Amtrak: A federal jobs program?


Yesterday, Amtrak pulled a switcheroo with it's senior management.  The idea, of course, being that the new management will be able to somehow miraculously resurrect the rail lines and turn it into a profit machine. According to the article:

Amtrak has $3.6 billion in debt and is heavily dependent on government subsidies. Its operating loss for 2005 topped $550 million.

I've always been a big fan of trains.  I don't know why. Perhaps from riding the Heber Creeper too much as a kid?  Anyhow, I've been really wondering - why is it that Amtrak is perpeptually a financial failure? I'm going to try digging into their consolidated financial statements to see if I can find the answer.

Let's start with the income statement on page 4 of the 2005 statements.

2005 Revenues: $1.886 B
2005 Expenses: $2.940 B

You can see right away that there is a big problem.   What are the major items in their expenses?

Salaries, wages and benefits: $1.477 B (50.24%)
Depreciation: $0.557 B (18.95%)
Fuel, power, utilities: $0.227 B (7.72%)
Everything else: $0.679 B (23.10%)

Let's start by looking at Fuel. Supposedly, Amtrak is more fuel efficient than other forms of travel.

The U.S. Department of Energy (DOE) has reported that Amtrak - on an energy consumed per passenger-mile basis - is 18 percent more energy efficient than commercial airlines. According to DOE's Transportation Energy Data Book, Amtrak energy intensity was 2,935 British Thermal Units (BTUs) per passenger-mile and commercial airlines were 3,587. Commuter rail was 2,751 and automobiles were 3,549 BTUs. The DOE figures are from calendar year 2003, the latest available.

In addition, Amtrak uses less refined diesel fuel instead of more expensive jet fuel.  Assuming those facts are true, fuel isn't the problem.

I'm going to generalize about depreciation, because I think it's pretty safe to assume that a train is cheaper to own and maintain than most other forms of travel.  Except for internal wear and tear, the cars last nearly forever.  Some railroads are still operating cars from the turn of the century.  The power units might be more expensive, but when you consider that you need fewer complex engines to move the same amount of weight, it seems like maintenance would be cheaper than a bus and easily more than a jet liner.  I may at some point go into more depth on this subject in another post, but for now let's assume that it is cheaper to operate trains.

Next, lets look at employement. I found an interesting analysis of the employment during 2004 which comes to the conclusion that Amtrak is a pork barrel federal jobs program, mostly for the North East Corridor (NEC).

"Collective NEC state Amtrak expenditures (for all trains that serve these states, including regional and long distance trains) - $281,140,685. Collective NEC state Amtrak employees (for all trains and services that serve these states, including regional and long distance trains, and the company headquarters in Washington, D.C.) - 13,452. Collective NEC state Amtrak employee payroll (for all trains and services that serve these states, including regional and long distance trains, and the company headquarters in Washington, D.C.) - $626,356,482. When you add the expenditures and payroll figures together, Amtrak poured raw cash of $907,497,167 into these eight states and the District of Columbia for Fiscal Year 2004.

Amtrak ticket revenue for FY 2004 was $1,256,424,267 (with an average ticket price of $50.15, a very low figure). Of the revenue, 53% was generated in the NEC. Yet, Amtrak spent $907,497,167 in the NEC states, or 72% of its ticket revenue, a very negative return on investment.

The point I think he's missing in his analysis is that Amtrak executives are trying to expand the NEC because it's one place where the trains have an operational advantage over other forms of travel.  In the NEC, the population is tightly packed in close proximity. If you only need to go 100 miles, it hardly makes sense to fly.  Driving is problematic because of traffic.  Trains MIGHT be the way to go.

But I think he is dead on with naming Amtrak for what it is: a federal jobs program.  In a normal company, you would NEVER see salaries exceed revenues for an extended period of time because 1) Management would layoff as many people as possible, and 2) The company would eventually go bankrupt if they didn't.  I hope that someday, Amtrak is allowed to fail and that new, commerically viable train companies take it's place.