The Poor Economic Model of Passenger Rail

Posted by PITHOCRATES - November 25th, 2013

Economics 101

The Amtrak Crescent is about a 1,300 Mile 30 Hour Trip between New Orleans and New York City

An Amtrak train derailed this morning west of Spartanburg, South Carolina.  Thankfully, the cars remained upright.  And no one was seriously injured (see Amtrak Crescent with 218 aboard derails in SC by AP posted 11/25/2013 on Yahoo! News).

There were no serious injuries, Amtrak said of the 207 passengers and 11 crew members aboard when the cars derailed shortly after midnight in the countryside on a frosty night with 20-degree readings from a cold front sweeping the Southeast.

This is the Amtrak Crescent.  About a 30 hour trip one way.  It runs between New Orleans and New York City.  Approximately 1,300 miles of track.  Not Amtrak track.  They just lease track rights from other railroads.  Freight railroads.  Railroads that can make a profit.  Which is hard to do on a train traveling 1,300 miles with only 207 revenue-paying passengers.

People may board and leave the train throughout this route.  But if we assume the average for this whole trip was 207 and they were onboard from New Orleans to New York City we can get some revenue numbers from the Amtrak website.   We’ll assume a roundtrip.  They each have to pay for a seat which runs approximately $294.  Being that this is a long trip we’ll assume 20 of these people also paid an additional $572 for a room with a bed and a private toilet.  Bringing the total revenue for this train to approximately $72,298.  Not too shabby.  Now let’s look at the costs of this train.

Diesel Trains consume about 3-4 Gallons of Fuel per Mile

If you search online for track costs you will find a few figures.  All of them very costly.  We’ll assume new track costs approximately $1.3 million per mile of track.  This includes land.  Rights of way.  Grading.  Bridges.  Ballast.  Ties.  Rail.  Switches.  Signals.  Etc.  So for 1,300 miles that comes to $1.69 billion.  Track and ties take a beating and have to be replaced often.  Let’s say they replace this track every 7 years.  So that’s an annual depreciation cost of $241 million.  Or $663,265 per day.  Assuming 12 trains travel this rail each day that comes to about $55,272 per train.

Once built they have to maintain it.  Which includes replacing worn out rail and ties.  Repairing washouts.  Repairing track, switches and signals vandalized or damaged in train derailments and accidents.  This work is ongoing every day.  For there are always sections of the road under repair.  It’s not as costly as building new track but it is costly.  And comes to approximately $300,000 per mile.  For the 1,300 miles of track between New Orleans and New York City the annual maintenance costs come to $390 million.  Or $1 million per day.  Assuming 12 trains travel this rail each day that comes to about $89,286 per train.

Diesel trains consume about 3-4 gallons of fuel per mile.  Because passenger trains are lighter than freight trains we’ll assume a fuel consumption of 3 gallons per mile.  For a 1,300 mile trip that comes to 3,900 gallons of diesel.  Assuming a diesel price of $3 per gallon the fuel costs for this trip comes to $11,700.  The train had a crew of 11.  Assuming an annual payroll for engineer, conductor, porter, food service, etc., the crew costs are approximately $705,000.  Or approximately $1,937 per day.  Finally, trains don’t have steering wheels.  They are carefully dispatched through blocks from New Orleans all the way to New York.  Safely keeping one train in one block at a time.  Assuming the annual payroll for all the people along the way that safely route traffic comes to about $1 million.  Adding another $2,967 per day.

Politicians love High-Speed Rail because it’s like National Health Care on Wheels

If you add all of this up the cost of the Amtrak Crescent one way is approximately $161,162.  If we subtract this from half of the roundtrip revenue (to match the one-way costs) we get a loss of $88,864.  So the losses are greater than the fare charged the travelling public.  And this with the freight railroads picking up the bulk of the overhead.  Which is why Amtrak cannot survive without government subsidies.  Too few trains are travelling with too few people aboard.  If Amtrak charged enough just to break even on the Crescent they would raise the single seat price from $294 to $723.  An increase of 146%.

Of course Amtrak can’t charge these prices.  Traveling by train is a great and unique experience.  But is it worth paying 80% more for a trip that takes over 7 times as long as flying?  That is a steep premium to pay.  And one only the most avid and rich train enthusiast will likely pay.  Which begs the question why are we subsidizing passenger rail when it’s such a poor economic model that there is no private passenger rail?  Because of all those costs.  Congress loves spending money.  And they love making a lot of costly jobs.  And that’s one thing railroads offer.  Lots of costly jobs.  For it takes a lot of people to build, maintain and operate a railroad.

Which is why all politicians want to build high-speed rail.  For it doesn’t get more costly than that.  These are dedicated roads.  And they’re electric.  Which makes the infrastructure the most costly of all rail.  Because of the high speeds there are no grade crossings.  Crossing traffic goes under.  Or over.  But never across.  And they don’t share the road with anyone.  There are no profitable freight trains running on high-speed lines to share the costs.  No.  Fewer trains must cover greater costs.  Making the losses greater.  And the subsidies higher.  Which is why politicians love high-speed rail.  It’s like national health care on wheels.

