Amtrak: Operating Deficit, Government Operation, etc.

I was tempted to resurrect an old thread but that would have buried the lede on what appears to be a major "Success Story" in the making.

First let's establish what the "operating deficit" is. Specifically I am using the same non-capital term as Amtrak which very roughly is the difference between income and operating expenses which excludes debt service, capital expenses and depreciation. In the most recent fiscal year reported the operating deficit was $227 million.

Second, how will this happen? It appears very likely that new revenues from the Acela expansion will produce that much if not more new revenue for Amtrak. An extremely conservative methodology yields the following results ...

FY 16 Acela Revenues: $593,720,009
Average Revenue Per Trainset (20 Trainsets): $29,686,000
Number of New Avelia Liberty Trainsets: 28
Projected Revenue (28 Trainsets @ $29,686,000): $831,208,000
Projected Net Increase in Revenues: $237,487,991

So that leaves Amtrak with about $10,000,000 to spare over and above the $227,000,000 they lost in FY 2016. I think this projection is extremely conservative for two very important reasons, first and perhaps foremost it does not take into consideration that the new Acela trainsets will have 30% greater passenger capacity. Second it also does not take into consideration that the new trainsets will cost less to operate because of an improved power to weight ratio which means Amtrak will be paying significantly less for power. There will probably be other improvements as well but these are the two biggest by far.

Obviously there will of course be increased costs in maintenance and labor for the new trainsets but I do not think these will be enough to wipe out the gains that Amtrak is clearly going to make. In fact the variable costs to run these trains are probably very small compared to the amount of fixed overhead that they are supporting company wide.

I understand that it may not be reasonable to assume that these trains will carry so many passengers but given the perpetual sellout status of so many trains on this service I am having a hard time believing that they are going to run at a lesser load factor.

It is possible that the new capacity will simply end up taking away from the Northeast Regionals but I am not convinced of that either. Nor would such a change begin to generate losses large enough to consume so much cash. I think Amtrak is going to end up eating a lot of what is left in the Washington-New York Air-Rail market and they will probably continue to take market share away from the airlines in Baltimore, Philadelphia, Boston and Providence.

I also understand that some will say, "it doesn't matter they're still losing all their money on the transcons" and so forth but that's not my point. As a company, for the first time ever, Amtrak is almost certainly going to be able to cover their direct operating expenses and will not require operating support from Congress to run their trains elsewhere.

They will still need capital grants from Congress but in my eyes that remains a different issue. I think this is probably a view that others may share as well.

Possible good analysis. The big increase in Acela-2 revenue may come from the NYP <> BOS line. It seems more constrained by capacity problems that the 30% seat mile will help solve. Would speculate that route will get the 1st AC-2s. In addition if the artificial 39 trains a day limitations of NHV <> BOS can be raised what to expect ? Then especially at Thanksgiving times which are to sell out 1st.

I'm not sure you accounted for them running less Amfleet trains as they start running more Acela trains. They only have so much crew to staff all the trains. But maybe they will hire more?

Note: Just checked Sunday after Thanksgiving 5 of 20 NYP-BOS already sold out. Note a total of 41 both ways that is mitigated by less trains on Saturday. None sold out yet BOS - NYP.

EDIT: 3 of 40 NYP-WASH already sold out on Sunday. the 4 commuter trains listed but with no train numbers

I disagree a bit with one thing you said:

Obviously there will of course be increased costs in maintenance and labor for the new trainsets

I think there should be a lowering of costs.
They won't be one-offs like the current Acelas which should make parts easier to come by. Maintenance needs will mostly be known in advance and can be learned from similar trainsets.
And in theory, the lighter trainsets should reduce wear and tear both on them and on the rails.

I suspect this will be a bigger win than it first sounds.

We'll see.

Also extra revenue from extra viewliner sleepers , and the new bilevels(or single level replacements).

electricron wrote:I'm not sure you accounted for them running less Amfleet trains as they start running more Acela trains. They only have so much crew to staff all the trains. But maybe they will hire more?

Is there actually a plan to do this? I think it would be a bad move for Amtrak.

I'd assume they would shuffle around crews as necessary and maybe hire a few more if needed to cover the additional Acela runs.

gokeefe wrote: They will still need capital grants from Congress but in my eyes that remains a different issue. I think this is probably a view that others may share as well.

It won't change anything with Congress. Those that want to sell off Amtrak will probably become even more eager to attempt to privatize it.

Greg Moore wrote:I disagree a bit with one thing you said:

Obviously there will of course be increased costs in maintenance and labor for the new trainsets

I think there should be a lowering of costs.
They won't be one-offs like the current Acelas which should make parts easier to come by. Maintenance needs will mostly be known in advance and can be learned from similar trainsets.
And in theory, the lighter trainsets should reduce wear and tear both on them and on the rails.

I completely agree that on a per unit basis they will probably be cheaper to maintain. However in absolute numbers the maintenance costs should probably end up higher than Acela simply because of the 40% increase in trainsets. Another interesting point worth noting ... there will be fewer axles and wheel sets to maintain per trainset.

Bombardier Acela: 32 axles
Alstom Avelia Liberty Acela: 30 axles

Total high speed axles in service currently: 640
Projected high speed axles in service (2022): 840

deathtopumpkins wrote:

electricron wrote:I'm not sure you accounted for them running less Amfleet trains as they start running more Acela trains. They only have so much crew to staff all the trains. But maybe they will hire more?

