Deciphering the Amtrak Puzzle

Amtrak Southwest Chief.

CEO Richard Anderson’s announced strategy to reposition Amtrak’s train operations is a puzzle. It appears incapable of working. He proposes to end most long-distance services in favor of higher frequency corridor services connecting nearby urban areas. Yet, much better opportunities exist that are easier to exploit and promise much higher returns on invested capital.

The short corridors Amtrak already operates, outside of California, are Amtrak’s smallest, commercially-weakest segments (with the lowest annual output, load factors and market shares in their respective corridors), and the segments least capable of organic growth. The long-distance segment that Amtrak disdains has the highest annual output, load factors and market shares of all of Amtrak’s trains. Because their load factors are at or near sold-out levels, and their routes weakly interconnected, they are the trains most susceptible of both organic and scale growth.

Amtrak’s strategy can’t work for several reasons.

For trains to compete against private cars in shorter markets, given cars’ overwhelming market share dominance, flexible schedules and routes and door-to-door convenience, rail frequencies must be inversely proportional to distance. That demands 10-minute headways in urban transit applications, and probably hourly service in 200- to 400-mile intercity markets. Where in the United States can existing rail infrastructure accommodate hourly fast passenger trains as an overlay to existing and future freight operations?

Because the necessary infrastructure does not exist, Amtrak’s strategy requires tens or perhaps hundreds of billions of dollars in new rail infrastructure all across the U.S. to upgrade secondary main lines and to add new passenger track(s) to primary main lines (as Brightline/Virgin Trains is doing in Florida, and Amtrak has done in Michigan and Illinois). Amtrak has not identified a budget or source of funds for that kind of spending on passenger rail.

Even if the tracks existed, Amtrak also has not acknowledged that it has no intention of operating any trains at all in any shorter regional markets (outside the Northeast Corridor) unless someone else pays Amtrak to do so. Few if any new states appear willing to do that.

The new strategy thus would require pouring capital that likely does not exist into Amtrak’s smallest and commercially weakest markets, to create infrastructure that does not exist yet, to operate speculative new services, but only if highly unlikely state sponsorships materialize.

If Amtrak is serious about its strategy, it already has the legal authority and resources to demonstrate the concept on its own initiative in any suitable city pair. Why has it not done so?

So, the new strategy is a real puzzle. Amtrak has made no showing that it can achieve a positive rate of return on capital invested in this scheme.

A better strategy is to invest more of the company’s existing and freely available capital into the largest and most commercially successful segment of the business, where trains are often sold out, intercity ridership and output the highest in the system, the service is plainly undercapitalized (because demand chronically exceeds supply), and large amounts of free cash flow ($423 million last year, according to Amtrak) are already being generated.

Amtrak has legal authority to shift capital resources (the annual subsidy grant) between accounts to where it can earn the highest returns. The use of capital that promises the greatest return on the investment (both financially and in incremental annual passenger-miles) is also Amtrak’s greatest immediate need: to replace and enlarge the Superliner fleet on long-distance trains, where demand today exceeds capacity—i.e., the trains are substantially sold out and growth is unavoidable, not speculative. These fleet assets can be leased, not purchased, to minimize initial costs.

Strategic, individually minor investments in infrastructure in the interregional markets also can yield immediate and positive returns. Better weather-proofing the Chicago yards would be a good place to start. Partnering the installation of run-through tracks at Los Angeles is another. Re-installing the connecting track from the ex-Southern Pacific to the ex-Katy (Missouri-Kansas Texs) main line at San Antonio would take only a few weeks and yield immediate benefits.

Increasing the capacity of the western long-distance trains will allow new customers traveling very long distances (the average in sleeping cars in the west is about 1,200 miles, and these cars run sold out nearly every trip) to begin buying thousand-dollar tickets as soon as the capacity is added. Adding cars to existing trains requires no new infrastructure, even for maintenance.

The potential volume of the highest-revenue customers can be multiplied by better interconnecting existing routes with very modest additions to the existing route system. Examples include extending one Missouri River Runner between Kansas City and Omaha to connect downstate Illinois and Missouri to the California Zephyr, dropping through cars for Phoenix and Tucson from the Southwest Chief at Flagstaff, and originating the Maple Leaf train at Boston rather than New York and scheduling it to make cross-platform transfers at Albany/Rensselaer with the Adirondack. The Silver Meteor should originate in Montreal and Toronto, and the Heartland Flyer should go to Kansas City, or perhaps Denver via La Junta.

Modeling modest route enhancements like these on an assumption of only the same level of service and only the same degree of market penetration as existing sold-out trains suggests that the enlarged matrix of origin-destination pair possibilities will multiply aggregate demand in Amtrak’s largest business by a factor of six or more.

If Amtrak doesn’t want to pursue these opportunities, the DOT should openly auction the routes and rolling stock off to competitors who do.

Amtrak’s financial rate of return on the $3 billion in capital invested into the Acela Express program 20 years ago has been negative. (For example, Amtrak’s reported state-of-good repair deficit—the accumulated sum of its NEC deferred maintenance—has tripled since introduction of the Acela program.) Let’s not repeat that experience with a misguided pursuit of speculative short corridors now, when far greater opportunities, much more easily and inexpensively available, are right before us.

Andrew Selden is President of the United Rail Passenger Alliance.