineered bus lines to compete on express and luxury routes; or, how the airlines benefited from tax-built airports and air traffic control. The point is they learned how to identify and seize opportunity in the market. This explains Amtrak’s necrotic approach to state-supported corridors that has resulted in the majority of travelers relying upon auto or bus.

Our dilemma is the reality that currently no firm exists in North America with the proven expertise to successfully manage and operate an intercity passenger train service. Until the joint venture in Connecticut makes its mark, those private operators currently in service now operate only commuter services; those not in any such contractual service are bereft of the basic requirements to bid, including: no operating experience; no accessible equipment; no internal financing for working capital and start-up costs; no relationship with Class 1s or Amtrak. Despite so much initial enthusiasm for Iowa Pacific’s (IPH) entrance into the Chicago-Indianapolis market (“Hoosier State”) after a false start with the original RFP, what happened is clearly a reminder that passenger trains are more than an exercise in hugging a Lionel concept. Simply put, in its enthusiasm to throw together a dome diner/lounge business class and coaches, IPH failed to appreciate the covenants of its contract with Amtrak and the State of Indiana. The lack of daily service, increased frequencies, and an archaic slow schedule did not help. However, given the litigious history of IPH against Amtrak, why would anybody expect IPH to be given the benefit of Amtrak’s inspection of its equipment, or a better deal on a second locomotive required for its recent (and discontinued) Pullman Service between Chicago-New Orleans?

The Inevitable Transformation of State Corridors into a Franchise Service:
Fortuitously, there is one firm with proven competence in both bus and rail that could take state corridors to the next step historically denied by Amtrak. This firm is out of Germany: FlixMobility, which in five short years has incredibly successfully challenged the standard concept of ground transport; now rail. At some point this year, FlixBus will operate their template in the U.S., initially out of LA to the Southwest. The franchise concept is perfect–they “do everything except buy buses and hire drivers” and retains only 25% of the ticket price. Focused on its strengths  FlixBus creates the timetables, pricing, route planning, marketing, sales, establishes service standards, and facilitates customers to book tickets through its apps; thus, creating a comprehensive network flexible to meet demands of the marketplace. Quite relevant for this recommendation is the fact how FlixTrains has been added this year; that by year-end, 28 destinations throughout Germany will be served by FlixTrain. Just as California’s JPAs have proven, FlixMobility has declared how “bus and rail complement each other perfectly.” Integrating bus and train in its network will “create a sustainable concept for the future of mobility.”

How to Implement a State Corridor Franchise:
Frankly, given the dearth of experienced intercity rail operators in the U.S., FlixMobility’s successful experience with bus and train franchising in Europe, and its impending arrival in the U.S., could be the only-and best-alternative to Amtrak’s current stagnant policy towards state corridors. An initial approach to franchising state corridors could be:

1) Financial-Operations, Track Access, & Dispatching:
Focusing on the Midwest, their state DOTs lack the experience level as evidenced in California, North Carolina, Oregon, and Washington. The all-encompassing expertise of FlixMobility would certainly offer a value to these states, as well as facilitate their outlook toward regional inter-connections. To fund the franchise operation, I refer back to my July, 2015, proposal embraced by Jim McClellan: to have a ticket tax and seat reservation fee exclusively dedicated to that state’s passenger operations. In respect to Congressman Fazio’s (D-OR) excellent  recommendation, every Wall Street transaction should be taxed to dedicate those fees toward the requisite infrastructure improvements to facilitate the blending of passenger and freight trains on private Class 1 infrastructure. To prevent interfering with  those freight services, this will require the construction of an additional mainline track and signaling to separate passenger and freight. We must recognize that to achieve a successful implementation of corridor franchises, we must step back from Amtrak’s failure to respect Class 1 freight operations, while making bonus payments for criteria that has no logical basis given increased schedule padding and delays. We must recognize that track capacity is an issue that cannot be ignored, or pushed to Congress. Again, just look at how California’s JPAs work with the Class 1s to invest to create increased track capacity, passing sidings, etc. Indeed, as a more respectful commercial customer, the franchise must be able to negotiate a new, realistic payment to the private owner of that right-of-way that serves to motivate a mutually beneficial  relationship.

2) Insurance:
The state corridors must be able to secure for their franchise operator a similar insurance program that Amtrak has enjoyed that mutually absolved the passenger operator and Class 1.

3) Infrastructure/P3:
We should be cognizant and concerned of what was represented in the National Real Estate Investor of 4 May 2018 how “there is a strong movement afoot to build infrastructure through P3s, but this funding mechanism usually only works for projects that generate lots of money, such as student housing, publicly-owned healthcare facilities and airports. Transportation projects, including toll roads and bridges and light rail construction, require bond measures because they don’t generate enough revenues above operational and maintenance costs to pay back private investors.”  Between the federal and state governments, to ensure the franchise concept is viable,, we must change these dynamics of how P3 is viewed, as its application could serve to revamp rail infrastructure to accommodate more and faster state trains.

4) On-Board Services:
A competent franchise approach to fulfilling the the customer’s perception of value will create a Midwest Parlour service branded as “Pinstripe Service” providing full drink and hot meal services. There will be no cafe car or LSA, but rather, in coach, a catering trolley service to provide today’s market for “grab and go food fare.”

5) Equipment:
For now, states will be required to “wet lease” equipment and crews from Amtrak. However, all costs must be reviewed and validated by a reputable external third party to show such costs as being correctly calculated to avoid any further rape of the states for depreciation, reservations (non-existent), etc. Eventually, new equipment must be bi-directional with electronic doors. Remember, there are alternatives to Anderson’s vision of a suburban-style DMU fleet. Ideally, states will realize the economic opportunity to control costs by purchasing equipment together and standardizing their fleet of power and consists.

