125
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February 8, 2002 For Immediate Release
Contact:
Carl H. Fowler
Vice President/General Manager
(802) 387-5812 ext 7
RAIL TRAVEL CENTER SUPPORTS
THE EXPERIMENTAL FRANCHISING OF SELECTED
AMTRAK SERVICES
AND
FULL FUNDING OF AMTRAK’S FY 2003
BUDGET
SUMMARY:
Ø
We support Amtrak’s request for $1.2 Billion in capital and
operating funds for FY 2003, but
Ø
We urge that the FY 2003 equipment repair program be immediately
implemented in FY 2002.
Ø
We support the experimental franchising of a selected Amtrak
route and/or service.
Ø
We do not support the separation of the Northeast Corridor
(NEC) from the control of Amtrak.
Ø
We oppose exclusive state funding of regional services.
Ø
We absolutely believe the Federal government must continue to
provide meaningful capital and operating grants if any rail
system is to survive, even the regional corridor services.
Rail Travel Center has operated tours by train worldwide since 1982. We have consistently marketed Amtrak travel as a part of that program and therefore have an experienced perspective on the current Amtrak situation. Too often, discussions of Amtrak are conducted without input from those who actually sell and use train travel. This situation becomes even more urgent in light of Amtrak’s February 1, 2002 press release, which suggests the carrier might end its national network by dropping all long-distance trains as early as October 1, 2002.
We believe Amtrak must receive the $200 million it has requested to preserve its connected national network, and that now also is the time to initiate measures ensuring passenger train services continue to operate in the long-term. Therefore, we support bringing the equipment repair portion of Amtrak’s $820 million FY 2003 capital request forward into FY2002. At present, the company gradually is losing its operating fleet due to the effects of deferred maintenance, ironically just as demand is trending dramatically upward. In the longer term, we support an experimental program of franchising selected Amtrak routes and services to bring about better marketing, operations and cost-recovery.
As we note below, the problem with Amtrak is not a lack of potential business. Rather, Amtrak’s troubles derive in large measure from a lack of equipment to meet the demand already on offer. Worse, Amtrak’s management too often has compounded the equipment shortfall by refusing to use assets it already possesses. We will outline our concerns with these practices below, in a section we characterize as “Institutionalized Pessimism”.
We also want to reassert our deep respect for Amtrak, which has been a good business partner to Rail Travel Center. We know for the last thirty years its managers have been forced to grapple with virtually no meaningful capital investment outside the Northeast Corridor (and on a very few regional lines). This has fostered a corporate culture of endless cost cutting combined with a tight focus on the needs of the NEC, where Amtrak saw its most likely source for immediate funding. That attention has come at the expense of the national system. We appreciate our many long-term relationships with fine Amtrak employees, but we also recognize that Amtrak, as an institution, has flaws which must be addressed.
Rail Travel Center is concerned about the harmful potential in a universal implementation of the recommendations of the Amtrak Reform Council (ARC). Although we set forth our chief differences in some detail below, we do not oppose all ARC recommendations. In particular, we believe the ARC is correct in urging at least some franchising (partial privatization) of Amtrak services. If done correctly, this could reverse the past Amtrak inclination to avoid opportunity and risk, lead to a dramatic increase in passenger train ridership (a trend already underway), and ultimately reduce the need for government support. Our analysis of these views follows.
DISCUSSION OF THE ARC REPORT, AMTRAK
MARKETING DIFFICULTIES, AND THE ARC SUGGESTION FOR AMTRAK ROUTE
FRANCHISING:
The worldwide experience with passenger train franchising is mixed but far more positive than some recent media coverage of the failure of the British Railtrack Company would suggest. Not all the 26 British rail franchise operators have failed to turn a profit, improve service, or reduce government support. At least ten are operating profitably, and more will be when track repairs are completed. The Great Northeastern Railway, Scot Rail and First Great Western offer outstanding service. Throughout the United Kingdom the frequency of trains has increased, and entire fleets of new equipment are in service or on order. Clearly, far too many franchises were issued (which should be avoided here), but the near meltdown of British operations in the last year reflected the mismanagement of the Railtrack infrastructure company, not the train operators. We need to learn from the errors of the British; but it is false to consider British franchising an overall failure.
