Monday, April 8, 2013

The problem with rail advocacy organizations

In America, there is no such thing as an effective or unbiased rail advocacy organization. Indeed, those rail advocacy organizations which do exist are generally self-defeating. The National Association of Railroad Passengers has turned into nothing more than a cheerleading section for Amtrak and there is a very odd focus, perhaps even monomania, towards the long distance trains, with a cheerful disregard for facts accompanied by a strong aversion towards modern intercity corridor service and especially the Northeast Corridor.

Take, for example, this excerpt from a letter by Andrew Selden, President of the Minnesota Association of Rail Passengers, passed on by RailPAC today

The western trains ALL cover their variable and direct fixed costs of operations handily, but fail only to cover Amtrak’s allocations of system fixed costs which exist irrespective of the fact or volume of long distance train operations. It is still the case also that Amtrak deliberately misallocates substantial shares of NEC fixed costs to long distance trains, including long distance trains in the west that never use the NEC. The purported “success” or “profitability” of the NEC is a BIG LIE because to make that claim (and to hide the NEC’s staggering and growing annual losses), Amtrak routinely mischaracterizes its infrastructure costs as “capital” items, as if that changes the fact that these costs are caused by and indispensible for the operation of trains in the NEC. Your column hinted at this, but failed to grasp the significance. Amtrak’s claim is like a bankrupt airline claiming that it was “successful” or “profitable” without revealing that it was not charging against its revenues its landing fees, gate rentals, or heavy equipment maintenance, because those are “capital” costs. That would be a lie, and in the private sector a publicly-traded business that made such claims and its executives would be prosecuted for crimes.
Measured by GAAP, Amtrak loses somewhere between $600,000,000 to $700,000,000 every year in the NEC, but only about $200,000,000 in the long distance segment, where it produces 160% more transportation. Thus, its return on federal investment is probably six times (600%) higher in the long distance trains than in the NEC trains. Amtrak’s tens of billions of dollars of “investment” into its NEC markets, including the more than $3 billion sunk into the Acela program, have to date produced a negative rate of return on investment. Its annual loss on operations rose following the inauguration of Acela service 12 years ago, and has risen every year since.
I should first and foremost note that he appears to be president of nothing; the Minnesota Association of Rail Passengers has had no web presence since early 2006 and said website does not appear to have been actively updated for several years prior to then. He is described as "Vice President of Law and Policy" at United Passenger Rail Alliance and does seem to be mildly more active there, but I do get the impression that everyone involved with UPRA is at least a vice president.

It is in fact an outright lie to state that the Western long distance trains (Empire Builder, Coast Starlight, California Zephyr, Southwest Chief, Sunset Limited, and Texas Eagle) "cover their variable and direct fixed costs of operations handily." The recent testimony to Congress clearly shows that it is not the case currently, and it was not the case in previous years either. In 2004, none of the named services made enough revenue to off-set their FRA defined costs ("FRA allowable expenses include train costs, primarily train crews, food and beverage, fuel, railroad costs and commissions and certain shared costs, primarily equipment maintenance and reserves") and in fact they ran a deficit of $84.1 million (Page C-2). In 2005 this increased to $122.3 million (ibid, C-1). 2006 and 2007 are given in different formats, but in 2008 these services lost $115.4 million on FRA defined costs (Page C-2) and in 2009, $92.8 million (ibid, C-1). Using these same costs, however, the Northeast Corridor does even better as well, with the Acela earning $278.6 million more than the FRA defined costs in FY2009 (a total of $67.4 million after all costs are allocated).

The claim that large shares of the NEC are currently allocated to the long distance trains improperly, including the Western long distance trains which never cross the Northeast Corridor, is a tiresome myth; frequently stated, but never backed up. Indeed, it runs counter to his next claim, that Amtrak is inappropriately identifying the infrastructure costs as "capital costs" rather than operating costs. While I am not an accountant, and will cheerfully admit to a lack of knowledge where GAAP is concerned, the characterization of infrastructure maintenance as a capital cost at the very least appears to be a railroad standard; see, for instance, Union Pacific's 2012 Annual Report, pages 35-36. The specific claim that Amtrak loses $600-700 million annually on the Northeast Corridor is additionally quite wrong. The Northeast Corridor covers its capital costs; such a loss would require inappropriately putting the entire burden of Amtrak's depreciation upon the Northeast Corridor. It should go without saying that if Northeast Corridor is held to GAAP and depreciation, the long distance trains will similarly do quite worse as well.

