By generous accounting measures, Amtrak’s operating losses in fiscal year 2015 were $306.5 million. It survives on government subsidies, but with these subsidies come operational mandates that ensure Amtrak stays unprofitable.
Amtrak’s business model is to transport rail passengers in the United States with objectives of safety and security, customer focus, and financial excellence. But a dissonant operational model drags it down on all three fronts.
Covering the United States by Passenger Rail, No Matter the Cost
Amtrak operates trains with destinations in 46 states and three Canadian provinces. Compared with the strong intercity rail systems of Europe and East Asia, it covers areas of lower density and further flung cities. This is part of the bargain behind Amtrak: in exchange for its monopoly on passenger rail, it has to keep long-haul trains running all across the country.
In terms of costs, Amtrak’s long haul trains are horrendously inefficient. Consider the “Empire Builder”, which runs from Chicago to Seattle, with plenty of seats empty as it runs through northern Montana and North Dakota. The route runs at an annual operating loss of over $10 million per year, as does the “Southwest Chief” from Chicago to Los Angeles, the “Sunset Limited” from New Orleans to Los Angeles, and the “California Zephyr” from Chicago to San Francisco, which loses over $30 million annually. Altogether, long distance routes account for about 15% of Amtrak passengers – and 41% of costs.
Amtrak makes much more financial sense across short high-density routes. It is particularly popular in the Northeast Corridor; trains accounts for 77% of all air and rail travel between Washington and New York, a share that has been growing since the introduction of Acela Express service in 2000. Overall Northeast Corridor operating profits exceed $200 million annually with ridership of 750,000 people per day.
Safety and Security in Question as Capital Erodes
Amtrak’s has put together a fairly strong long-term record of passenger safety. This past May, concerns regarding its ability to maintain this record were highlighted as a train derailed outside Philadelphia, killing seven. The crash was attributed to driver error, but it could have been prevented by modern systems of signaling and automation. Experts point to the chronic underinvestment; the train fleet is currently as old as it has ever been, and rail lines suffer from widespread disrepair. The operating surpluses that might have been poured into infrastructure investment in the Northeast Corridor are instead used to sustain money losing routes. Necessary and capital intensive updates to the 1873 Baltimore and Potomac Tunnel and the addition of a Hudson River tunnel have been long delayed as they will depend on the sort of federal funding that is difficult to sustain over a long project.
Amtrak cited cleanup, repair, settlements, and downtime resulting from the Philadelphia crash as the primary reason its operating losses yawned wider in FY2015. A vicious cycle seems to be emerging: the expensive results of safety failures leech funding away from infrastructure investment, leaving Amtrak ever more vulnerable to further accidents.
Customer Focus Lost Among Big Expenses
Amtrak’s inability to invest in infrastructure also limits its ability to fulfil its business model’s tenet of customer service. While trains between Barcelona and Madrid average 154 MPH, the “high speed” Acela train carries passengers at an average speed of just 68 MPH. Under the current operating model, “real” high speed rail is at best decades away in the Northeast because of the extensive and expensive track overhaul it would require. Meanwhile, smaller and more incremental improvements are also on hold. Customers complain of shoddy wi-fi service. Food services are often cut back as their expense serves as an easy, if small, target for Congress.
Can Amtrak move forward?
If Amtrak operated as a true private business, it would first grasp at solvency with an obvious operational change: shutting down long haul lines. Instead, it has taken half-measures to plug funding gaps. The Passenger Rail Investment and Improvement Act of 2008 required states to contribute funding to support routes with local stops, and funding deficits quickly shrank, but the requirement was limited to lines of less than 750 miles and thus excluded the system’s most heavily subsidized routes. More recently, a federal transportation spending package signed December 7 stipulated the launch of a pilot program in which private carriers take over operation of some long haul routes. Given these routes’ losing propositions, though, it’s hard to imagine any sane company stepping in and upending the status quo. As long as Washington keeps separate Amtrak’s business and operating mandates, and as long as it keeps each line’s function separate from its profits, American passenger rail will keep chugging along, slowly and in the red.