An even more relevant example of the successful franchising of long-haul services can be found in Australia. The operation of the transcontinental INDIAN PACIFIC, GHAN and OVERLAND trains was assumed by a private operator (Great Southern Railway) which retained an assured level of government support but only could make a profit by increasing its business. This is precisely what has happened. More frequent trains with more cars are operating. Fares were raised to the maximum economic level, especially for First Class travel, yet patronage soared with the adoption of the philosophy that “the more passengers we carry, the more money we make”.
We want to see the Amtrak Reauthorization and the ARC Review processes succeed in preserving a truly national U.S. rail passenger system. Their actions can facilitate either a creative redesign of American rail travel or lead to a virtually useless system of isolated corridors best described as “Balkan Track”. This disconnected system would almost certainly disappear, as it would lack both broad-based Congressional support and any connectivity, thus becoming woefully under-used. As the airlines’ “hub and spoke” systems have proven, easy connections between the maximum number of destinations are essential to efficiency, patronage and profitability.
A.
Areas of Concern With the ARC Report.
Ø 1. Neither Amtrak nor any successor can succeed without adequate capital and a multi-year guarantee of operational support. This need must be satisfied for any operator to succeed. No real planning can occur if an operator must annually beg for funding. The United States must commit to a rationally capitalized and funded rail network, or failure is certain. If this can be done, subsidies will gradually decline and patronage will increase.
Ø 2. The semantics used in U.S. transportation policy must change. Why is it said we “invest” in highways and air service while “subsidizing” rail? It should be clearly understood by everyone that all of these funds accomplish the same thing: government funding assistance for the transportation needs of Americans in all parts of our country.
Ø 3. ARC’s suggestion that regional services be funded only by state or regional agencies is flawed and will insure such trains die. The partial federal financial support of state-initiated trains (as is presently done) is a good approach which has produced outstanding routes such as the CASCADES in the Pacific Northwest and the new DOWNEASTER between Boston and Portland, Maine. It is unlikely the multi-state compacts needed under the ARC recommendations would be adequately funded at the state level. If, for example, three states were responsible for a route (a good example is trains between Chicago and Detroit), all operations could end due to a fiscal crisis in a single state. This is precisely what happened in 1971/72 when Amtrak’s original Buffalo-Chicago train was dropped because the five states along the route failed to come to an agreement over how to divide the costs.
Ø 4. ARC’s recommendation to strip Amtrak of the ownership of the Northeast Corridor would degrade service. Any experienced railroader will attest to the need to control train dispatching. Amtrak’s difficulty in raising speeds between New York and New Haven eloquently speaks to the problem of divided track ownership. This critical portion of the NEC is owned and dispatched by the Metro North Commuter Railroad, a joint agency of the New York and Connecticut Departments of Transportation. Metro North has priorities not necessarily including high-speed access for Amtrak. Every other part of the NEC also hosts commuter trains, but elsewhere Amtrak controls dispatching and can assure access for its trains.
Most importantly, there is no likelihood a separate agency for the NEC would be more successful in garnering Federal funds than Amtrak has been. A more likely outcome is that such an agency would try to collect ever-increasing track access fees from Amtrak and the various state commuter authorities. Since these agencies’ resources already are severely stressed, the likely outcome would be a further drop in services.
Ø 5. Land-cruise trains are not the answer in providing a national system. Tour trains are essential to the business plan of Rail Travel Center, but we clearly understand that they are not the “real transportation” required of a national rail system. Of necessity, these trains serve only end-points, run very infrequently, and are extremely expensive. Moreover, they could not provide regular transportation even if they wanted to, since their operators could not afford to give up their limited capacity to local customers, space that might be sold for the full journey. Their schedules also could not tolerate frequent stops to accommodate shorter-distance passengers and still arrive at sightseeing destinations at appropriate hours.
The land-cruise trains presently operating nationally do so in large measure because they are able to charter engines and train crews from Amtrak. Most importantly, they use Amtrak’s track-access rights to run on the freight railroads. Without a national Amtrak system, these trains would disappear because their costs would be impossible and they would be unable to reach most scenic areas.