Breaking the Amtrak Mold
Amtrak’s inherent attribute that has compromised and discouraged the development of state corridors is best explained in a Forbesarticle (02/23/13) describing how a state-owned enterprise is “tightly controlled;” with “no transparency;” “packed with party apparatchiks, and stifled honest competition by introducing all kinds of inefficiencies into the market.” How else can Amtrak’s myopic vision to fail to competently identify and timely react to changes in the market be explained?  For example:

As indicated in “Intercity Bus Lines Picking Up Speed with New Service Strategies” (Metro 05/01/18), “strategies have changed greatly since the days when BoltBus and Megabus rolled out major hubs and route networks to bring express service to population centers across the U.S. mainland. The most recent expansion has been more nuanced, generally spurred by a desire to fill gaps in the system, improve connectivity with Amtrak, and strengthen existing routes with new intermediate stops.” Also, “a big story since the start of 2017 has been new premium services, including business-class offerings. These services are intended to capitalize on the airport “hassle factor” and consumers’ desire to avoid driving amid worsening congestion.”
Limoliner now competes head-on with Amtrak between Boston-NYC; Vonlane serves the Texas Triangle (Ft. Worth-Austin-Houston) unserved by Amtrak. Growth of the bus industry on Amtrak’s watch is an indictment over the short haul market Amtrak not only failed to develop, but actually stymied.

Congressman McClintock proposed an amendment to end the taxpayer subsidy of Essential Air Service (EAS) on 04/27/18, by railing how “Essential Air Service is perhaps the least essential program in the entire government.  It is a direct subsidy paid to airline companies to fly empty and near-empty planes from small airports to regional hubs.  This was supposed to be a temporary program to allow local communities and airports to adjust to airline de-regulation in 1978 and instead has grown to include 173 airports in a program that has doubled in cost in the last decade. Why can’t it?  In many cases, the small airports in the program are less than an hour’s drive from regional airports. There are supposed to be $200 per passenger caps on the subsidy and a minimum of ten passengers per day, yet every request to waive these requirements has been granted.  Every one.  Per passenger subsidies on some flights are now nearly $1,000 per passenger.  By comparison, you can charter a small plane for around $150 to $200 an hour.  Over the next five years, this program will cost taxpayers nearly one billion dollars in direct appropriations, which this amendment would cease.  The program also gets another $100 million a year from overflight fees that would otherwise be available to fund high priorities in the aviation system, like 21st Century air traffic control technology.”
Why has Amtrak elected to remain mum on this subsidy for “puddle jumper” flights down the road from a major airport; to not have pointed out how those funds could be re-directed to Amtrak for a bigger bang investment in state corridors?

At the beginning of May, 2018, American Airlines CEO Doug Parker stated “since last summer, crude oil prices have gone up more than 60% from around $45 a barrel to roughly $75. And the last 12% of that’s happened in the last two weeks.”
How does Amtrak prepare for the inevitable jump in the price of air tickets and potential for withdrawal from short haul routes (as Parker said, “decisions about what markets to fly to from Chicago will no longer be based on trying to gain market share, but rather, on where the carrier can operate most profitably”)? In its classic “shoot, aim, ready” response to market opportunities, Amtrak moves in parallel to further deteriorate dining services on long distance trains; to embrace the concept how the DMU will serve components of what was a contiguous long distance corridor. Total silence from the Amtrak corporate castle towards increasing frequencies on long distance and state corridors by acquiring more equipment, beyond the fantasy of DMUs as the updated version of “the little engine that could.”

We should also not forget how Amtrak’s focus on the end-point has persistently been detrimental to cultivating acceptance of its own self-serving business model, as evidenced:

“Sunset Limited” arrives Los Angles 535am; arrives New Orleans 940pm.
“Lake Shore Limited” arrives NYC 623pm; Boston 801pm.
(note: primary scheduling purpose to serve as day train between Buffalo-NYC/Boston).
“Capitol Limited” arrives Washington 105pm.
(note: primary scheduling purpose to serve as day train between Pittsburgh-Washington).
“Cardinal” arrives Washington 619pm.
“City of New Orleans” arrives New Orleans 347pm.

Southbound “Coast Starlight” arrives Los Angeles 900pm; eastbound “Southwest Chief” departs Los Angeles 610pm.

Arranging the Interlocking Plant
With these facts of Amtrak’s pathetic response to changes in the marketplace, it is long overdue to accept that by charging the same windmills will make any difference. Indeed, how ludicrous it is to believe Amtrak can achieve any different and improved results by following a course of repetition compulsion to consistently repeat the same problems of the past. To overcome current handicaps imposed by Amtrak upon state-support corridors of poor service frequencies and lack of inter-connecting state and regional routes, states must take back their PRIIA funds; remove the economic shackles of PRIIA; look to developing a franchise in conjunction with their border states that will link regions, break through the end point mentality, and provide the expected frequency to adequately compete with the convenience of auto and cost of bus.

In Part 3, we will delve into how Amtrak has elected to ignore recent changes in the market by identifying where people now live; how their travel needs have changed beyond Amtrak’s end-point restrictions; the growing need to provide convenient schedules  to facilitate day trippers for business, college, and pleasure. In a tip of the hat to California’s JPAs, the proposed routes and frequencies will be identified to rehabilitate the Midwest Corridors.