Brightline goes Virginal. What next?Written by David Peter Alan, Contributing Editor
Everybody has been watching Brightline, the bold upstart operator of private-sector passenger trains in a nation where every other scheduled train is operated in the public sector, either by Amtrak or by a local transit authority. There has been a lot of news about Brightline lately, and this writer originally intended to focus on the customer experience and the railroad’s plans for the future.
Then came the news that Virgin Group’s Richard Branson is buying a position in the company and the brand will be sacrificed in favor of Virgin Trains USA (reported here on Nov. 16, “Branson Buys Into Brightline”). This news raises more questions than it resolves, and it is from sources outside the company that we have learned much of what we now know. Among those questions is: “What is the future of private-sector passenger trains in the United States?” and, with what we know, what can we conjecture?
Brightline started life as All Aboard Florida (AAF), the first new passenger rail start in the private sector after three-quarters of a century of decline. The trains would run on the Florida East Coast (FEC) Railway, which was built more than a century ago by Henry M. Flagler, the king of Florida’s real estate developers. Flagler built his railroad and developed nearly every community along it, from Jacksonville to Miami, and into the Florida Keys, as far as Key West. The original AAF brand name sounded like Flagler’s spirit beckoning passengers onto a new incarnation of his trains. It seemed off to a good start under the leadership of Eugene Skoropowski, highly regarded as one of the best rail managers in the country. FEC had underutilized property in downtown Miami, Fort Lauderdale and West Palm Beach—just the place for transit-oriented development (TOD). All the company needed was to run some trains, and those trains would go to Orlando Airport on the other end, with new track to be built along State Highway 528 westward from the existing FEC line at Cocoa.
Then came the Brightline brand. It did not have the local identification of its predecessor, but it was bold, edgy and in-your-face. The trainsets consist of locomotives and cars painted in highly saturated colors: Bright Pink, Bright Red, Bright Orange, Bright Yellow, Bright Blue and Bright Green. The interiors contrast totally, all in white, including the seats and the walls. None of Amtrak’s cyan-ish blue or fake wood tones there! The stations in Fort Lauderdale and West Palm Beach sport the glass-curtain exteriors and clean-lined interiors of 1990s-vintage airport buildings, appropriate for a train going to another airport. The brand-new Miami Central Station is something else entirely: a huge complex in the heart of downtown Miami that will soon include office and residential space, as well as tracks and a platform for Tri-Rail, the existing local rail line that runs between the Miami Airport monorail and one town north of West Palm Beach. It also connects into local transit through the MetroMover, a downtown monorail operated by Miami-Dade Transit.
Flagler would have been proud of Miami Central Station. It has several levels, with large spaces and lots of diagonal lines and surfaces on the inside, and a glass curtain with zigzag trim on the outside. It evokes the antique modernity of art-deco Miami, the grittiness of Miami Vice and the futuristic urban vision of Fritz Lang’s Metropolis.
Brightline spokesperson Ali Soule told this writer: “We are at the intersection of transportation and hospitality” and the station and on-board experiences proved her right. There were plenty of employees around to cater to every rider’s needs, and their attitudes were positive and helpful at all times. Of course, they also made sure that passengers stayed in their assigned places and did not wander too far. For riders in the extra-fare “Select” class, the railroad offered wine, coffee, snacks like chips and granola bars, breakfast pastries in the morning, and cheese, crackers and cold cuts in the afternoon. There were also wine, beer (the Jai Alai IPA is local and appropriately hoppy, even though in comes in a can) and snacks available on board. “Non-Select” passengers had to pay for them.
Soule also pointed out some of the features of the car design, including some inspired by the Americans with Disabilities Act (ADA), like unique restrooms and small grabirons attached to the seats, so passengers did not need to grab the backs of the seats to steady themselves. In reality, they were not needed, because the track was the smoothest this writer has ever experienced. It was possible to fill a cup to the brim with beer and watch it for a few minutes, without a drop being spilled. That feat is impossible on Amtrak’s Northeast Corridor (NEC) or anywhere else Amtrak goes.
Brightline is moving forward with plans to extend service to Orlando Airport, including a new line that will be built westward from Cocoa, on the existing FEC main line. Current plans call for that line to open for service in 2021. There may be some intermediate stops added along the existing FEC line, too. Despite recent strong opposition to the line, the communities of Stuart, Fort Pierce and Cocoa have expressed interest in having at least some of the trains stop there on the way to and from Orlando. These towns were part of the historic FEC route until service ended in 1968. Vero Beach and Sebastian were also on the historic route, but those towns did not express interest in having service restored.