Ø 6. Amtrak’s long-haul trains serve far more passenger than up-scale tourists. Only long-haul trains serve such large cities as Denver, Salt Lake, Memphis, New Orleans, Dallas and Minneapolis. They feed countless connecting passengers into Amtrak’s regional and corridor trains, virtually none of whom who would ride those services without the long-haul trains. These trains often are sold-out months in advance, particularly in the summer and at holidays. The sleeping car services are very heavily used. Even before September 11, First Class space frequently was unavailable. Since then, sleeper demand has grown 15-18%, yet (as we will note below) Amtrak’s fleet of serviceable cars is declining just as demand grows.
Long-distance trains provide the only public transportation for many points and the only reliable winter service over large parts of entire routes, such as Chicago to Seattle. They are very well used. For example, the often-belittled EMPIRE BUILDER carried 398,000 passengers on the Chicago-Seattle (Portland) route in FY 2001. This is an average of 1094 passengers per day, or 547 on each train (allowing for the fact that the train runs daily in each direction). Yet the EMPIRE BUILDER serves such tiny (but rail dependent) towns as Wolf Point, Montana and Williston, North Dakota. Many departures are sold out months in advance, a fact that often has eluded Amtrak’s critics.
System-wide, these “little used” trains actually carried 5.88 million passengers in FY 2001, over 16,110 riders per day. Typically, a third of the passengers on the national services connected to other Amtrak routes, frequently including the very corridor trains which are so often claimed to be Amtrak’s only viable operations. Amtrak’s own Market-Based Network Analysis (MBNA) in 1999-2000 made the clear point that elimination of Amtrak’s national network would dramatically increase losses on all remaining routes. Not only would connecting revenues be lost, but other costs such as depreciation, reservations and terminal expenses would fall on a far smaller number of routes. This impact could convert a marginally profitable operation like the NEC to a money-loser.
If the tragic events of September 11-15, 2001 proved nothing else about our rail transportation policy, they demonstrated the absolute necessity of maintaining a real, interconnected, national rail system in the United States.
Having expressed areas of concern about the ARC Report, we turn to a discussion of points in the Report we think have real merit. Prefacing that analysis, it is necessary to indicate what we observe to be Amtrak’s marketing problems and how they warrant at least the partial implementation of several ARC recommendations.
Ø 1. Amtrak tends toward a corporate culture of institutionalized pessimism, which too often causes it to miss business opportunities. Under unremitting pressure to cut losses, Amtrak managers have focused for over three decades on cutting costs; but this concentration has had unfortunate consequences. Too often Amtrak has avoided expense by avoiding opportunity, acting as if it fears “the more people we carry, the more money we’ll lose”. Rail Travel Center’s experience in its 20 years of selling Amtrak have shown us Amtrak’s long-haul trains are frequently sold-out, yet for a variety of reasons Amtrak rarely responds to its lack of space by adding capacity.
This flies in the face of a fundamental business truth. If a merchant has something to sell and it quickly sells out, two lessons are properly learned: Get additional inventory now and raise prices until sales stop! Amtrak has experimented with market-driven pricing but rarely has acted on the need for more capacity. The long-haul system has been fundamentally compromised by the failure to meet market demand. These trains do not lack for riders; rather they lack capacity and frequency.
Ø 2. Amtrak cripples itself further by not keeping proper records on potential business that is lost. Amtrak refuses to take waitlists for sold-out trains because accepting waitlists would require staffing its reservations bureaus with extra workers to call passengers as space cleared. Amtrak managers always have preferred cost-containment through reduced staffing as opposed to having the opportunity to board more passengers. The result has been to deny Amtrak information it needs to properly estimate unmet demand. Amtrak often has used the excuse of a lack of cars to justify its reluctance to take waitlists; and indeed, the company clearly needs much more equipment. But if Amtrak managers really knew how much business they were losing, they could better justify capital expenditures for new equipment and to repair existing cars.
