First, a salute to Railway Age Capitol Hill Contributing Editor Frank Wilner for finally obtaining an interview with a senior officer at Amtrak, Executive Vice President Stephen Gardner. From my perspective, this article offers interesting revelations; yet, it’s still like pulling a thread from a sweater to slowly unwind the backstory as to why Amtrak conducts itself in such a secluded, secretive style, operating in a bubble seemingly oblivious to expressed concerns.
Before delving into questioning specific points in “At Amtrak, It’s No Longer 1950,” it’s relevant to note that my credentials were established around operations management, M&A and customer experience at the executive level in corporations providing health care on a national basis, and at academic medical centers. From that vantage point and level of experience, I am compelled to probe further into this interview to constructively question what is still unanswered. Two significantly glaring issues stand out that, in my opinion, inhibit, if not impede, Amtrak’s acceptance and success:
Accounting/Cost Allocation Methodology
The common thread I found in turnaround operations management as a clear indicator why firms were on the precipice of bankruptcy was directly related to their failed accounting systems that could not provide timely and thoroughly accurate financial data. Despite a well -basis of external concern over the inappropriateness of how costs are shifted and allocated to the long-distance and state-supported sectors from the Northeast Corridor and corporate HQ, Amtrak persists to either respond in a blithe and insouciant manner, or just prevaricate and dismiss. For whatever reason, neither the current Amtrak IG or congressional committees have expressed any concern, which clearly only encourages Amtrak to make decisions in the dark.
However, by only looking into the rear view mirror, Amtrak willfully blinds itself to dismiss the financial reality that, as a result of ignoring GAAP, its accounting data is viewed as “the fruit of the tree is poisoned.” Therefore, decisions are not based on financial facts, but rather, on what fits the circular reasoning of the CEO du jour. Without question, to sell revamping of its current national system, Amtrak must successfully answer these issues with an orthodox approach to credibility:
Financial Structure and Accounting for Cost Allocation
The persistent problematic issue over cost allocation is that it will inhibit, if not prevent, acceptance and embrace of the revamping of the long -business line. Can daylight be shed on this long-festering issue, other than through an external forensic audit, given the ongoing concerns?
- How are direct and indirect costs attributed to the long-distance trains, including when those trains share depots, yards, etc., with state corridor trains?
- It’s important to accurately pinpoint actual losses; to take into account how accommodations are typically re-sold 2.5 times en route; how passengers travel an average of 800 miles just like in the air; and critically, how most travel is not between end points, but rather, a plethora of multi-market segments.
- Has Amtrak reviewed a business model of above-the-rail profitability vs. costs if it just increased frequency of long-distance routes from once per day? In particular, an external forensic accounting should identify the significance of increased revenue per passenger-mile impacted by improved schedule convenience.
The Impact of PRIIA
The Passenger Rail Investment & Improvement Act of 2008 (PRIIA) is a rigid, high-cost decree lacking oversight and accountability that only serves to fund the deficit-ridden Northeast Corridor (NECat the expense of continuing to strangulate the non-NEC states by financially hampering intra-state and inter-regional corridor development. Amtrak must be cautious to not give credence to any claims of committing subterfuge by limiting the proposed corridors to less than 750 miles, which under current PRIIA, would shift the entire cost of that corridor to be supported by one or more states.
- This is a critical issue, given the common misunderstanding that Amtrak is coddling the NEC by not charging state-run transit agencies that operate services on the NEC access fees. (Example: NJ Transit’s annual fees to operate commuter trains on the NEC are in the tens of millions of dollars)
- Critically, Amtrak cannot be seen as conducting such a cost shift, while usurping the federal funds for long distance for further investment in the NEC.
- If Amtrak is allowed to continue its current accounting model for cost allocation, how will that non-GAAP formula for allocation continue without the benefit of the long-distance routes upon which to lay significant costs?
Absence of a Data-Supported Business Plan
What I learned from turnaround operations management was how a firm with no solid business plan substantiated by solid data and research; with a clear vision where it wanted to go, was content to go nowhere, and dither in the dark, consequently failing to identify and seize opportunity to grow. At least under the tight control of former CEO Graham Claytor, Amtrak had a competent vision, firm leadership, and a direction to follow that paralleled a successful and proven business plan: to operate more long-distance trains to lower its overall costs by concomitantly increasing revenues. What happened after Mr. Claytor departed was obvious—cutting long-distance trains actually increased costs and reduced revenues, compounded by poor business planning for the original Acela Express equipment, instead of accepting proven, off-the-shelf available products. So, what happened? (Editor’s Note: Amtrak was prohibited from acquiring proven, off-the-shelf equipment like the Swedish X2000 from ABB or the German ICE from Siemens—both of which were tested successfully in revenue service on the NEC under FRA waivers—because neither trainset met the then-current FRA crashworthiness standards. The equipment Amtrak subsequently purchased from a Bombardier/Alstom consortium quickly earned the nickname “Fast Pig” due to its weight, which caused numerous mechanical failures such as prematurely worn wheelsets, disintegrating brake rotors and cracked damper brackets. – William C. Vantuono.)
