Amtrak Senior Executive Vice President Stephen Gardner’s response to Railway Age’s recent coverage of Amtrak encapsulates perfectly why Amtrak is such a rolling financial and commercial disaster. It also shows that Amtrak’s senior leadership is either deep in the well of self-delusion, or possibly intentionally misleading its various stakeholders.
Gardner makes several assertions of a carefully selected subset of data points that support his thesis that all is well at Amtrak. These assertions, characteristic of recent Amtrak propaganda, omit more than they state, but even what they state is either false or misleading. These examples illustrate the problem:
Gardner disparages the long-distance trains because they account for only 15% of Amtrak’s “ridership.” He omits that they also produce the plurality of its output of passenger transport, substantially outperforming (last year and every year) the Northeast Corridor (NEC) and the regional corridors. Amtrak hides that output data because it collapses the myth that the NEC and the other short corridors are the company’s strongest business segments. Ridership—simply the number of customers carried—tells us nothing useful about Amtrak’s performance of its statutory mission to provide a national network of intercity rail passenger services. Only revenue passenger-miles measure the performance of that mission. Gardner ignores RPMs. Perhaps he fails to grasp their significance.
Gardner touts Amtrak’s fabulous financial performance in FY 2018 (the best in its history, he says) using a concocted artificial metric, “adjusted operating results” (key word: “adjusted”), that omits two critical points: the vast annual costs of upkeep in the NEC—not accounted for in Gardner’s claim—and Amtrak’s dismal corporate financial results using real-world (GAAP) business accounting. In FY 2018, Amtrak lost more than $868 million on $3.2 billion in revenue. And even that dismal outcome would have been far worse had Amtrak not massaged its results by deferring maintenance and purchasing—the oldest game in railroading—by $679 million, up a quarter of a billion dollars from the previous year.
If Amtrak honestly accounted for all the costs of generating its revenues, and included the vast infrastructure costs of the NEC, its losses and “cost recovery” would have been far worse than Gardner’s assertion.
Gardner’s biggest howler of all is the claim that the NEC produced a $526 million “operating surplus” that was “reinvested in NEC assets.” That is true only if, like Gardner, one fails to disclose and account for the billion dollars or more in annual fixed-asset costs in the NEC, and the additional half billion or more in budgeted and presumably necessary NEC maintenance that management deferred, because Amtrak’s revenues plus subsidies were so far short of covering all of its actual costs. Gardner omits any disclosure that the NEC’s $25 billion so-called state of good repair deficit also just rose by another half billion dollars as a result of its poor financial results and the consequent deferrals.
Gardner coyly asserts that the recent effort by Indiana to free itself from Amtrak overcharging for operating the Hoosier State failed. He’s a little vague on why that occurred, neglecting to mention Amtrak’s actions that undermined it. Perhaps he never read Indiana’s contracts with Iowa Pacific and Amtrak, which guaranteed IP’s failure by promising Amtrak full recovery of its arbitrary and inflated “costs” of operating the train before IP was paid for its customer-facing contributions. No one could succeed under that arrangement. The wonder is not that IP withdrew, but that it lasted as long as it did.
Gardner also left out entirely some of the most important non-financial metrics of Amtrak’s performance in 2018. Most vitally, its market share for intercity passenger transport, both in the NEC and nationally, already trivially small, fell again in FY 2018, as it has every year for decades.
Worse, Amtrak continued its obstinate failure to invest in new capacity in the long-distance segment, where trains are statistically nearly sold out and thus incapable of growth. This is the only segment that generates a real cash surplus (more than $400 million in FY 2018) and therefore operates essentially free of federal or state subsidy. These trains soldier on despite Amtrak steadily stripping away their positive attributes, like dining cars, checked baggage, reliable connections and staffed stations.
The long-distance interregional trains are also the only segment that is even capable of either organic or scale growth, because it is the only segment where latent demand exceeds capacity. The low load factors in the NEC and other corridors, a constant for decades, show compellingly that those vacant seat-miles cannot be sold. If they could be, by now they would be and Amtrak surely would show much higher corridor load factors (small gains in load factors in FY 2018 instead reflect quiet reductions in train- and car-miles, not significant increases in passenger-miles).
Measured by actual financial results (not Amtrak-“adjusted” data), by financial returns on capital investment (which historically are negative in the NEC), and by social relevance measured by market share, Amtrak is a basket case propped up only by political interest in feeding billions in subsidy into NEC infrastructure.
It doesn’t have to be that way. But as long as Amtrak allocates capital based on political inertia rather than financial returns, willfully fails to grow its largest and only commercially successful business segment, and engages in blatant self-deception through its use of inappropriate metrics and manufactured accounting as reflected in Stephen Gardner’s arguments, it is doomed.