Sunday, August 10, 2014

Will 2015 be the year that Amtrak turns a profit?

Nine months in to Amtrak’s fiscal year and it is clear that 2014 is going to be Amtrak’s best year ever financially. Indeed, not only is it set to post the lowest loss in inflation adjusted dollars in its history, but the lowest loss in nominal dollars. In three of the months this year; October, December, and June; Amtrak has posted an operational profit, that is to say that it’s revenues have exceeded the costs of providing the service (but not accounting for items such as depreciation). These revenues were sufficiently great that, even with November showing a loss, Amtrak managed to eke out a profitable first quarter.

For the year to date, Amtrak has posted a loss of $128.4 million and is currently projecting a total loss for the year of $233.3 million. However, to do this, it would need to lose $35 million each month during its best performing time of year. Last year, between all three months combined, it lost only $34 million, posting a slight profit in July of $3 million. For it to show a loss of over a hundred million dollars instead would require that some truly amazing feats of accounting over the previous year. That’s not to say that that hasn’t happened: There is currently a $40.4 million in Auto Train expenses that appear to have vanished into the ether. Should it reappear, it will pose a rather significant impact to Amtrak’s bottom line. If, however, it truly has disappeared, and Amtrak’s performance in the fourth quarter matches that of the rest of the year, we should see operating profits in July and August both, with a small loss in September bringing Amtrak to a total operational loss for the year of only $95 million compared to last year’s $355 million loss.

What accounts for this dramatic change in fortunes? Some of it is the result of increased state payments, but this would be the smallest change. There is so far only a $35.6 million increase in revenue credited to state supported train revenue and $62.9 million expected for the whole year. This is dwarfed by the $79.2 million in increased ticket revenues and the $72.2 million reduction in expenses compared to 2013.

Will Amtrak be able to match this performance next year and thus post a small operating profit? It’s possible. This year has shown a net drop in ridership, even with adjustments to represent more accurate counting (multi-pass ridership was significantly overestimated), and revenue has been mostly stagnant outside of the Acela. If Amtrak can manage to grow ridership and revenue in its other segments next year, it should have a fairly strong chance of meeting that goal. Even if 2015 turns out not to be the year that Amtrak makes an operating profit, we should see it by the end of the decade as new equipment, especially the Acela replacement, comes online and expands Amtrak’s capacity.

2 comments:

  1. Sadly, the answer to your headline question is "no". But yes, it'll happen soon.

    The catastrophic messes on the Empire Builder (including Minneapolis service) and the entire Chicago-Cleveland corridor (LSL, CL, Michigan trains) hurt, financially; they hurt less than you might expect because demand is still booming, but they still hurt, and they cause reputational losses which are slow to rebound from.

    I'm not sure how much the corridor train delays impact the bottom line of Amtrak now that the new PRIIA rules are in place -- worse revenue should mean that the same overhead is spread over less revenue, so it should hurt some. But I do know that the losses on the Empire Builder have a significant impact. The long-distance trains as a group had worse financial performance in FY2014 than FY2013. But if you remove the Empire Builder, then they had *better* performance in FY2014 than FY2013. The drop in Empire Builder patronage accounts for the *entire* drop in the LD segment (and more) for 2014.

    In 2015, I expect this to be joined by a drop in LSL/CL/Michigan patronage due to the NS meltdown from Cleveland to Chicago, unfortunately. These lines have proven to be attractive enough that ridership and revenue *should* be growing if they were operating properly, and sleeper revenue/ridership seems to have held steady even *with* delays, but the delays have to be hurting.

    Chicago-St. Louis service has also been subjected to endless construction-induced delays (for many years), and the Texas Eagle has been subjected to even more delays and cancellations in Texas on top of that (most of which should be over now); and from what I can tell these services don't seem to improve their financial numbers much year over year, though they are holding steady. They would probably boom if they started running consistently and on time.

    The sort of losses in patronage (ridership & revenue) which are caused by OTP collapse and bustitution take at least a year to recover from -- even if the mess is cleaned up today, which it won't be. Barring future catastrophes, the Empire Builder mess should hopefully be cleared up at the *end* of 2015, and the Chicago-Cleveland mess earlier (freight shippers are screaming bloody murder about that mess).

    So I'm not expecting to see a return to steady revenue/ridership growth on these lines until a year after the messes are over, which means (optimistically) 2017.

    If service can be restored to reliability across the northern part of the country, it should help with the lowest-ridership months of January and February -- after all, trains should be more attractive than buses or cars during snowstorms -- but that isn't effective when there are horrible delays and bustitutions.

    On the cost side, the Heritage cars and the HHP-8s are still going to be running well into 2015, maybe even 2016. (Also, cash is still going to be pouring into paying back old loans and buying out old leases until roughly 2017.)

    On the revenue side, Amtrak is still capacity constrained; new revenue cars don't start to arrive until very late 2015 (Viewliner II sleepers and bilevel coaches), and will still be arriving in 2016.

    On the operations side, a few new stations (mostly in Michigan) and major track projects are opening soon (including Englewood Flyover), but the next year is mostly going to be ongoing projects causing delays. Improvements start being scheduled to open again in late 2015 (but may be delayed). Thanks to the ARRA deadline of 2017, we can expect a lot of improvements to really, finally, open that year.

    The Penn Station mortgage gets paid off in 2018, the last of the old high-interest debt.

    I'm guessing the operational profit comes in 2017 or 2018, though 2016 is a remote possibility. 2018 should be golden for Amtrak.

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  2. It only will have taken 45 years, but hey, maybe the for-profit agency will actually turn a profit.

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