Number 47 - November 2001
Reorganizing US Passenger Rail
In addition to the members voting for the motion, members who voted in the negative agreed that Amtrak would not achieve self sufficiency, but that the timing was wrong. I agree. The timing was wrong. The finding should have been made months ago. But their view was that the events of crisis arising out o fthe events of September 11 and the resulting increased Amtrak ridership were cause for delay. In fact, at no point after Amtrak mortgaged Penn Station to pay operating expenses was there any doubt. Amtrak, in effect, mortgaged it house to pay for groceries.
In fact, however, too much has been made of the purported ridership increase. Since September 11 there have been a litany of stories and press releases on this subject. Some reports suggested increases of up to 60 percent, others have suggested increases of only five percent. Amtrak's official data shows only small upward movement.
Amtrak, it appears, has failed to take seriously the processes and policies established by the United States Congress seriously. As late as yesterday we were hearing that Amtrak does not have a clear understanding of its vision, because this has not been provided by Congress. Indeed, Congress made it very clear in the Amtrak Reform and Accountability Act of 1997 (ARAA) that Amtrak was to provide a national passenger rail system that was operationally self sufficient. Amtrak's response was to adopt a business plan with exceedingly optimistic revenue projections for its troubled Acela program. Rather that eliminate services that were a drag on the bottom line, Amtrak added highly questionable services from Louisville to Chicago, Chicago to Janesville, Wisconsin and now plans to add services from Boston to Portland, Maine and from Meridian, Mississippi to Dallas-Fort Worth. It is inconceivable that any defensible marketing plan could have identified these routes as the highest priority strategies for improving Amtrak's financial performance. Indeed, the Chicago-Janesville route became the subject of such ridicule (by newspapers and the national television media) that Amtrak canceled the service in embarrassment. Despite the free hand given it by ARAA to change its route structure, Amtrak continued to operate as if its customers were its powerful political supporters in the Congress and elsewhere.
Amtrak also failed to use the authority granted under ARAA to make labor productivity improvements and to competitively contract service. Both of these strategies could have improved Amtrak's financial performance. But, like the case with most public or private monopolies, financial difficulties were always seen as justifications for more money. The thought that expense might be reduced was comparatively foreign as is routinely the case where monopolies control The economists Lester Thurow and Robert Heilbroner once wrote that monopolies impose two burdens on society, they charge excessive prices and they ration service. So it has been with Amtrak. Monopoly is the problem, competition is the solution.
Amtrak's financial performance has continued to lag behind plan. There are indications that fiscal year 2001, ended September 30, will show a significant deficit relative to plan.
There is also an assumption that passenger rail is an alternative to air travel. The fact is that passenger rail is not an alternative except in two corridors --- Washington to New York and Boston to New York. In the latter, Acela trains reach 150 miles per hour, but average barely 65. They are not so much competition for air as they are competition for cars. Few air markets in the United States have enough air passengers to support frequent rail service, even if all passengers switched. Few air markets are short enough for rail to provide effective competition, even at the proposed 75 miles per hour average speeds of systems that are being misleadingly promoted as "high speed rail." Moreover, much volume on shorter distance routes is transferred at airports from longer distance services. The rail systems do not serve airports, and transferring these passengers to rail would require time consuming transfers to downtown stations. It may be romantic to think of passenger rail as an alternative to short distance air travel, but the reality is often the opposite.
As regards the future of passenger rail in the United States, the jury is out. Some believe that passenger rail should be subsidized in the mistaken view that intercity highways and airports are subsidized. Indeed, highways and airports are financed with fees and taxes paid by those who use them. Anyone not wanting to pay for highways or airports can simply not use them and not pay --- just as a person not wanting to pay for hardware can simply stay away from hardware stores. I, for one, would be happy to support a ticket tax on rail passengers for the purpose to finance service. But the economics, at least at the moment, do not work. There is simply insufficient demand. Perhaps competition would change that.
There may be markets where demand is sufficient to support passenger rail service. I have no doubts that most, if not all of the Northeast Corridor could operate without subsidies. It is probably true that other corridors could operate without subsidy in a competitive environment where the underlying cost structure is consistent with market rates. I am concerned, however, that the imposition of large volumes of new passenger trains on the existing near or over capacity freight rail systems could retard their competitiveness and force higher volumes of truck traffic on our hard to expand roadways (see How Freight Rail Reduces Traffic Congestion (20011030) )
But one thing is sure. The Amtrak Reform Council's vote yesterday has the potential to set in motion forces that will improve passenger rail, where it is appropriate, for the benefit of both the riders and the taxpayers.