A somewhat unrelated point is brought up here, though it connects with a general monomania for long distance trains: The focus on passenger-miles instead of passenger trips and hence the remark that long distance trains do 160% of the transportation of the Northeast Corridor. Is a single trip from Los Angeles to Chicago really worth ten trips between New York and Washington D.C. or twenty trips between Los Angeles and San Diego? Of course not, but that's what exalting passenger-miles leads us to. I do not wish to suggest the exaltation of passenger trips as a contrary error; though I do think it a generally more relevant metric. However, it is blatantly biased in favor of long distance trains (which can have distances between stops exceeding the total route lengths of corridor services) and not a terribly useful figure when there are city-pairs with sufficient demand and proximity to warrant multiple frequencies, unlike the trips that the long distance trains currently make. This also leads to somewhat lower load factors. Running an off-peak train will necessarily reduce your total load factor. However, it enables trips not otherwise available for many potential passengers, who may very well take the peak train. This is not perfect of course and it does require a bit of a balancing act. This is also mildly exacerbated by the low passenger capacity of long distance trains. A Superliner II consist with three sleeper cars and three coach cars carries only 387 seats compared to 509 seats on a Surfliner or Northeast Regional, and 304 seats on an Acela. Additionally, the closer stops will tend to result in a lower load capacity due to higher turnover.

This mythicism is directly harmful to any attempts to run Amtrak as a potentially profitable rail agency. What is the single largest expense for Amtrak? Salaries, wages, and benefits. In 2012, they amounted to $2.03 billion, larger than all Amtrak ticket revenue, which came only to $1.968 billion (Page A-1.2). Of this cost, and others for that matter, the lion's share belongs, by far, to the long distance trains. In fiscal year 2008, the last year for which I have information, long distance trains were responsible for 41.7% of total wages, salaries, and benefits for the national train system as well as 46% of fuel, propulsion power, and utilities (PDF page 15). This percentage decreases somewhat if infrastructure operations, ancillary businesses (such as commuter rail contracts), and the simply unallocated are added to the mix, but it is clear that long distance trains, with their crews of a dozen or more, are responsible for a hugely disproportionate share of Amtrak's costs. Indeed, for every $1 of passenger revenue on the long distance trains, Amtrak spent $1.17 on salaries, wages, and benefits. While 8.5% of Northeast passenger revenue went to pay for fuel or overhead power, nearly a third of long distance passenger revenue had to be set aside for the very same purpose.

Until such time as rail advocacy organizations and those who speak on their behalf stop peddling arrant nonsense and stop trying to pretend that the nostalgic trips of old ought to be the focus of modern American rail efforts, they will get nowhere with the good ideas that they do possess. 

10 comments:

  1. It does seem that the longer distance rail trips (e.g. US - Empire Builder; CA The Canadian; AU - The Gham & Indian Pacific; NZ - Northern Explorer) are more nostalgia trips for older customers who remember the glory days of rail. While that is a perfectly valid role for rail as a tourism/travel experience, the heavy lifting is done in the US, Canada & Australia by regional services often in congested road corridors. For example, the North East Corridor has huge benefits in mobility, replaces a great many auto trips in congested conditions, reduces airport congestion (both landside and airside) and has major greenhouse gas and environmental benefits.

    The other side to this is the attrbution of costs - the more frequent the service, the lowwer the access charges per service (abetted by shorter corridors) and the higher the benefits of capital investments.

    Canada, Australia & NZ are moving towards treating the long-distance as travel experiences with seasonal frequency changes and products tailored to the needs of that market and less as point-to-point services.

    In Australia, Victoria has strongly built services to regional cities from Melbourne; while Canada is strongly focusing on Corridor services Windsor - Toronto - Ottawa - Montreal - Quebec City.

    The big gains in the US strike me as the less developed regional corridors - Wolverines Chicago to Detroit with higher speed service; more Cascades frequencies (inc. to Vancouver, BC); Lincolns from Chicago to St Louis etc.

    ReplyDelete
    Replies
    1. I can't argue with treating the Indian Pacific (triple overnight, with nothing in the middle!) as a tourist train.

      I can't argue too much with treating the Canadian as a tourist train, either. There's nothing to speak of between Toronto and Winnipeg. Between Winnipeg and Calgary or Edmonton, there's only Saskatoon. Between Calgary or Edmonton and Vancouver, there's the Rocky Mountains.

      I can, and will, say that treating the Melbourne-Adelaide train as a tourist train is wrong; it should be a daily service, at least. It's already subsidized by the Victorian State Government.