Is there actually a plan to do this? I think it would be a bad move for Amtrak.

I'd assume they would shuffle around crews as necessary and maybe hire a few more if needed to cover the additional Acela runs.

Right now it is not clear at all what the change will be to Northeast Regional service. Amtrak has indicated that they expect to run hourly service between BOS and NYP. Unless they get more train slots on the CT River bridges it would appear to imply that there will be fewer Northeast Regionals running to BOS.

gokeefe wrote:Right now it is not clear at all what the change will be to Northeast Regional service. Amtrak has indicated that they expect to run hourly service between BOS and NYP. Unless they get more train slots on the CT River bridges it would appear to imply that there will be fewer Northeast Regionals running to BOS.

And Shore Line East is the wild card - I don’t know if they are supposed to expand service. It may drastically affect Regionals north of NYP.

I think there is a lot more fiscal pressure & scrutiny on a break-even or slightly profitable enterprise than there is on a money-losing enterprise. That said, this is very good news.

I keep reading on these forums about how much the present Acela costs to maintain. And the new trains will be new, so they should have less maintenance for their first few years.

And Shore Line East is the wild card - I don’t know if they are supposed to expand service. It may drastically affect Regionals north of NYP.

Why not route some of the trains New Haven - Hartford - Springfield - Worcester - Boston? Could alleviate some Shore Line East congestion.

I think there is an assumption around here that inland route will resume at some point, requiring WOR-SPG double-track. Commuter rail may close the gaps on the shore line creating "friendly competition" for Amtrak, but probably actually increasing Amtrak demand. Coast Guard will possibly allow more slots for trains on the movable bridges? Are all the Coast Guard restrictions east of the New-Haven - Springfield line?

I'm sorry, I simply cannot accept 'operating deficits will be/are gone' as any kind of indication the railroad, as a business, is 'in the money'. Simply put, by looking only at operating deficits as a measurement of ANY business, only the most favorable aspects of the business are being shown, without all the blood and guts behind the scenes.

I'll use CSX under E Hunter Harrison today. His goal is to pump of the stock prices thereby rewarding his partners and friends as well as himself. But at what cost? Yes, there's a lot of fat that he's trimmed. But what's left is barely able to do the job today. Between significant layoffs, yards closed and downgraded, rethinking and downgrading a 6-7 year old investment of $170m, mothballing and probably selling many locomotives and other rolling stock, those 'expenses' are now gone. Therefore, corporate profit goes up, and with it, the stock price. It all looks good on paper. It looks good to the accountants and investors, too. But the true cost is he's cut away ALL 'resiliency' and 'backup' capabilities as well as cut maintenance and improvements to the bone. Much corporate knowledge and how to run a railroad knowledge has been lost with all the staff cuts as well. If you think CSX flopped a few winters ago and the railroad came to a near standstill, with the crew cuts he's made, there will be NOBODY available to take over a dozen or so outlawed trains filling the mainlines trying to get into Chicago, etc. Modern technology years ago wiped out the individual section crews, so thawing out a frozen switch can take many hours to get someone there, thus messing up traffic. Or what about detouring trains over other routes due to a wreck or extensive storm damage? How many, if any, rested crews will be available on the detour route? You get the idea.

One of the biggest corporate indicators used these days is EBITDA, short for Earnings Before Interest, Taxes, Depreciation, Amortization. Put another way, Gross sales minus cost of production (payroll, diesel fuel, sales) and not much more. 'Operating Profit' is Amtraks' 'feel good' (Congress, actually) term for EBITDA. In my failed attempt at being an owner operator small trucker, my EBITDA looked quite good! The problem was, I couldn't pay the IRS and the state DOR! I also had significant truck maintenance costs coming up that I couldn't afford. Fortunately, I got out of that mess before it wiped me out. So, how long will it be before the Amtrak president tells Congress 'we really are profitable?' By 'hiding' capital expenses including track and catanary upgrades, etc, I suspect Congress will get the wrong idea and decide not to send them any money...or...worse yet...sell off the 'profitable' NEC.

Another 'sucker number' is the use of 'core inflation' by those wonderful economists in Washington. They base practically all their monetary policy decisions, including Social Security increases, on the core inflation number. Core inflation came into being as their attempt to remove 'highly volatile' prices from showing how much or how little inflation there is. So, by NOT counting prices of food, fuel and housing in their core inflation and therefore the much vaunted 'consumer price index', it looks like the US economy is doing quite well lately, amid much self-patting on back. Let's see...a refinery fire in Texas several months ago ticked up the price of gas 10 cents. Then hurricane Harvey damaged a number of refineries in the Houston area and the prices went up another 20 cents. For me, that's about $10/week more on gas than 3 months ago. And what will the financial damage be to our wallets for the lost crops in Florida and now California? Stay tuned! But the economy is looking up, the tell us! Core inflation is headed slowly towards their HOPED FOR and DESIRED 2% rate!!! What a crock of you-know-what!!!

In short, if CSX railroad or any other RR paints extra rosy pictures with their wonderful control of operating expenses and operating ratio without giving the rest of the picture...RUN!!!!