Does Amtrak Actually Lose Money on Acela Express ‘Big Time’?

Last month I wrote about a Brookings Institution proposal to save Amtrak by shedding some of its most unprofitable routes while using the profits from the Acela Express along the Northeast Corridor to subsidize some of the routes that almost make sense.

What Brookings found is not surprising. There are only two routes that do better than break even — New York – DC and New York – Boston — and even those only make money on an operating basis, they don’t cover their capital costs.

Brookings finds that the operating profits (if the federal government subsidizes capital expenses) would cover the top 26 Amtrak routes (which carry 80% of passengers). They recommend having affected states cover the losses of other routes if they want those to survive.

I repeated their numbers that the Acela routes were profitable on an operating basis (while failing to cover their capital costs). But Don Phillips has a piece arguing that the Acela trains actually lose a ton of money, and it’s the way Amtrak allocates costs (shifting them away from Acela and to the already even bigger money losing long-distance routes) that makes it look otherwise. It’s just an accounting game that makes Acela look like it covers its operating costs.

Seldom in my life have I seen such a mass of misinformation spread about any one subject as is being spread now about the American passenger train. The misinformation is spread by confused and shallow politicians, young reporters who have no idea what they’re talking about, and by Amtrak officials who have learned they can count on the first two not to understand their technical jargon.

Before we go an inch farther, let me say something. This column is intended to hammer home this fact: The Acela does not make money. In fact, it loses money big time. What’s more, long-distance trains are losers but not big money losers.

And a new Department of Transportation Office of Inspector General report (.pdf) suggests that Amtrak’s cost allocation methods make their performance numbers highly misleading and difficult to draw conclusions from.

While written in typical polite bureaucrat-ese, the report is still rather scathing.

As it reorganizes, Amtrak will need APT and SAP to provide accurate and reliable financial information and data to evaluate its business lines’ performance. While APT and SAP represent an improvement over the prior cost accounting system, weaknesses such as overreliance on cost allocation may inhibit Amtrak from achieving improved operations and oversight of its business lines. Furthermore, these weaknesses will inhibit Congress from obtaining the information necessary to ensure the appropriate expenditure of tax payer provided funds.

I don’t know whether Don Phillips is correct that Acela Express — New York/Boston and New York/DC, generally the only Amtrak routes considered profitable — are actually money losers.

But that’s because, as the Inspector General’s report underscores, Amtrak’s poor accounting procedures make it impossible to know.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

More articles by Gary Leff »

Pingbacks

  1. […] The federal government has spent an average of over a billion dollars a year in capital expenditures for the Northeast corridor over the past 40 years. That spending isn’t included when Amtrak claims to make a profit (about about one-fifth that amount) on Northeast corridor services. Amtrak projects a need for $151 billion more for Northeast corridor high-speed rail. It turns out that the belief that Amtrak makes money in the Northeast corridor is based on faulty accounting. […]

Comments

  1. Your daily does of right wing nonsense.

    Of course, you conveniently ignore all the government subsidies for your airline flights. Oh, those billions (trillions) don’t count, because they benefit YOU.

    Typical tea-bagger BS. What a surprise.

  2. Gary. I see Don’s article and his argument is one i’ve been familiar with since back to about 1996 as something trying to get fair treatment for the long distance trains. Brookings was very wrong on their argument that the LD would be losers on an operating basis only.

    Just like airlines, trucking companies, bus companies, etc amtrak gets the benefits of the government covering capital costs and yes still some operating costs.

    What Amtrak generally does is put NEC capital costs off to all their lines, LD included, to minimize the view of costs against each NEC train. The at most 1 each way a day LD trains can’t handle that shifted expense on their balance sheet and all of a sudden they’re money losers and should be discontinued if the likes of Mica are to be believed.

    Yes, Don is mostly anti NEC from an Amtrak point of view and pro long distance, but the article is asking for actual above the rail costs being discussed fairly for all types of Amtrak. At that point, you would see many of the LD trains making an operating profit as well and Acela making less.

    The real solution to the LD trains losing money is doubling their frequency instead of cutting more. In many of these towns that Amtrak goes through, they’re the only option for intercity travel. And there is the other point that congress just can’t seem to open their eyes to, but you can’t judge a train on the end points. Many seats on an Amtrak LD train get sold multiple times in a single run. You can’t (any more) do that with a plane.

  3. Isn’t it a little misleading to title this article “Does Amtrak actually lose money on Acela” when you have no additional information to either prove or disprove this point? You clearly state in the text that you don’t know Acela’s “true” operating condition, but to me it seems this title gives credibility to an unsupported argument. Amtrak’s cost allocation process may have its weaknesses (like many businesses), but without getting in to the details no conclusions can be made.

  4. The title was a QUESTION so not misleading, and it highlights an argument that claims that Acela is a big money loser, bolstered by a recent DOT OIG report.

  5. @donde – umm this has nothing to do with air travel and i make no comparison, although air travel is far more heavily taxed as well.

  6. I just read the DoT report. It isn’t actually scathing and doesn’t really back up Don either, particularly if you read FRA’s response in the Appendix.

