AMTRAK- When Political Absurdity Meets Government Inefficiency

Amtrak is the government subsidized and sole National Passenger Railroad Operator in the United States.  Through outdated requirements and the inability to secure funding for long term investments, Amtrak has accumulated annual losses of greater than $1 Billion every year since its inception. 

 

The National Passenger Railroad Corporation was created by the US Government in 1971 to consolidate the fledgling passenger rail industry in the United States.  Branded as ‘Amtrak’, this organization operates 300 trains, carrying more than 84,000 passengers daily.

Business ModelBlobServer

Amtrak’s mission is to deliver intercity transportation with superior safety, customer service and financial excellence. Amtrak operates a nationwide rail network, serving more than 500 destinations in 46 states, the District of Columbia and three Canadian provinces on more than 21,300 miles of routes, with more than 20,000 employees. Last year Amtrak recorded $3.2 billion in revenue and while incurring $4.3 billion in expenses.[1]

According to AMTRAK’s Business Plan published in 2013, the company prioritized 5 goals:[2]

Goal 1 – Safety and Security:

Become North America’s safest, most secure railroad by creating a collaborative, team-oriented workplace culture that minimizes risks and maximizes passenger and employee safety.

Goal 2 – Customer Focus:

Advance customer service quality by responding to the wants, needs and expectations of our customers in order to improve their experience and maximize passenger and partner satisfaction.

Goal 3 – Mobility and Connectivity:

Improve national mobility and connectivity by growing Amtrak’s business through new partnerships, routes and frequencies to increase ridership system wide.

Goal 4 – Environment and Energy:

Contribute to the nation’s environmental health by attracting automobile and air travelers to trains, while improving Amtrak’s efficiency and reducing transportation related carbon emissions and fossil fuel consumption.

Goal 5 – Financial and Organizational Excellence:

Attain a standard of organizational excellence by aligning our products, services, processes and culture with stakeholder expectations to improve financial performance and overall business results.

 

Operating Model

Beholden to Government Whims

Unfortunately for Amtrak, despite these logical business goals, its operations are still dictated by a very fickle and confused Congress. Amtrak is reliant on Federal Subsidies greater than $1 Billion annually.  Efforts over the past decade to secure this funding through multi-year legislative allocations have repeatedly failed; forcing Amtrak officials to plead their case annually before a highly politicized legislature.  The inevitable outcome is an inability for multi-year planning and an inability to secure the proper funding for the investments necessary to make Amtrak competitive with existing forms of inter city transportation.

Inability to invest

CrashOne glaring example of this failure to properly invest in necessary technologies was seen in the May 15th, 2015 derailment of a Northeast Regional Train in Philadelphia.  Subsequent investigations found this deadly incident was caused by operator error.  The conductor failed to slow the train to the prescribed speed for a curve, resulting in multiple cars coming off the tracks.  Amplifying the apparent failures that led to this disaster, was the fact that the technology to prevent it had already existed, however Amtrak had failed to fully implement it due to funding and technical issues.[3]

 

Inability to divest unprofitable operations

Amtrak’s operating problems are further complicated by a Legislative Requirement to maintain long distance intercity rail lines that are perennially unprofitable.[4]  Amtrak officially are continuously berated by Congress for their inability to generate a profit, while ignoring that the continued reauthorization of the Passenger Rail Act, with its declaration that “long distance passenger rail is a vital and necessary part of our national transportation system and economy,” is the proximate cause for a majority of the operating expenses.[5] Acela

In the most glaring example of Congressional ineptitude regarding Amtrak’s operations, members of Congress floated the idea of privatizing the Northeast Corridor of Amtrak.  This line, running from Washington, DC to Boston, and including the only high speed rail in America, is often the only profitable line for Amtrak.  When pressed, the backers of the plan identified that private investors were willing to raise private capital to make the necessary infrastructure investments to keep the line operational.  What they failed to address is how that plan would benefit the remainder of Amtrak which would then struggle even more to match revenues to the growing costs of running the remaining long distance passenger transit lines that Congress continued to mandate.[6]

 

Lessons:

If the process for securing funding for Amtrak continues to be a contentious and annual process the enterprise will continue to fail.  Despite the $1.5 Billion it will receive from tax payers this year, Amtrak is simply securing the minimum amount required to remain solvent, removing any possibility of making the investments required to remain a viable option for intercity transportation in the United States.