The last new long-distance route was simply Amtrak assuming in 1983 Eugene Garfield’s bankrupt Auto-Train, including his concept for commissary buffet feeding. The only addition to state routes has been at the behest, planning—and financing-—of state-supported routes, including Maine’s Downeaster (allowing for outsourced food vendors); California’s three JPAs (Joint Powers Authorities), chewing on the leash of Amtrak’s financial imposition restricting ability to expand frequencies and intra-state routes; and North Carolina’s ambitious Piedmont Corridor to fulfill the growing demand to serve intra-state mobility and economic development needs (by utilizing state-owned power and consists). Virginia’s aggressive development of rail corridors from Norfolk, Newport News, Richmond, Lynchburg and Roanoke has significantly been possible by benefiting from its connective proximity to the NEC and available utilization of assets by extending Northeast Regional service.
Yet, the obvious need for a “Baby Builder” running on a Chicago-St. Paul schedule opposite of the “Empire Builder” remains stymied over costs; and attempting to fulfill demand by adding three more frequencies to the Chicago-Milwaukee Hiawatha Service has tanked due to Amtrak’s failure to conduct the necessary government relations as a prerequisite action with the Chicago suburbs on the route.
Although Amtrak is releasing its vision for a corridor-focused service redux, it has yet to even contemplate, let alone answer, the following issues:
Role of and Respect for Class I Ownership of Private Infrastructure
Currently, there is not one Class I interested in allowing any increase in Amtrak frequencies, given the dual economic issues of Amtrak paying below market value for track access; and how passenger rail is impeding freight service due to saturation of limited lanes and different velocities between freight and passenger trains. Be assured this issue will only be exacerbated by the continuing introduction of Precision Scheduled Railroading (PSR), which requires adherence to timely dispatching, with few, if any, sidings long enough to accommodate elongated freights.
- The only feasible opportunity is for Amtrak to embrace the FRA and negotiate with the AAR and Class I’s over the real issues impacting Amtrak on-time performance (OTP), let alone any thought of expanding frequencies.
- The increased costs to secure track access and timely dispatching by the Class I’s for Amtrak must be included in the total package for Amtrak when requesting new equipment and rolling out the new business model.
- Such costs that must be resolved in a timely manner include maintenance of rail infrastructure for passenger trains, track access, and dispatching to maintain OTP to ensure the critical component of schedule reliability for passenger rail.
- Track time slotting to accommodate increased Amtrak frequencies must be acknowledged up front how it will obviously incur additional costs, particularly in respect to “Z”-type fast intermodal schedules and PSR schedules.
- Such negotiations can certainly learn from how California’s three JPAs have established a record of competent negotiations with Union Pacific and BNSF to increase frequencies and speeds, while working with state and county agencies to finance the requisite infrastructure improvements.
Maintaining the Proven Concept of Inter-Connecting Regional Corridors
History should not be ignored as testimony to how the private railroads successfully operated daytime corridor schedules and linked these regional corridors together through their long-distance trains, particularly in the Midwest.
- Indeed, Amtrak learned to mimic this business model with long-distance routes linked to its Empire Corridor, Southeastern schedules linked to its Silver long-distance services, and California’s corridor JPAs linked to several Amtrak long-distance routes.
- Important is how California’s three JPAs (LOSSAN, Capitol and San Joaquin) have successfully integrated their corridors and expanded their intra-regional corridors.
- Given the potential for very real pushback by Congress over home state routes being dissected, and leaving significant segments without service, Amtrak will need to contemplate the role of full-service long-distance trains offering a more acceptable schedule frequency for tourism, seasonal travel and the very real usage of connecting the multiple markets between end points.
In essence, Amtrak cannot attempt to throw a “Hail Mary” by functioning within a bubble to make such a bold proposal toward revamping its long-distance sector. Amtrak must learn from the past when it issued an RFI for dining concepts, after eliminating three diner routes and introducing a questionable “Contemporary Dining” concept. Congress and the public will insist on Amtrak addressing, up front, the above issues, which will ensure any such proposed revamping is not derailed before it even leaves the depot.
With that, it is indeed relevant to call into question specific statements by Mr. Gardner in the article:
1) “We are a congressionally chartered private corporation, with a mission established by law for a public purpose. It is the role of Congress to fund the rail passenger network the public wants.”