    Most of Don’s argument has to do with cost allocation. The DoT did not have any particular issue with the way the costs are actually allocated but rather with the percent of costs that are allocated. The FRA’s response is that a very substantial portion of their costs are not fixed to a particular route but instead must be allocated to each train line.

    If you look at the FRA’s provided pie chart of expenses, I tend to agree. 40% of Amtrak’s costs are directly related to running a specific train and can thus be allocated. The rest is for admin, real estate, maintenance and other fees that seem difficult to allocate easily.

    In summary, the DoT report didn’t mention issues with the way costs are allocated, only that they thought the total amount allocated versus directly assigned to a particular line is too high. This doesn’t really support Don’s point.

  7. *sorry, sentence should read: 40% of Amtrak’s costs are directly related to running a specific train and can thus be assigned.

  8. Funny how some {super liberal} folks can answer a fact based post by bleating out some generic terms {WSJ, right wing, Fox, Republican, Tea Party} and think they have actually said something of substance.

    Is government cost accounting all smoke and mirrors, designed to conceal how much money is wasted, paid to those with political connections, and spent on highly inefficient management? And often on crony capitalist projects virtually guaranteed to fail, like solar power panels and electric cars? Yes, of course it is !

    There is no reason for the government to try to run businesses like ATC or railroads. Anyone who thinks the government can do things cheaper or better than private business should visit Cuba and Venezuela. By definition, government programs consist of taking 100% of the available money, taking its own 20% cut, then paying way too much for any productive result. If any…

  9. @Robert, post 8: You are doing the exact same thing you’re ranting against but from the other side.

    @Gary, post 5: The railroads of this country pay property tax on all their rails. So part of the cost that Amtrak pays these companies for access is to cover the tax load.

  10. @Tenmoc In what way? I don’t simply say “left-wing” and think I’ve said something of value. I point out the billions of dollars wasted on Fiskar motors, Solyndra Solar, A123 Systems lithium battery maker, etc, etc, etc. Just a slight check of google will make clear that most of these companies, that each received over $500 million dollars of US tax dollars before going out of business, or at least stopping production, have major stockholders who have been huge contributors and/or money bundlers for various Obama campaigns. And of course, despite the bankruptcy of the companies, the major stockholders walked away with many millions of dollars in personal profits.

    Another case in point “It’s more than a little disheartening when the chief executive officer of one of America’s most storied Fortune 500 corporations is “comfortable” with the fact that his company created a mere 10 jobs with a $25 million grant under President Obama’s economic stimulus program in 2010. The CEO in question is Honeywell’s David Cote, and the stimulus grant involved came from the Department of Energy to advance Obama’s green energy agenda. The funds were to be used by Honeywell’s UOP subsidiary to build a biofuels technology demonstration plant in Oahu, Hawaii, supposedly creating 85 construction jobs and 40 permanent positions in each succeeding year.

    Source: Examiner Editorial: Obama’s crony capitalism posts more pitiful results

    To point out that governments always, everywhere, and inevitably, do a lousy job of running businesses is hardly the same thing as simply saying “Tea Party”. I don’t think I really need to document that the USPS is not run as efficiently as UPS and Fed Ex. But I can if you want me to. 😀

  11. @Robert: the Germans and DB respectfully disagree with you. So do ÖBB and the Austrians or SBB and the Swiss.

    What’s the big difference between those 3 and Amtrak? They still do rail freight, because that is actually profitable. That, and that they are viewed as the viable and eventually cheaper alternative to any other form of transportation over a given distance.

    For sure, current trains are won’t give the best available mode of travel over, say, 1000 miles, but below 500 nothing should be able to come close to high speed rail, definitely not half hourly shuttle flights over 150-200 miles. And if you have that running it can also be used to subsidize LD trains. Because, ideally, the government’s purpose is not to make profit on a service but to lose as little on it as possible.

  12. Example from today’s news:

    Fisker’s largest single investor, however, was the Obama administration. “In 2009, the Obama administration’s interest in cultivating electric cars got the untested Fisker loans totaling $529 million, more than the company had initially requested…

    Today, Fisker is headed for bankruptcy, and the U.S. could end up the owners of all or part of the company’s assets “because its loans were backed by Fisker assets.”

    Source: Wheels Fall Off Fisker
    NACS The Association for Convenience & Fuel Retailing

    The tax money wasted on Fiskar alone {529 million} would be enough to offset 83% of the FAA sequestration ($637 million) this year. Government “investment”, whether in Amtrak, green businesses, new ATC technology, job creation, etc. is an oxymoron.

    {BTW Before some of you get started with the name-blame-game… Both of my parents were staunch Democrats, and I am a lifetime Democrat of the JFK type. Proudly called Liberal back in the day; now demonized as Conservative.}

  13. @Kenny The EU governments, officially called Social {ist} Democratic, choose to heavily subsidize railroads. I ride them every summer with a government subsidized Eurail Pass, and they sure do a better job than Amtrak. But consider, they tax gasoline so highly that gas costs over 3 times what it does here. And both the Swiss and Italians have toll roads as well.