Even in the west, where extra cars should be available given the size of the Superliner fleet, extra cars rarely are added. Indeed, in the last few years Amtrak has cut the capacity of most western trains, even in the face of frequently sold-out consists at peak seasons. Ideally a car would be added whenever advanced ticket sales reached the capacity of a train. The process of making that decision would be further enhanced if proper waitlists were kept. Even if cars never had to be added, waitlists would insure programmed capacity rarely ran empty by refilling space after cancellations.
All other transportation carriers…rail, sea and air…keep such waitlists. In 20 years at Rail Travel Center, we never failed to get a client onto the frequently sold-out VIA Rail Canada transcontinental service who was willing to be waitlisted. VIA therefore never lost that revenue.
Ø 3. Amtrak intentionally has reduced the capacity of many long-distance trains by failing to repair wreck-damaged equipment and by deferring essential overhauls. This saved money at the expense of undermining patronage on trains which were turning away customers. The result is reflected in reduced capacity and declining patronage even on trains that often are sold-out long before departure.
A good example is the vital CALIFORNIA ZEPHYR, which traditionally carries three sleeping cars in the summer season over the entire route from Chicago to San Francisco. Last summer the third car ran only between Chicago and Denver on most dates. The supremely scenic portion of the route through the Rocky Mountains and the High Sierras was left without adequate sleeper capacity. Lack of cars was blamed. In order to obtain the added Chicago to Denver sleeper, Amtrak stripped its Chicago-Louisville train of any sleeping car space at all for the entire summer. Yet at that very time, Amtrak had many Superliner cars in storage awaiting either deferred overhauls or wreck repairs. Obviously, Amtrak managers favored short-term cost savings over meeting passenger demand. This behavior makes a well-used service like the CALIFORNIA ZEPHYR appear to suffer from declining patronage, when in fact passengers are being turned away.
The February 1, 2002 Amtrak Press Release announcing draconian maintenance cuts for FY 2002 will compound the problem. If cars are not routinely overhauled, the stored fleet inevitably will grow. Every 180 days, all Amtrak equipment must receive major maintenance or be parked until that work is done. Even if essential repairs are performed, business will be lost if trains depart with cars that have torn upholstery, malfunctioning air conditioning, or improper cleaning.
In mid-January 2002, 32 of Amtrak’s double-decker Superliner sleeping cars were out of service for maintenance and/or repair work. This represents 26.9% of the fleet. Some of these cars have been stored for months. Already Amtrak has trouble finding the cars to respond to both emergencies and opportunities.
The Congress could be very helpful by targeting a portion of its annual Amtrak appropriation for equipment maintenance and repair and insisting those funds not be diverted to any other purpose. In the short-term, an emergency appropriation is needed in FY 2002 to repair stored cars for service before the summer season begins. Without capacity, Amtrak cannot possibly meet any performance goals.
The VIA Rail Canada system provides dramatic evidence of the success of running as many cars as demand requires. For years, VIA capped its trans-continental CANADIAN at 9 cars in the off-season and 17 in summer. VIA also feared “the more people we carry, the more money we’ll lose”. But faced with a permanently capped level of government support, VIA raised fares as high as the market would bear and added cars until demand was filled. Now the CANADIAN often carries 26 cars, but the train covers its costs in the high season and has dramatically improved its finances year-round. No VIA trains have been cut since 1994, despite no increase in operating subsidies throughout the 1990s.
Ø 4. Amtrak consistently under-estimates the likely patronage of new services. Such remarkable success stories as the CAPITALS in California, the CASCADES in the Northwest, and the DOWNEASTER in Maine were grudgingly supported in their early stages by an Amtrak management that too often accepted the assumption few passengers would travel even on a well-run service.
The company’s 1999-2000 Market Based Network Analysis (MBNA) might have offered a way out. Unfortunately, most new routes proposed in the first MBNA report were express and mail driven, and few of those actually were implemented. Amtrak appears to have completely abandoned the promised second round of MBNA recommendations, which was expected to include new passenger-oriented lines. The first MBNA was totally silent on the most obvious examples of unserved markets. For example, no trains were projected to serve Chicago to Florida (one of the busiest of all travel routes) or Denver to Dallas.
