Amtrak’s Grand Plan for Profitability - YouTube

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On July 12, 2017, Amtrak got a new CEO.

The American government-owned railroad company would now be helmed by Richard Anderson.

Anderson was no stranger to the American transport industry.

He had previously worked for nine years as the CEO of Delta Airlines—leading it from

bankruptcy to prosperity.

This job, of turning around a struggling company, is rarely a popular one.

It requires making difficult decisions that plenty will not agree with, but it’s a job

that some leaders have a knack for.

Having succeeded with this at Delta, there was at least some evidence that Richard Anderson

could complete the same task elsewhere.

That’s why he was brought to Amtrak.

Amtrak is certainly a company in need of turnaround.

While it is government owned, it is intended to operate as a for-profit company.

Despite that, however, it has never turned a profit since its inception in 1971.

Each year, the difference between what it makes from running its trains and what it

costs to run those trains is made up by government subsidies, grants, and debt.

The company’s primary purpose, beyond making money, is, of course, to carry passengers,

and they don’t even do that all that well.

In 2018, only 73% of their trains arrived on time.

In the case of their long-distance trains, just 43% got to their destination on time.

In fairness, the majority of the company’s delays are the fault of the freight rail companies

that own the tracks that carry their trains, but still, it’s sure that the company could

use some work.

So, Richard Anderson has been getting to work.

To understand how Amtrak works as a company, you have to understand the types of trains

it operates.

There are essentially three categories.

The first are the Northeast Corridor trains.

This route, connecting Boston, New York, DC, and a number of smaller cities up and down

the east coast, is operated by both higher speed Acela and slower Northeast Regional

trains, and overall, the Northeast Corridor is by far Amtrak’s most profitable route.

The slower, regional trains they operate earn them a profit of almost $25 per passenger.

On the higher-speed Acela, they profit more than $80 per passenger.

Without this route, Amtrak would be in a far poorer financial state.

The second type of trains are the state-supported ones.

Essentially, what these are are shorter routes supported by the subsidies offered by state

governments.

Every single short-distance train outside the northeast corridor is state-supported,

and this type includes routes like Charlotte to Raleigh, North Carolina; Chicago to Quincy,

Illinois; or Vancouver, Canada to Portland, Oregon.

These routes range in profitability.

The DC to Lynchburg train, for example, earns the company almost $40 in profit per passenger.

Meanwhile, the Fort Worth, Texas, to Oklahoma City, Oklahoma one loses more than $30 per

passenger.

Overall, though, the state-supported routes as a grouping are unprofitable, but not by

that much.

They are somewhat close to break-even.

The third type of trains is the long-distance ones.

Ranging from 13 hours to 65, these routes connect big cities to small towns all across

the US.

Many of these routes have storied histories and strong fanbases of those who prefer the

more relaxed method of travel, however, these routes certainly do not help Amtrak’s financial

performance.

Every single one of Amtrak’s long-distance routes lose money.

How much money they lose ranges anywhere from $12 per passenger in the case of the Palmetto

between New York City and Savannah, Georgia all the way to $456 per passenger in the case

of the Sunset Limited from New Orleans, Louisiana to Los Angeles.

Overall, Amtrak loses more than a half billion dollars a year operating these long-distance

routes.

Part of what makes Richard Anderson the perfect figure to turn around Amtrak is that he does

not care about trains.

That’s to say, he has no sense of sentimentality about the history or the grandeur or the allure

of particular storied routes.

His passion is for profitability and that’s his goal, seemingly no matter the cost.

Therefore, three core parts to Anderson’s Amtrak plan have emerged—expanding the Northeast

Corridor services, optimizing the state-supported services, and cutting back the long-distance

services.

Starting with the Northeast Corridor, this is clearly Amtrak’s greatest asset.

The company owns most of the tracks between DC and Boston meaning that they don’t run

into the same problems of using freight railroad’s tracks like with almost all their other services.

This means they can run these services relatively reliably, and therefore have a clear advantage

over planes or buses when traveling between New York and DC or Boston.

Consequently, they have cornered the market between Boston, New York, and DC.

The first part of Amtrak’s plan to double-down on this route was initiated before Anderson

even joined the company.

Amtrak is receiving new, faster, and larger train sets for their higher-speed Acela Express

service on the route in 2021.

With the introduction of these, Amtrak has teased plans to create four tiers of transport

for the corridor.

The lowest would be a new, local train operating all the way from Richmond, Virginia to Portland,

Maine making most all stops along the way.

This idea for this sort of, “super-local,” train would be to connect additional smaller

communities to the Amtrak Network, as this service could be used to connect to other

higher-speed trains.

The next tier up would be the existing Northeast Regional service, operating between Boston

and DC, with some continuing on into Virginia.

Above that would be the current Acela Express, operating limited-stop service between Boston

and DC, then above that would be new, nonstop services from DC and Boston to New York.