    Most of the EU lives in apartments in large cities, many without cars due to the high cost of gas and the lack of parking. They are forced to take the train for lack of an alternative. It’s a forced clientele, and to achieve that here, which some are actually proposing, would require forcing people to abandon their homes in the suburbs and move into the inner cities. I hear Detroit has lots of room available for new apartment towers. 😀

    The EU is also more compact than the US. Paris to Rome is ten hours on the train, not the several days it can take on Amtrak to go from NYC to La. To Build high speed rail to connect even the major US cities would cost untold Trillions. Except it would never happen due to lawsuits by “environmentalists” and NIMBYs. Even connecting LA and SF with high speed trains has turned out to be impossible. The new plans call for taking 4 or 5 HOURS, if the thing is ever built, which is looking less and less likely.

    Finally if you think high speed rail is really efficient, check out the debacle China has produced, where the whole system is losing huge amounts of money, and they have had to cut back speeds drastically due to the high rate of accidents. If even an authoritarian dictatorship can’t make the high speed trains run on time, it’s really never going to happen here.

    As for transporting freight by rail, of course that’s the most efficient method, and can and is being done already without any need for government subsidies.

  14. Robert. Why are you so anti subsidy for rail? Why should rail be held to a different standard than the airlines or the roads?

  15. Rail should be, for a whole host of reasons,the preferred societal direction of <300 mile trips. I'm not sure there's any rail system anywhere that actually MAKES money, truth be told, but that's not the point.

    We can live our lives sitting in traffic, choking on pollution, or wasting hours upon hours getting to and from airports and through massive security for these short trips, or we can devise a better, cleaner, more comfortable and timelier mode of transport.

    Teething pains of China's high-speed rail are not material here: Have you ridden them? Fast, clean, convenient, and thousands of miles have been built. Eurostar is superb. The TGV in France and other euro HSR equipment are on-time, relatively inexpensive, and far more convenient than inter-city air.

    NOT EVERYWHERE in the US is a candidate for this service, but certain markets definitely are, and we are incredibly late to the party. This could have been a whole new US Industry, but instead we let others take it over, worrying about the cost of subsidies for somebody else.

    Face it, either we get with it and continue to advance or we will slowly be eclipsed in every area of business, commerce, society and life.

    No one cares whether the ambulance "makes a profit"— it's about time we decided as a society that transportation is also a necessity in an evolved society, and provide appropriate support to all the smart solutions, instead of just the heavily-lobbied air and highway industries, which bask in subsidies.

  16. Do you need for the railway to make money for it to be good for the society? Think of the utility value to people who can commute faster.

    Also a loss on a taxpayer funded project can still be better than it being all private and each individual being forced to pay more. Do you expect a road to make money? No, but you expect it to improve transport between two places.

  17. ” Fast, clean, convenient, and thousands of miles have been built”

    I might add mostly empty, since tickets are so costly compared to other means of travel. Really nice for government officials and Western tourists, though. Thousands of miles have been built because the Chinese government has the ability and willingness to take peasants land without compensation, and there are no environmental requirements at all. Paid for with government funds with no forethought as to ROI.

    Now try to run a high speed route from San Francisco to San Jose. Even Jerry Brown has had to admit that can’t be done, and the Cal “high speed” train from LA to SF will have to travel at normal speeds thru the heavily developed Bay Area, and LA Metro as well.

    “The TGV in France and other euro HSR equipment are on-time, relatively inexpensive”

    Advance purchase EasyJet R/T flight from London to Rome 2 hours 10 minutes, $189 with one piece of luggage. Advance purchase Eurostar plus HSR R/T London to Rome, 20 hours, $428. I might note that the security clearance on Eurostar is nearly comparable to that at an airport.

    “it’s about time we decided as a society that {nearly everything} is also a necessity in an evolved society..”

    No, it’s time we remembered that when the government does something, USPS, Amtrak, etc, it costs 20 to 50% more, with greatly reduced quality of service. I need to move on, but feel free to keep posting how more taxes and more government is the answer to everything. 😀

  18. @Paul “Also a loss on a taxpayer funded project can still be better than it being all private and each individual being forced to pay more”

    I guess you think tax dollars “grow on trees”, because when a tax payer funded project has a loss, someone needs to pay more taxes to cover the loss. You just think it’s cool, because someone other than you is paying that for you. The people of Greece used to think that too. Not so much anymore… 🙁

  19. Sorry to break it to you Libertarians and anti-Amtrak nutcases. The Gubbment heavily subsidizes most of your existence, and without them you’d be out on your ass

  20. What is labeled here by commenters as “federal subsidies” for airlines are really the USER FEES paid by air travelers — a ticket tax that is used for airports. Like the “gas tax,” it’s a sensible user fee — though the federal and state gas taxes are often NOT used for roads, but rather subsidize other less efficient modes of transportation. Airline ticket taxes ARE used exclusively for airports — a proper tax.

    That’s quite different than the federal subsidies for rail, which come right out the general fund and are paid almost entirely by people who DON’T ride the rails.

Leave a Reply

Your email address will not be published. Required fields are marked *