      Treating the Wellington-Auckland train as a tourist train is also wrong, and it should be daily service, possibly even twice-daily if the population of New Zealand is large enough. In the New Zealand case I think perhaps this will become more obvious after the various improvements to local and suburban trains in Wellington and Auckland are done.

      Likewise, treating the Montreal - Halifax train as a tourist train is wrong, but that's what VIA just did by cutting the frequency (they're basically killing it).

      In the US the gains are indeed the regional corridors. The "long-distance" trains which will be most successful are those which run along regional corridors much of the way. Texas Eagle ridership increases can be directly linked to St. Louis-Chicago improvements.

      This isn't a new model, by the way, this is a very old model of train service. The destruction of the urban, corridor and commuter routes during the 1950s was extremely harmful to all train service in the US; the survival of the "long-distance" trains while the underlying corridor and commuter routes were allowed to vanish seems to be an artifact of the 1950s-1960s era rules of the Interstate Commerce Commission.

      Delete
  2. There are other clearly wrong statements that the LD foamers make. One is that the Long Distance trains deliver a million passengers to the NEC trains a year. This can't possibly be true. The seven LD trains that serve NEC stations carry approximately two million passengers a year. But many of them travel between non-NEC stations: the Capitol Ltd carries significant ridership between Pittsburgh and Chicago, for example, the LSL between Upstate NY and Chicago, the Silver Star between Tampa and Miami and so on. It's likely that only a million LD passengers board or alight at NEC stations; the statement would require that all of them transfer. "Three minutes' thought would suffice to find this out; but thought is irksome and three minutes a long time."

    I don't find the harping on passenger miles that bad. If the LD trains are to be defended as a public service, then passenger miles is one possible metric. Not the only one. It should be used in conjunction with total trips and unique riders (which Amtrak doesn't report, though, since it requires names for reservations, it could).

    What offends me is talk of revenue while ignoring cost. The Empire Builder brings in $60M! What a great train!

    ReplyDelete
    Replies
    1. It's not necessarily an absurd statement, Amtrak claims that 19% of the Surfliner's revenue in FY10 was from connecting long distance passengers. It is, however, a rather unlikely one. The Silver Service, Palmetto, Cardinal and Crescent all travel along the Northeast Corridor from New York to Washington D.C. before heading off to their various destinations, which means that the bulk of any NEC ridership has no need of transfers. Only the Capitol Limited and Lake Shore Limited terminate in the NEC without significant travel through it and thus would be liable towards a high percentage of transfers.

      It's also a bit of putting the cart before the horse. Is it that these trains deliver passengers to the Northeast Corridor or is it that the Northeast Corridor delivers these passengers to the long distance trains? Given that much of this is snowbird travel, I'd really wager more of it on the latter than the former.

      Delete
  3. NARP strongly supports “modern intercity corridor service,” in the Northeast, in California, and elsewhere.

    NARP also strongly supports the long-distance network, and its expansion. But we do not claim that “the western trains ALL cover their variable and direct fixed costs of operations handily.”

    Please judge NARP on what NARP says, not on what Andrew Selden says. He is not a NARP member. I don’t think he has ever been a member. If he was, it was decades ago.

    ReplyDelete
    Replies
    1. I didn't mean to imply that he was speaking on behalf of NARP or that NARP necessarily believes the same things and do apologize for the unclarity. I was taking issue with all of the current rail advocacy groups that I am aware of and listed NARP as perhaps the most notable of them along with a specific complaint.

      Delete
    2. Ross, didn't you get fired by NARP in February 2014? If there is any doubt, I have a copy of the NARP motion to take this action (it says "remove (him) as the President and Chief Executive Officer of NARP")

      Delete
  4. Paul, I can assure you that the Train Riders Association of California (TRAC) doesn't subscribe to the Andrew Selden viewpoint. Indeed, our main focus is advocating for and protecting the three corridor services in California, e.g., the Capitol Corridor, the San Joaquins and Surfliners.

    ReplyDelete
  5. The northeast corridor is in fact Amtrak's biggest "money pit" for the simple reason that Amtrak is entirely responsible for maintaining the infrastructure. Passenger trains will never, ever come close to maintaining all the stuff "below the wheels." Long distance trains (the only thing we have in Nebraska) have the advantage of operating on right of way maintained by freight trains. It's directly analogous to semi-trucks utilizing a highway system paid for by private automobiles. The most cost effective approach for a greatly expanded passenger rail network is integrating 90 mph+ passenger trains into the existing freight network. There will never be the money or the motivation to build a high speed TGV rail network in the U.S. We have to work with what we have.

    ReplyDelete