The company launched the first of these in September, 2019, with a travel time of 2 hours

and 35 minutes—shaving about 15 minutes off the travel time of the stopping Acelas.

In the future, the addition of nonstop services from Boston and additional frequencies from

DC will cement this as the most premium option in the Northeast Corridor, and the idea is

that these four tiered options together will help capture more of every customer segment—thereby

squeezing more revenue out of Amtrak’s most profitable route.

The fact that some of Amtrak’s state-supported trains break even is a fantastic sign because

it means, with optimization, that Amtrak can turn this grouping profitable.

Anderson has made noise about expanding Amtrak’s short-distance network across the US.

The company has not announced any specific new routes as part of a major short-distance

expansion, but it’s clear that there are opportunities.

Trains tend to be competitive in time and cost to flights under a distance of about

300 miles or 500 kilometers.

That means there are plenty of likely profitable routes that Amtrak could set up, like Dallas

to Houston or Los Angeles to Las Vegas.

While it’s unlikely that Amtrak would set up any additional short-distance routes without

state funding, the company does have potential future competition.

Two private companies are fairly serious about starting up high-speed train service on these

routes.

Between Dallas and Houston, a company called Texas Central Railway is months away from

starting construction on a high-speed line connecting the cities in just 90 minutes.

Elsewhere, Virgin Trains USA—the company that owns what is currently the only privately-owned

inter-city railroad in the US between Miami, Fort Lauderdale, and West Palm Beach—recently

acquired a company that had begun planning and permitting work for a Los Angeles area

to Las Vegas high-speed line, and is looking to start construction in 2020.

If these projects are completed, which seems quite possible, two of Amtrak’s most potentially

profitable routes would be snapped up and, if successful, it would open the door to future

private rail projects in the US.

While significant rail investment and development would no doubt prove quite beneficial for

the country and help solve many of its transport problems, to Amtrak, it would get in the way

of their ability to cherry-pick the most profitable short-haul routes in order to offset the loss

of long-distance routes.

That brings us to those long-distance routes.

This is where things get tricky for Amtrak.

As a publicly-owned company enjoying quite sizable amounts of public funding, Amtrak

relies on keeping in the good graces of the US Congress.

Their long-distance routes pass through more than 40 states and cutting them would be politically

unpopular anywhere.

Not only do they serve as economic stimulus by providing jobs to rural areas, but many

of the company’s 500 stops represent the only public transport link to the outside

world from the small towns they’re in.

Congresspeople are well aware that the loss of a route that their constituents use would

not help with their popularity.

At the very same time, Congress has been putting the pressure on Amtrak to cut its losses,

even though the very thing loosing all their money are these long-distance routes.

Therefore, for now, the company has started making efforts to cut cost on these trains.

As one example, they’ve started to move their long-distance trains away from serving

fresh meals from their onboard kitchen towards stocking pre-packaged, pre-prepared foods.

This, undoubtably, did not go down well with Amtrak loyalists, but the whole long-distance

mess gets even messier.

The company has been accused of, essentially, misleading accounting practices.

This would presumably be in order to make the long-distance routes seem like bigger

money losers than they truly are in order to help the case for their discontinuation.

The company attributes different costs to different lines to give a sense of which make

money and which don’t, but this isn’t always done well.

For example, it apparently cost $3 million a year to maintain the company’s electric

train equipment outside the northeast corridor even though, aside from a small branch line

to Harrisburg, there are no Amtrak electric train routes outside the northeast corridor—only

diesel.

It also attributed all the cost of its baggage handling services to its long-distance trains,

even though these are used on many short-distance services as well.

The biggest highlight of their cost attribution, though, is what they marked down as the cost

they bore for their station in Miami—the terminus of some of the long-distance routes—to

be cleaned of snow.

The last time it snowed anywhere close to Miami was 1977.

What’s likely to happen, in the near future, is that Amtrak will cut the most egregious

losers in its long-distance portfolio while keeping those that are closer to break-even

in order to appease Congress.

The termination of any route would be a huge loss to many.

They each provide hundreds or thousands of jobs and connect many of the country’s smallest

towns to bigger cities, but its likely a necessity given the pressure from DC.

The new leader of Amtrak, Richard Anderson, has, though, helped lead the company towards

the goal that long seemed impossible.

In the company’s last fiscal year, it lost just $30 million.

In Amtrak terms, that is nothing, and it puts them on track to break-even in 2020—an achievement

that the company has never reached since its inception 50 years ago.

This will occur during what is clearly a time of great change for Amtrak.

It is reinventing itself at the beginning of a period of reinvention for the American

rail industry as a whole.

What many are worried about, though, is that it and the Congresspeople behind it will forget

the difference between a private company and a government-owned one.

If Amtrak was a true for-profit company, it would have long ago made the quite easy decision

to cut every single long-distance route.

Doing so would immediately turn them into a quite profitable corporation, but the company’s

purpose is to connect America, and there’s a whole lot more to America than a four-hour

radius around the largest cities.

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