In the meantime, management has announced plans to extend service further to Tampa, on a line that would be built along an existing highway, the I-4 corridor. A decision is expected from state authorities on that proposal Nov. 28. The proposal is similar to one from 2009 that would have been built with a high-speed rail grant from the Obama Administration that Governor (now Senator-elect) Rick Scott killed by refusing the grant. Now he has changed his mind: Mary Ellen Klas reported in the Miami Herald on Aug. 16 that Scott and his wife have invested $3 million in Brightline’s (and AAF’s) parent corporation, Fortress Investment Group. Under the new circumstances, the result would only be newsworthy if the state committee were to reject it.
On Sept. 18, Brightline acquired XpressWest, a high-speed rail venture that would run trains between Southern California and Las Vegas along the I-15 corridor, beginning in 2022. The Southern California end would be in Victorville, a town east of San Bernardino and 119 miles from Los Angeles by rail. Amtrak’s Southwest Chief stops there, but the only way that Angelinos can get there on public transportation would entail a long ride to San Bernardino on a Metrolink train and taking an infrequent local bus from there to Victorville. Motorists could park in Victorville and take the train the rest of the way to Las Vegas.
It does not appear to this writer than either market is fertile ground. It would cost motorists convenience and money to drive to Victorville and take the train, while the trip would be extremely long and difficult for transit riders. If management could figure out a way to run through to Las Vegas from Los Angeles, that would be a different story. It would probably require an agreement with Amtrak and BNSF, which owns the route to Victorville.
The bigger news is that the Brightline brand will die soon, to be replaced by Virgin Trains USA. Virgin Group is acquiring a minority position in the company, in return for the branding rights. We wanted to know how large this position is, what management hopes to gain through the deal, if Virgin plans to acquire full ownership, and what other long-range plans Virgin has. We did not get answers to any of these questions, only a referral to the company’s news release on the subject. The good news in the release was that incumbent management will stay in place. That means the high level of customer service on Brightline will continue, at least in the short run. The bad news is that the company is saying little else, which means that we need to learn the facts from other sources.
In this writer’s opinion, it is sad to see Brightline go. It had a positive and unique feel, and it certainly had a distinctive trade dress (the appearance, which is part of overall brand promotion). Brightline had its own style, and Henry Flagler probably would have approved of it. Virgin is an established brand, but more in Europe (it is based in London) than in the U.S. It is also a widespread conglomerate, both geographically and in terms of other business lines. With regard to travel, it is building ships for a cruise line to be based in Plantation, Fla. (Virgin Voyages), so it is establishing a related travel-based presence in the region. It is not quite as clear how well-respected the Virgin name is in this country, which does not prize the concept of virginity as much as other places in the world. Virginity is a status that many people lose relatively early in their lives. It seems that a company courting that status is moving in the other direction.
Virgin Group has holdings in the travel, hospitality, publishing, media, entertainment, retail, communications, sports and other industries. It has also given up more branding positions throughout its history than it owns today. It retains a minority share in Virgin Atlantic Air Lines, which did well in 2015, but has lost money more recently. It has discontinued or sold other airline holdings, but it retains tour operation Virgin Holidays.
With respect to rail, it still owns 51% of Virgin Rail Group, having sold the other 49% to Stagecoach, which owns such American companies as Coach USA and Megabus. Virgin’s experience operating rail franchises in the U.K. has been spotty, with a history of operating the Intercity Cross-Country, East Coast and West Coast franchises. It lost all three at different times, but regained the West Coast franchise until next April. It is currently bidding to keep that franchise under its brand with a 20% position, along with French railroad SNCF (30%) and the other 50% held by Stagecoach Group.
Virgin Hotels currently operates one property in this country, in Chicago. It has plans at this writing to open several more within the next year or two, but not one in South Florida. That could change. Virgin has no experience with rail on this side of the pond, which may explain why the current management team will continue to build and operate the railroad. It does not explain why those managers sought a deal with Virgin in the first place.
Virgin has also invested in another transportation technology that could connect the airports in Miami and Orlando at such high speed that it would leave the train in the proverbial dust: Hyperloop One, founded in 2014 to develop the hyperloop, a transportation system introduced by Elon Musk that would use electromagnetic levitation to move a pod through a low-pressure tube at very high speed, similar to the pneumatic tube, which was first attempted for transportation purposes in New York City in 1870. Virgin invested in Hyperloop One in 2017, and Sir Richard Branson is now Chairman of the Board. The Miami-Orlando route is one of four proposed in the U.S. If Branson could whisk passengers between those endpoints at such dizzying speeds, would he continue to operate a much-slower railroad? Time will tell.