Compounding this problem is the fact that Amtrak is still beholden to an outdated federal mandate to operate inefficient and unpopular long distance routes.  Congress should reevaluate the stance and determine if it is indeed integral to the national economy.  If it does find that the long distance routes need to be maintained, the façade of Amtrak remaining a semi-private venture should be removed, subsidies should be increased, and the railroad network should become part of the nationally funded infrastructure.  If not, Amtrak should be entrusted to divest unprofitable lines and prioritize capital expenditure towards the routes that are profitable or can be in the immediate future.

 

Notes:

[1] Amtrak Website

[2] Amtrak FY13 Budget Comprehensive Business Plan

[3] International Business Times. “Amtrak’s Failure to Gain Wireless Spectrum Rights Stymied Safety Technology” May 15, 2015.

[4] The Brookings Institute. “New Amtrak Bill Still Means the Same Old Funding Debate” September 16, 2014.

[5] Amtrak News Release. “LONG DISTANCE TRAINS ARE FEDERAL RESPONSIBILITY” May 21, 2013.

[6] Washington Post. “House GOP proposal would privatize high-speed rail along Amtrak’s Northeast Corridor” May 26, 2011.

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8 thoughts on “AMTRAK- When Political Absurdity Meets Government Inefficiency

  1. I think there are some parallels with the USPS as well. Very interesting post, I did not know that there was legislation that forces them to continue routes that are not profitable. Definitely not easy to turnaround a company when you need cooperation from the US congrress!

  2. Excellent write-up Jack. I am a huge fan of trains and railroads. I used to ask my grandfather to take me to the train station so I could watch trains. I’d highly recommend checking out Railroad Tycoon II:Platinum – a classic strategy video game, which places you the shoes of railroad magnates around the world.

    It is sad that AMTRAK’s “business” model does not include generating superior returns for its’ shareholders – the taxpayers. I am seeing a lot of parallels with Bulgarian’s state owned railway enterprise. This is not a company that any other should want to be compared to.

    I am curious how you think AMTRAK can move away from a losing socialist scheme to a company that can operate successfully without government subsidy, providing superior service and competitive with other modes of transport. Do you think profitability can ever be achieved? Does the government propose sale controlling packet of shares to industry, perhaps with some conditions of sale (e.g. maintain service between cities x and y)? Does the government liquidate and provide and allow passenger transport license to private railroad companies along currently AMTRAK monopoly routes?

  3. Love the post and the thread. There seem to be a significant number of government based organizations that are increasingly behind the times and fail to deliver year after year… Amtrak, the Post Office, … and at the state level my (least) favorite is the Registry of Motor Vehicles – why does it even exist? These institutions are so far behind the times that it’s becoming near impossible to fix them and may point to a structural limit in government sector transformation. I am pretty liberal on most things but I just don’t know how many of these government/state sponsored and regulated entities will be able to move fast enough not to look like dinosaurs… how do we balance the need for regulation (I really don’t believe the free market solves all problems) and the need for rapid responsiveness to changing trends?

  4. If you look at the long-distance passenger rail in most developed countries, e.g., France, Japan, etc, they are typically funded and managed by their respective governments. This is because almost all of them are money-losers. While particular individual lines may be profitable, like the DC-Boston corridor in the US, most others are perenially not. It would not make sense, however, for the government to privatize the profitable lines, while retaining ownership and control of the profitable ones. Instead, the government must come to terms with the fact that certain lines will always be unprofitable and that, therefore, they should either close those lines or provide further subsidies so they can operate effectively. The government is not in the business of capturing value so much as creating it.

  5. Nice post, Jack. As a taxpayer, it is frustrating that I subsidizing a venture that, as designed, has no hope of every being profitable. I will have to read up on the Passenger Rail Act; can’t say I understand why it exists given that there are obviously other means with which to get around the country. It’s quicker (and cheaper) to take a bus across country than to try to do the same trip by rail, so I cannot say the benefit is obvious to me. One wonders whether the derailment in Philly would have happened if AMTRAK did not have to spread its CAPx spend across so many lines…

  6. Great post! Interesting read and thought, especially after today’s Google Car case and the option of “Transportation as a service”. I think this is a problem in many countries. It doesn’t surprise me to see the government both the “Savior” and “Executioner” of the company

  7. Great post Jack. It reminds me of Boston’s own forever unprofitable and frustrating service MBTA.

    1. I hear you, Manny. I remember when I was here last February and the MBTA was shut down because it was too cold for the brakes on the train to work properly. I didn’t even realize that was possible!

      One differentiator for me, however, is the overall utility that the MBTA provides to the city. I think there is a lot of value added there, even if it is not necessarily captured by profit. I’m not sure what value there is in providing someone with the ability to travel from Cleveland to Denver via AMTRAK.

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