Starting new trains requires major federal and state capital investment and some additional operating support. Amtrak would request this funding in its annual budget if starting new routes was really an Amtrak priority. Congressional and state support follows the perception that something might actually happen. Consider the resurgent interest in trains in Oklahoma once the Oklahoma City to Fort Worth HEARTLAND FLYER began operating.
Ø 5. Amtrak rarely does effective Route-Specific Marketing. Although Amtrak spends millions annually on advertising, virtually all of its media placements for the national network are vague “image” advertising. Amtrak tells users that “Trains are Fun”, “All Aboard Amtrak”, or “Tracks are Back”, but it rarely runs an ad targeting the potential users of an individual train. After 30 years of Amtrak operation, most people know that Amtrak exists. What they do not know is where it goes, what they could see on a trip, and how much it might cost to travel.
Rarely are we told “The Ten Best Reasons to Take the SOUTHWEST CHIEF”. Route-specific promotions work; and when Amtrak has tried this approach they often have been very successful, most recently in adding patronage to the threatened TEXAS EAGLE. But individual route ads do not appeal to national advertising agencies that want to place generic ads they perceive meet all needs.
Even when route-specific marketing has been pursued, Amtrak sometimes gets it wrong. The most recent example is the naming of all NEC trains “ACELA”. In the public mind, the term “ACELA” denotes the 150 mph American super trains; yet passengers board typical NEC services run with 25 year-old Amfleet cars and are deeply unhappy to find they are not on a true “ACELA”. Calling an all-stops New York to Philadelphia local an ACELA COMMUTER is simply confusing to the public, especially when a true ACELA EXPRESS bullet train may leave five minutes later.
This brings us to the areas where we feel the ARC report has merit. However, a basic principal must preface any discussion of possible franchise options.
The present Amtrak network is far too
skeletal, not too large.
We support experimental and limited franchising of selected Amtrak routes or service functions. This should produce operators who will aggressively market. We have no illusions that all government support can be eliminated, but it very likely can be gradually reduced as patronage grows with dedicated marketing. Each franchise award would come with an assured level of government support. As noted above, Amtrak has historically focused its efforts on the NEC and a few other regional corridors (largely to exclusion of the long-haul network) because it correctly perceived the money was in those routes. If real dollars were applied to the support of the long-haul system, its operation should attract both Amtrak and other potential vendors.
C. Actions to be Taken Before any
Franchising Begins
Ø 1. A special program needs to be funded to restore all stored Amtrak equipment to operating condition. No operator can succeed without adequate equipment, nor could any meaningful new routes be started or capacity added to existing trains without more cars than presently are serviceable. Amtrak must not sell any more of its stored equipment. Many fine cars in long-term storage should be renovated for operation. For example, an entire fleet of former Santa Fe RR “High Level” chair cars is stored, offering the potential for hundreds of seats per day if returned to service. There is absolutely no lack of demand for any of Amtrak’s stored assets.
Ø
2. Tax incentives and grants should be made available for
purchase of additional passenger cars. This
is the essential capital commitment that the government must make
to allow any rail program to succeed. New cars already are
desperately needed, especially on eastern long-haul routes where
Amtrak uses almost every car it owns every day and literally has
no reserve fleet. If franchising succeeds, more cars will quickly
be needed. We must spend money now to make future money. To
minimize the amount in direct grants, the tax code should be
reviewed for ways to encourage private sector initiatives; for
example, using tax credits and accelerated depreciation. In
addition, the fuel tax collected on the railroads should be
diverted to railway capital needs.
Ø
3. The High Speed Rail Investment Act (HSRIA) should be passed
to assure regional route development. We are absolutely in
support of the incremental upgrade strategy essential to the
HSRIA process. A network of higher-speed corridors should hugely
reduce Amtrak’s expenses and increase its ridership
throughout the system.
