Passenger trains don’t operate in a vacuum. They compete for business against air and motor vehicles. The results of the competition are reflected in, and measured by, their respective market share. Automobiles win the competition for the great majority of intercity travel, even in the highest-density corridors.
Amtrak’s strongest single train, in market share, output and average trip length, is the one that serves the least populated, second-longest and most remote market in the entire system—the Empire Builder. This one route encompasses more origin/destination city pairs than some airlines’ entire networks.
Automobiles win the market share battle everywhere, for three reasons inherent in the technology: They are private, and comfortable up to a point; have “infinite” frequency and network (they go exactly when you want, and exactly where you want); and, to most users, the cost is measured subjectively only in incremental out-of-pocket cost, not fully-allocated costs that underlie some common-carrier pricing. These factors make it extremely difficult for any mode to compete with cars for any intercity travel. In any distance range under 1,500-2,000 miles, cars win 90% or greater market share.
Automobile dominance is not uniform, however, in all markets. Cars win higher market share in shorter distance travel. The greatest competitive challenge for rail occurs where the appeal of the car’s attributes (comfort, network, cost) is the strongest, in the 100-500 mile range.
Trips shorter than 100 miles statistically aren’t even “intercity” travel by standard definition. Trips longer than 400-500 miles are harder to do in one day, the car becomes less comfortable, and the value of the “infinite network” is diluted. The car’s advantage declines with distance, but not linearly; the advantage drops off abruptly after 400-500 miles. But cars own the short-to-intermediate market, even in the densest corridors.
What business wants to dive into its strongest competitor’s strongest market? Air can’t garner large market share in short markets because the attribute of speed is too heavily diluted by terminal times, and high costs don’t compare favorably to the apparent cost of driving. Air’s market share in short corridors rarely exceeds 3% to 5%.
Rail also can’t garner high market share in 100-500 mile markets for many of the same reasons. To compete against cars’ flexibility, rail frequencies must be inversely proportional to the distance covered, but higher frequencies require both greater infrastructure investment and much higher aggregate operating costs of providing more frequencies. Those costs preclude price competition with automobiles. And the traveler still needs to get from the terminal to the actual destination. Shorter corridors are rail’s weakest competitive prospect, because these are the trips where the car’s inherent advantage is the greatest, and rail’s costs of competing are the highest.
The real world corroborates this. In one U.S. corridor market with extraordinarily high population and density over a distance of about 450 miles across several major cities (Editor’s Note: Selden is referring to the Northeast Corridor), air has a share of intercity travel of about 5%, motor vehicles about 93%, and rail—at a persistently high cost—garners less than 2% market share, which has declined slowly for decades. Rail’s role in this market declines steadily, even as its public cost (infrastructure costs that swamp operating margins) grows.
The population votes with its feet even where frequent, fast but modest quality and high-price rail service is offered. This rail submarket is also overcapitalized, because far more inventory is offered than can be—or ever has been—sold, reflected in low utilization (intercity load factors hover around 30%).
Empirically, rail does far better in a different segment, achieving much higher market share. This is the submarket where trip lengths exceed the comfort range of cars, and approach the range where air competes more effectively.
This submarket is in the range of 400- to 1,500-mile average trips. Here, rail competes best and always achieves its highest market share (in corridors where the service is offered). Rail’s market share in longer distance markets is often 5% to 6%, three times rail’s market share in any short distance corridor. A train that overlaps several such markets is inherently more efficient, productive and competitively successful than one that only overlaps several 100- to 300-mile markets. In longer-distance markets, rail’s average trip is twice the entire length of most short corridors.
Empirical demonstration of this phenomenon is abundant. The long-distance group is commercially and competitively much stronger than any short corridor, in market share, output and load factor. The long distance trains produce annually half-again the output of the entire NEC. They recover their own capital and operating costs, and have by a very wide margin the lowest subsidy cost, per passenger, per passenger-mile and in the aggregate, in the entire national network. Amtrak told Congress these trains will contribute a positive operating margin this year of $423 million, reducing the corporate deficit and subsidy need by that amount.
Long distance trains also have average trip lengths that closely match the average trip length in domestic aviation (at about 750 miles), another proof that rail competes quite well with air and motor vehicles in longer-distance markets. These trains are also the country’s most undercapitalized, because their load factor is consistently so high that they are statistically nearly sold-out. They are incapable of organic growth for lack of added investment in capacity (inventory).
Amtrak management’s great business failure, and the policy failure of the federal government, is that vast amounts of public capital continue to be lavished upon the markets where rail has the weakest competitive position (very low and declining market share), performs the poorest (smallest output and highest public cost), has the greatest unrecovered annual costs of fixed facilities, has little prospect of growth (persistent low load factor), and earns the lowest return on invested capital. That reflects political power and ignorance, not sound transportation policy or prudent investment strategy.
Andrew Selden is President of the United Rail Passenger Alliance.