It is accepted today how Amtrak was formulated in 1970-71 to actually relieve the Class I’s of their passenger train deficit; the political facade that Amtrak was created as a for-profit corporation was to appease President Nixon as a requirement of that era. However, what continues to scream out in disbelief is the fact that Amtrak either has not bothered to, or failed to, act like a viable business by formulating a meaningful business plan and strategy to educate and secure the support of Congress for how, when and why investment in Amtrak should be made. Where have the proformas been in support of any business plan?
This parallels Amtrak’s failure to garner individual state support, whether for seasonal long-distance, increased schedule frequency or expanded new routes to achieve inter-regional connectivity, as those states outside the NEC are throttled by the cost allocations of PRIIA. Indeed, if we can acknowledge how PRIIA has stymied state development and divided the national system politically and financially, what will induce Amtrak to take the initiative to put PRIIA back into the box to level the playing field for a truly national system?
2) “Actually, Amtrak answers to a trilogy of masters—the Executive Branch that includes the Department of Transportation and White House, which nominates Amtrak board members; the Legislative Branch, which authorizes Amtrak’s mission, confirms board members and appropriates federal subsidies; and the marketplace, which determines passenger modal choice.”
This is another reason for why Amtrak failed and lost precious time identifying what role it could play in America’s transport needs. Other than a belated recent attempt to replace the Colorado Ski Train, Amtrak exhibited no interest or knowledge in filling the gaps for, as examples, summer/winter seasonal rail services to western national parks or New England summer vacation areas.
Why does Amtrak allow members of Congress to merely politically focus on their one train in the middle of the night through their district, when there existed proven and greater economic opportunities? How is it that Graham Claytor clearly understood this, and made it clear to Congress that costs and losses are reduced by increasing the number of trains—not reducing them?
3) “That 1950s-era route structure, although occasionally tweaked, is, says Gardner, out of touch with the additional 118 million people who now live in America compared to 1971—exemplified by the Millennials who tend to cluster in metropolitan areas and desire public transit out of environmental consciousness and convenience.”
Be careful here, as Amtrak has either not embraced a competent understanding of the marketplace, or dismissed its demands based upon its own self-definition of its market services, schedules and branding.
Mr. Gardener references 1950, why does he not acknowledge how the Class I’s understood how to feed their passengers? Rather than Amtrak’s current model that overtly discriminates and inhibits, if not prevents, dining car service to coach passengers, the private railroads offered both full-service dining cars for all classes, as well as a very competent grill/lounge/club car for meals and refreshments. Today, only the Empire Builder comes close to offering a meal service to coach passengers by selling a full chicken dinner in both directions at Havre, Mont. To a lesser extent, the Coast Starlight does offer a modified meal service at coach seats.
Other than the Empire Builder” and Coast Starlight, Amtrak elected to ignore its coach passengers on long-distance trains; as well, to introduce a very undesirable “Contemporary Dining Concept” for first-class on the Capitol Limited and Lake Shore Limited in lieu of full-service diners, before issuing its RFI to research and identify various formats of on-board meal service. Why? Is there no respectable input from marketing or competent external sources to evaluate, preferably before instituting unproven changes? Even now, how many newly built diners from CAF are in storage, awaiting a revision of their new, unused galleys?
4) “Amtrak, says Gardner, has not met their expectations—not along the population-dense Northeast Corridor (NEC), where market share is being lost to amenity-stocked motor coaches with more convenient suburban boarding points; nor between many intercity pairs that lack Amtrak service entirely. An example is the 240-mile Houston-Dallas corridor, linking the nation’s 4th and 5th largest metropolitan regions. ‘That a sizable number of travelers are willing to spend four hours on a bus between Washington, D.C. and New York indicates we’ve created neither enough station access to the NEC nor capacity to compete with other discretionary travel modes,’ Gardner says. ‘If we can provide a service that meets or exceeds the bus competitor at the right price, people will trade up to rail in those markets.’”
Again, without a viable business plan that Congress could embrace, what is to be expected? To dissect Amtrak’s failure to gain ground, we see how not even the Northeast Regionals provide an economic option for the elderly or college students, as compared to the curbside buses.(I have previously proposed a stripped-down “Tourist Class” car for these travelers).
Ironically, given the multi-market segments of Northeast Regional trains not served by the Acela Express, Amtrak has failed to capture more business travelers with a meaningful first-class accommodation. (Editor’s Note: There is a Business Class that consists of one coach per train with a few more inches of legroom, free small bottles of water or soft drinks, usually room temperature, and newspapers, sometimes. Hardly worth the extra cost. – William C. Vantuono)
Amtrak has failed to sell a successful business model to Congress, the public and the press, because it does not understand that it is not about speed between end points, but rather, how it competently serves numerous multi-market segments. This strategy should be key to Amtrak’s economic model, after numerous past failures to promulgate non-stop services (e.g., New England Metroliner, San Diego Metroliner) that negated the advantage of rail by not linking multi-markets together—which air cannot achieve; and bus can, but only with elongated trip time.