Ø 4. A Federal Passenger Rail Franchise Oversight Agency (FOA) should be created to analyze which services might be franchised. Not all routes may offer the prospect of real cost reductions. To assure a reasonable chance of success, the train services offered in a franchise award package must be sufficient in number to allow for adequate synergies of scale. It is very unlikely any individual train alone can be franchised. This agency should include representatives of the operating railroads, organized labor, the Department of Transportation, Amtrak, the states currently supporting Amtrak trains, and the travel industry. An independent arbitrator, in cooperation with the FOA, should make the actual ultimate award of franchises.
Ø 5. Amtrak should be retained, and encouraged to bid to operate any services included in any franchise award(s). The objective of any franchising should be to encourage an expanded rail passenger system with better economics through improved route-specific marketing, equipment utilization, and a more pro-active management culture.
It should be understood that no franchise awards would be likely for two years.
CONCLUSIONS:
Ø 1. We should franchise at least one group of Amtrak routes. The franchise should contain enough trains to give the operator a reasonable synergy of scale. For example, all long-haul trains running west from Chicago might be a franchise grouping. Another could be all trains run with Superliner equipment, or all long-haul trains to Florida, the Carolinas and New Orleans. Amtrak and other potential operators (including the freight railroads) should be encouraged to bid for the franchise to serve any route. Until the success of the initial franchise can be properly evaluated, all other services should remain under Amtrak’s direct control.
Ø
2. There must be a Federal guarantee of a fixed level of
financial support. This guarantee must be for a multi-year
period equal to the duration of the franchise award, be
contractually assured, and not subject to the annual
appropriations process. For regional trains, partial state
support also could be a part of the package. An expectation
of the franchise award would be that an operator seek to
gradually reduce the government’s support; but it
would be clearly understood the operator would not be expected to
cover all fully-allocated costs.
The franchise holder would be required to operate the service for the full period of the award but could adjust service levels based on market demand as long as year-round service was provided. The Amtrak right of track access must be transferred to any franchise holder; but freight railroads should be encouraged to enter into the process, if possible by actually bidding for appropriate franchises. To encourage participation by the freight railroads, substantial tax incentives should be offered. This will help assure track access and good dispatching, even if the freight carrier is not the ultimate franchise operator.
There must be on-going review of the performance (both financial and operational), of each franchise. Poorly-run franchises could be cancelled or offered to other operators.
Ø 3. Amtrak’s equipment should be allocated on a competitive basis. If equipment needs are recognized on a route-by-route basis, mistakes (such as Amtrak’s failure to order a single passenger car for its long-haul national system with the more than two billion dollars in capital provided in the recent Roth capital appropriation) can be avoided. From that appropriation, only express and mail equipment was purchased for routes outside the NEC and California.
Ø 4. We should experiment with privatizing on-board services including dining cars and sleepers. For years Amtrak has had the authority to privatize its food services. This should be done now. Amtrak did contract-out the commissary function for its diners but not the actual operation on board the trains. This is where the greatest savings can be found. While it is unlikely a concessionaire would want to handle a single train, the entire long-haul system and/or a route grouping (such as all regional services out of Chicago) might look financially rewarding to a private operator.
While it is a cliché of rail operations that dining cars cannot be operated profitably, this is not always true. For many years the Alaska RR has used a contractor for its diners. Amtrak itself has two trains with private food operations: the North Carolina PIEDMONT and the Boston-Portland DOWNEASTER. Quality food service is absolutely essential to the rider, but options for lower cost service should be investigated. Amtrak would provide meal cars to the concessionaire, who would pay a reasonable fee to Amtrak for an effective service monopoly.
The same approach could be very successful for the operation of sleeping car services. Even if Amtrak retained the basic authority to run all routes, a strong argument can be made that subsidy payments should be focused on coach travelers, with First Class services reasonably expected to run profitably.
Franchising may reduce the need for Federal support; but Federal investment always will be needed, as it is for the airlines with the Federally funded air traffic control system. A franchise operator will have every incentive to concentrate all resources on the assigned route. This can only improve service and revenue returns. An experiment with at least one franchised route and/or service package is a risk worth taking.
The
ultimate object of the Amtrak Reauthorization and ARC review
process should be to preserve and expand American rail passenger
service. The present model does not work, and we see no easy fix
simply by continuing the status quo. A true national network must
be preserved. It is essential to the safety and public good of
the nation.