This leaves the question of why Brightline management is giving up its brand. The answer might be revealed in recent reports in local newspapers. Lisa Broadt reported in Gannett’s Treasure Coast Newspapers on Nov. 16 that the partnership with Virgin “could bring a needed infusion of cash to the $4 billion railroad” and that the company “now is facing a Dec. 31 deadline to sell $1.15 billion of tax-exempt bonds.” She also reported that the company has had financial woes this year, losing $28.2 million in the first quarter and $28.3 million in the second quarter. On the same day, Jeff Ostrowski reported in the Palm Beach Post: “Brightline’s total ridership for the first half of the year was 180,870, just 16% of the 1.1 million passengers Brightline told investors in December that it expected for the full year of 2018,” but added that Brightline started service later than expected and did not run its full schedule of 16 round trips between Miami and West Palm Beach until early August. His report continued: “Brightline’s revenue for the first half totaled $2.2 million, just 9% of the $23.9 million in revenue it predicted for 2018.” Ostrowski also reported: “Fitch rates the bonds BB–, a junk-bond grade that reflects ‘an elevated vulnerability to default risk.’”
The picture appeared much rosier six months ago from what management said at the time, as this writer reported for the Rail Users’ Network (RUN) in last summer’s edition of the RUN Newsletter, which can be found at www.railusers.net. Brightline refused to disclose specific ridership numbers then, although the railroad was only running between West Palm Beach and Fort Lauderdale.
If these more-recent reports are credible, they explain why Brightline management needed a new investor. The railroad does not have enough riders to generate sufficient cash to bring its impending bond issue up to a rating that would attract investors willing to pay enough for it to afford the cost of building the new line to Orlando Airport. Broadt’s report did not contain as much financial information as Orstrowski’s, but she said, “The powerful new affiliation doesn’t come without a cost.”
Her next paragraph detailed the greatest sacrifice that Brightline must make: “Brightline has been building its brand since 2015, and was on the cusp of bringing its colorful logo across the country with a planned expansion into California and Las Vegas. The railroad will be giving up three years of intense branding efforts in exchange for Virgin’s internationally known name.” Some of this writer’s law-practice clients have also developed and worked hard to protect the brands that they initiated for their own businesses. Entrepreneurs do not surrender their brands easily; it often takes a dire financial emergency to convince business owners to give up their brands. Given low ridership (which this writer personally observed on Nov. 19), reported losses earlier this year and a low rating for its bonds, it appeared that Brightline’s management had no choice but to sell out.
Richard Branson of Virgin may be seen as the savior of the first new passenger rail service in this country, or he may be seen as a corporate raider, positioned to pick up all-important branding rights for the price of a minority position; the extent of which we do not know. A brand is the public face of a company, and he probably got that for a bargain price. He may or may not have actual working control; again, we do not know. We can be sure, though, that he will call many of the shots about how the trains are presented and marketed. That, in itself, may be tantamount to working control, even though incumbent management will remain in place, at least for now. Whether or not Branson eventually buys the rest of the company’s shares may be irrelevant.
This event could be highly relevant to the future of passenger trains in the U.S., and probably in Canada, too. Everybody, including rail managers and rider-advocates, have been watching Brightline’s progress to determine whether or not it would be feasible to introduce passenger trains back into the private sector. It now appears, at least to this writer, that it is not. The railroad had plenty of land in downtown Miami, Fort Lauderdale and West Palm Beach that could be developed. That land is a great asset on the balance sheet, and it would contribute much more to the bottom line after it is developed. Other privately owned railroads do not have that special asset.
There is a difference between a balance sheet and a cash flow statement, and it appears that even Brightline and its owners did not have the cash to build the new railroad they planned. So they needed an investor. They got some cash, and they paid the price. The trains may run to Orlando someday, but the experiment failed.
So, if you wish to experience Brightline, you had better get on an Amtrak train or a plane soon, and go to South Florida to ride the brightly colored train. You do not have much time.
David Peter Alan is an advocate for passenger trains and rail transit, and their riders. He travels extensively on the entire Amtrak system, having averaged about 25,000 miles per year over the past two decades. He has also ridden most rail transit in the United States. Alan is Chair of the Lackawanna Coalition, an independent non-profit organization that advocates for better service on the Morris & Essex (M&E) and Montclair-Boonton rail lines operated by New Jersey Transit, as well as on connecting transportation. The Coalition, founded in 1979, is one of the nation’s oldest rail advocacy organizations. In New Jersey, Alan is a long-time member and/or board member of the NJ Transit Senior Citizens and Disabled Residents Transportation Advisory Committee and Essex County Transportation Advisory Board. Nationally, he belongs to the Rail Users’ Network (RUN). Admitted to the New Jersey and New York Bars in 1981, he is a member of the U.S. Supreme Court Bar and a Registered Patent Attorney specializing in intellectual property and business law. Alan holds a B.S. in Biology from Massachusetts Institute of Technology (1970); M.S. in Management Science (M.B.A.) from M.I.T. Sloan School of Management (1971); M.Phil. from Columbia University (1976); and a J.D. from Rutgers Law School (1981).