5) “Among potential strategies is providing a higher-speed NEC Acela Express service for those seeking the shorter trip time between major business centers, while offering smaller regional markets between Washington, D.C. and Boston a separate service, competing price- and amenity-wise with bus.”
Amtrak needs to review and accept marketing data that evidences how its NEC is really an extended commute zone between New Haven-New York and Philadelphia-New York, and how historically, except for a few Washington-New York trains, there is little or no demand for non-stop trains, as they actually diminish the attraction of train travel.
6) “‘Too many population centers rely on a single, often chronically late long-distance train a day, with uncompetitive trip times and intermediate-point arrival and departure times that run counter to leisure time and business travel demands,’ Gardner says.”
Good point. But what was ever done to envision at a minimum, multiple, daily long-distance routes that covered each other?
7) “As for Amtrak long-distance routes, trains typically pass through vibrant and growing intermediate cities at such inconvenient times and with so few frequencies as to discourage a wealth of new riders. ‘We must address younger riders early in their working careers who seek commercially relevant 21st century service, not the 20th century Amtrak model,’ Gardner says.”
I agree! But instead of merely throwing the long-distance routes over the side, what if Amtrak actually studied how the long-distance routes could link the intra-regional routes?
8) “Inescapable is that, of 32 million Amtrak riders last year, just roughly 650,000 booked sleeping accommodations. ‘While we believe there is still a market for long-distance rail travel that provides an experience, the obvious real demand is for corridor trains of 300 to 400 miles connecting intermediate city pairs with frequent, conveniently timed service,’ Gardner says. ‘Corridors work for the same reason unit trains work for freight railroads,’ he says. ‘We must focus on actually moving people by offering convenient alternatives to congested highways and limited air service—not just traversing landscape.’”
When will Amtrak learn how rail transport works in America? We are the benefactors of how the private railroads actually made it happen, particularly post-World War II, e.g., AT&SF’s Super Chief/The Chief; Great Northern’s Empire Builder/Western Star.
What was not stated, to put it in proper perspective, is how much revenue was derived from those 650,000 sleeper rides? But, to what extent is that now at risk, given the changes in on-board food/beverage services, higher costs, and OTP almost non-existent, creating the problem of missed connections. Personally, I will not pay the current exorbitant ticket price to ride in a sleeper, as times have certainly passed from even contemplating the ride.
10) “Dollars, of course, are scarce, and wants are plentiful. The 457-mile NEC, for example, which is owned by Amtrak—except for 103 miles under state ownership—has an estimated backlog of $40 billion in capital projects just to put it in a state of good repair.”
When will Amtrak come front and center to decisively admit it never should have been burdened with the NEC, as Amtrak was intended to be only an operator? Given the history of extensively deferred maintenance and the overwhelming usage by the multiple regional/commuter lines between Boston and Washington, the NEC should have never jeopardized Amtrak’s financial position to provide a national system. Instead, the NEC should have remained a federal property after Conrail’s emergence in 1976, ensuring fair dispatching and prompt payment by all users for operations and infrastructure.
11) “What we are pursuing is incremental progress through continual financial improvement while growing ridership.”
This does not make sense. It starts with the fact that Amtrak’s management team has received bonuses on the basis of cutting costs. How does an incentive to push cost-cutting enhance the customer experience, which certainly impacts improving finances and ridership?
12) “As for an increasingly acrimonious relationship with freight railroads that host most Amtrak intercity trains—a kerfuffle playing out in the courts—Gardner says the freight network is ‘not optimized for the quality we need. I take some level of excitement with Precision Scheduled Railroading, which means running freight trains as we run passenger trains—concrete schedules and a high level of reliability. As they move toward that, it could be great for us.’”
What? Amtrak has to come to terms with the Class I’s; actively encouraging P3 investments for facilitating infrastructure improvements. Private ownership of rail infrastructure cannot be dismissed.
A final word to Amtrak: With this analysis, it behooves Amtrak to continue the dialogue and openly discuss issues of concern. Not all of us are throwing brickbats; however, we do have a concern for how passenger rail will achieve its place in our mode of national transport. In essence, without taking action to modify PRIIA from bleeding the non-NEC states; establishing an accurate, transparent accounting/cost allocation system; coming to terms with the Class I’s for the actual market valuation of their infrastructure today—not 1971, any such proposed revamping of Amtrak’s approach to its national system will be a failed gambit, as we can forecast, “a bridge too far.”
M.E. Singer is an observer and commentator on the passenger rail industry, identifying shortfalls and growth opportunities. He is currently Principal at Marketing Rail Ltd. in Chicago, a consultancy to achieve passenger rail customer experience and product branding. Singer has prior corporate experience in turnaround operations management, marketing, and mergers and acquisitions in the health care field.