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IC and CNW commuter services profitable in 1960s: how?

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IC and CNW commuter services profitable in 1960s: how?

  by SouthernRailway
 
In reading a 1969 book about commuter railroads, a claim was made that Illinois Central and Chicago & Northwestern commuter services were profitable in the 1960s on an avoidable cost basis. I assume that profitability would have continued at least through the early 1970s.

Question: how in the world were those services profitable? The same book provides various financial information about other commuter railroads around the US, and most of them seemed to cover only about half of their costs.

Were these "profits" just an accounting ploy or were those operations legitimately profitable?

Thanks.

Re: IC and CNW commuter services profitable in 1960s: how?

  by CHTT1
 
During the 1960's, C&NW claimed its commuter services were profitable. Some of that might be due to creative allocation of expenses to different services. I don't think the IC ever claimed its suburban service was profitable. They were always in a cost cutting mode and were always very grumpy about the financial state of the suburban trains. None of the Chicago commuter railroads were opposed to the creation of the Regional Transportation Authority in the 1970's and the subsequent use of public money to plug losses.

Re: IC and CNW commuter services profitable in 1960s: how?

  by justalurker66
 
"Avoidable cost" seems to be the key to the statement. Simply put, it is all in the accounting. To understand the statement one should look at the math.

If I were doing the math I would compare the net cost of running the railroad with and without passenger service - and include the cost of ending passenger service. With some creativity I can see where the math for CNW might come up with a "cheaper to leave it running" answer than "cheaper to shut it down".

"Avoidable cost basis" does not mean profitable ... just better financially. It could be simply less of a loss keeping it running than shutting it down.

The IC math would be more interesting ... the maintenance cost on the suburban tracks and catanary was a passenger only cost but would there be costs involved in abandoning those tracks (or at least no longer using them)?

It is an interesting claim ... but I'd like to see the math.

Re: IC and CNW commuter services profitable in 1960s: how?

  by byte
 
Yeah, the claims of the C&NW making a profit are likely the result of some fancy accounting. I always figured that their "profit" was such that it paid for the trains' day-to-day costs but there wasn't much left for long-term spending on infrastructure or equipment renewal. A look at a late 60s shareholders' report might provide some clues.

Re: IC and CNW commuter services profitable in 1960s: how?

  by ExCon90
 
H. Roger Grant wrote a history of the C&NW (I believe the title is simply Chicago & North Western) which goes into that matter in some detail through interviews with retired officials. Briefly, Ben Heineman wanted to get rid of the close-together stations within Chicago to speed up service from places farther out. According to the book, Heineman got the regulatory authorities to agree to allow discontinuance of the Chicago stations if the C&NW would provide air-conditioned equipment and diesel power; I think the C&NW was still using steam power on its commuter trains, whose (non-air-conditioned) coaches were as old as the locomotives, if not older. The C&NW acquired streamlined, air-conditioned gallery cars and diesel locomotives to provide a greatly improved service. All Heineman had to do now was satisfy the shareholders that the railroad wasn't losing money on the deal. It was known throughout the company that the commuter service had to be profitable, and the accountants got the message. As mentioned by CHTT1 above, there are creative ways of allocating costs. And they have to be allocated: if the same trackage is used for coal, automobiles, grain, plastic pellets, long-distance passenger, and commuters, which segment of the business is charged how much? Simple -- if the commuter business needs to be profitable you can make it so by allocating as much of the cost to other traffic as you need to. The official who was Vice President Operations at the time used the term "smoke and mirrors" in his interview for the book.

Re: IC and CNW commuter services profitable in 1960s: how?

  by Milwaukee_F40C
 
Freight revenue recovers infrastructure investment (or debt) much faster than passenger revenue, and freight traffic in most cases causes the most wear and tear on the infrastructure just by traffic frequency. And the freight trackage would exist regardless of the passenger service anyway. So it is not really "wrong" to do the accounting for shared track that way.

For passenger equipment, it seems to take 30 to 50 years to earn back whatever the equipment cost when it was purchased, which is a long time to wait for a small amount of actual profit. But by spreading the accounting for that up-front cost over each year of the "life" of the equipment (depreciation), it doesn't look as bad.

I don't doubt that some passenger services have legitimately made a small, extra, long-term profit in addition to freight profit, or could. The problem is that the freight railroads could always make more money by taking the costs that they would spend on passenger passenger service, and the capacity that those trains would occupy, and use it for freight instead if the demand exists.

Re: IC and CNW commuter services profitable in 1960s: how?

  by ExCon90
 
[quote="Milwaukee_F40C"]Freight revenue recovers infrastructure investment (or debt) much faster than passenger revenue, and freight traffic in most cases causes the most wear and tear on the infrastructure just by traffic frequency. And the freight trackage would exist regardless of the passenger service anyway. So it is not really "wrong" to do the accounting for shared track that way.]

However, that doesn't hold true where there is dense commuter traffic and relatively little freight. A conspicuous example is the (now) UP Northwest Line, with 3 tracks, the middle one reverse-signaled, over a considerable length. If there had been only local freight service and 2 Madison round trips (and maybe the Dakota 400?), they could have done it with one track instead of three. I think it's likely that the commuter operation wasn't charged for much of that.
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