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[NOTE: The following analysis uses the financial performance of Amtrak's Empire Builder to illustrate the inherent economic advantages which can be achieved with long-distance passenger train operation. The points made by Andrew Selden are generally applicable to all long-distance trains, including the Texas Eagle, and they provide compelling arguments for expansion of service, particularly on routes where less than daily service has unnecessarily weakened route productivity.--Bill Pollard]


- An Economic Analysis -

of Amtrak's "Empire Builder" Route


Andrew Selden
September 24, 1997

I have been asked to comment on the financial results of operations of Amtrak's Empire Builder. This is is a very curious train, as it traverses a demographic wilderness (the train is Amtrak's most geographically isolated and does not connect with anything en route--only at its endpoints--and I believe that the en route population density west of Fargo until Spokane is the lowest of any Amtrak route), yet it produces more gross revenue than any other single train Amtrak operates. Understanding why that seeming contradiction occurs will help anyone understand the economics of the long distance trains.

The answer is distance. Once the Empire Builder boards a passenger, it tends to carry him/her a very long distance. In any transportation business, distance equals revenue, and the greater the distance, the greater the revenue, and the greater the ratio of revenue to terminal costs, and the greater the contribution to fixed and semivariable costs (assuming that the fare covers the direct out of pocket costs of operating the vehicle, which ALL Amtrak long haul trains do, and some but not all of the corridor trains do).

The Empire Builder has the longest average trip length of any Amtrak train. Its peak loading point--the point where, on average, it has the highest count of passengers on board along its route--is Wolf Point, MT.

Now to the finances: The Empire Builder grosses about $60 million a year, or about $85,000 per trip. The train costs about $30 per train mile to operate (including all of its own direct costs, and the variable share of the system's semi-fixed costs properly attributable to it, but not including fixed costs that are not variable with Empire Builder operations such as corporate "G&A" costs, insurance, headquarters costs, allocated shares of Northeast Corridor expenses, etc.) which comes to about $60,000 to $65,000 per trip. The difference, about $20,000 per trip, is an operating profit that is contributed to offsetting system fixed costs, corporate costs, and allocated NEC costs.

That operating profit covers some but not all of the Empire Builder's arbitrarily allocated shares of those cost categories, which is why in its published reports Amtrak says that the Empire Builder loses money. But if the Empire Builder were to be discontinued, only the direct and some of the semivariable costs would abate, along with 100% of its revenue, while none of the arbitrarily allocated fixed costs would change at all--they would just be reallocated to other routes, increasing their reported (but not local, actual) losses.

These results are not unique to the Empire Builder. Indeed, every western long haul train we have ever analyzed shows the same results, just at different magnitudes. Every one, including the weakest--the three day a week Sunset Limited and Texas Eagle--all produce a positive net operating cash flow.

The Empire Builder benefits from a unique operating profile in that the train splits in two at Spokane WA to reach both Portland OR (where it connects with the Seattle-San Diego Coast Starlight) and Seattle. This helps the performance of the train both by making connections at Portland and by serving additional on-line communities, where passengers who use the Empire Builder tend even more to be making disproportionally longer distance trips on average, thus yielding very high marginal profits for Amtrak at negligible costs.

If the Empire Builder were able to make additional interconnections along its route (say, with a hypothetical train between Minneapolis-St. Paul and Kansas City and Dallas, or perhaps Mpls.- St. Paul and St. Louis), its traffic levels would surge, as happens in every interconnected transportation network. As it happens, that would not be good for the Empire Builder in the short term, as it currently operates at or near capacity on most of its trips.

The Empire Builder, like the other western transcontinental trains, in financial terms, is very similar to a transoceanic long distance flight by a DC-10: it loads up 300+ passengers at its terminal, closes the doors, and goes a very long way. For example, Northwest Airlines earns a hugely disproportionate share of its annual profit (about 25%) from the relative handful of its customers that fly its transpacific routes. Amtrak is no different--the 20% of its passengers who use its long distance trains consistently earn half its gross passenger revenue and produce 60% or more of its total output measured by revenue passenger miles.

The only real difference is that the Amtrak long distance train has the additional revenue-generating opportunity to service the smaller, more isolated communities along its route where passengers have few if any alternative transportation choices and Amtrak often enjoys the economic benefits of a de facto monopoly. Transoceanic aircraft do not have that opportunity, of course.

It is only the preconceived sociopolitical bias of advocates of high density "corridor" type operations that blinds them to these persistent financial truths. The FINANCIAL success of a transportation service is measured by financial results, not sheer headcounts--otherwise, something like the New York City subway would be considered a "successful" transportation business, which--measured solely by the objective financial results of its operations--it most assuredly is not. Even in the West, Amtrak's most financially successful sector, this result holds--the very successful, very heavily used, 18-train per day Southwest Corridor (between San Diego, Los Angeles, Santa Barbara, and San Luis Obispo) earns only about 75% of the gross revenue of the one train a day (each direction) Coast Starlight running between San Diego and Seattle.

Another measure of the relative financial "success" of the various routes that Amtrak operates is that the Northeast Corridor, often touted as Amtrak's "success story," incurs (in contrast to all of the western Superliner trains) an annual net operating deficit of $250 million in cash, and about $375 million--more than a million dollars a day--measured by generally accepted accounting principles. These losses do not include amortization of the several billions of dollars of capital that have been spent in the NEC or the several billions of additional capital dollars that are proposed to be spent there in the next decade.

Taking full measure of the capital as well as the operating losses, the Northeast Corridor costs the Federal Government almost one billion dollars a year over and above passenger and other revenues. It provides some degree of social value, but at a very large cost. I will leave it to others to say whether that sector of Amtrak's operations is or is not "successful."

The only shortcoming of the Empire Builder on the same set of financial criteria is that Amtrak does not operate enough of the western Superliner trains like it, and does not interconnect enough of them, to earn a large enough net operating profit to cover, in addition to the operating costs these trains all recover now, the full measure of the fixed costs that are arbitrarily allocated to them by Amtrak's antiquated internal accounting system.

I hope this information is helpful. Please feel free to contact me if you need any additional background on this subject.

Andrew Selden
President
Minnesota Association of Railroad Passengers
Minneapolis, MN

Posted: 12 October 1997

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