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Amtrak can’t make a Profit on a Cheeseburger they sell at $9.50

Posted by PITHOCRATES - October 27th, 2012

Week in Review

Poor Amtrak.  Always the example of government at its worst.  Subsidizing passenger rail when all private railroads gave up on it long ago.  Because you can’t make money on passenger rail.  So what does the government do?  They furnish a service that no one is demanding.  Pouring billions of tax dollars into a failed economic model to desperately try to keep it afloat.   And Amtrak still loses money.  Despite selling cheeseburgers at $9.50 (see Amtrak’s food service: How to lose money on $9.50 cheeseburgers posted 10/23/2012 on The Economist).

JOHN MICA, the Republican chairman of the House Transportation and Infrastructure committee, has held many hearings on Amtrak, America’s government-run passenger rail company, over the past few years. Few, though, have drawn as much attention as an August discussion of—what else!—hotdogs and beer, when Mr Mica noted that, over the past three decades, Amtrak has not once broken even on its food offerings.

… Andrew Biggs at the American Enterprise Institute, a conservative think-tank, suggests that Amtrak’s labour costs are to blame.

If you follow that link you will see these numbers:

How do you lose $85 million per year selling $9.50 cheeseburgers, as Amtrak reportedly has?

One way is to pay Amtrak employees 19% more in salaries and benefits than comparable private sector workers.

… Amtrak salaries were on average 4% lower than private sector levels. However, benefits were 81% higher than private sector levels, including 19% more paid leave, 181% more generous health coverage, and 51% more generous retirement benefits. This helps explain why, over a 7-year period, Amtrak quit rates averaged 2-3% per year while private sector quit rates were 26-27%. No one wants to give up a job with so many perks.

Going back to the Economist article:

Labour costs are part of Amtrak’s problem, but they’re not the heart of it. That honour goes to the company’s unprofitable, unpopular, slow and generally indefensible long-haul routes…

Amtrak loses a lot of money providing food service on its long-haul routes because it loses a lot of money on almost everything related to those routes. Long-haul passenger train trips, especially at Amtrak speeds, are for hobbyists, people with lots of time and very restricted budgets, and people who are afraid of flying. No private-sector company without Amtrak’s political and legal obligations would continue to operate its long-haul routes without substantial changes.

All passenger rail loses money.  Except for, perhaps, the Bullet Train in Japan.  And the TGV in France.  These are the only two trains (at least they were at one time) that actually make a profit.  All other trains cannot survive without taxpayer subsidies.  Because rail transportation is very expensive.  Moving heavy freight by train works because it’s the most cost efficient option for heavy freight.  And sometimes the only option.  But moving people?  There are a lot of other options.  We can drive ourselves.  Take a bus.  Or fly.  All of which are more cost efficient than a train.  A commuter jet, for example, can make three round trips in the time it takes a train to make one trip.  One-way.  So that’s six revenue-producing trips for the commuter jet versus one for the train.  Which is a big reason passenger airlines can be profitable while Amtrak cannot.

Trains require an enormous amount of infrastructure.  And a lot of people.  All of this just to move a few passengers.  Who don’t weigh much.  But require a lot of space for their weight.  So your typical passenger train doesn’t carry a lot of people.  To recover the full cost of moving a passenger train from point A to point B in the ticket price would require a ticket price far greater than anyone would pay.  Which is why the government subsidizes passenger rail.  Because no one would board a train otherwise.

The long-haul trains add porters, bartenders, food staff, wait staff, etc.  Greatly adding cost to a money losing route.  Making these trains the biggest losers.  In large part to those employee benefits.  For those employees on the train. And those not on the train.  To all of those who help get it from point A to point B.  And the insufficient number of revenue-producing trips these trains make to cover those costs.

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If Amtrak can’t Operate Profitably we have No Business Getting in the High-Speed Rail Business

Posted by PITHOCRATES - November 12th, 2011

Week in Review

Before we commit to high-speed rail we probably should figure how to make the less costly type of rail not lose money first (see Amtrak’s true costs by N.B., WASHINGTON, D.C. , posted 11/7/2011 on The Economist).

AMTRAK, America’s government-run passenger rail service, received $1.4 billion in taxpayer subsidies in 2011. Critics reckon that’s too much, and say that the company should either be self-sufficient or privatised. Some surveys suggest that the majority of Americans agree. But Amtrak’s defenders are striking back, arguing that the railroad actually receives fewer dollars per passenger mile (ppm) than highways.

Yes, but Amtrak sells tickets.  Our highways don’t.  Except for private toll roads.  But private toll roads are private.  And typically the government doesn’t subsidize them with federal money.

Airlines don’t receive subsidies like Amtrak does.  That’s because there is a demand that they can meet profitably.  Passenger rail just can’t do that.  Their costs are just too great.  Which is why Amtrak can’t survive without federal subsidies.

And if Amtrak can’t operate profitably we have no business getting in the high-speed rail business.

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The Obama Administration Proposes an Ambitious and Costly High-Speed Rail Plan

Posted by PITHOCRATES - February 9th, 2011

Nowadays Passenger Trains Yield the Right-of-Way to Freight Trains

I remember traveling by train with my family some 20-30 years ago.  My mom loved train travel.  She lived in the golden age of rail.  Has lots of fond memories.  But these are different times.  Even 20-30 years ago.  I remember on that trip we came to a stop on a siding.  Sat there for about a half hour.  Maybe 45 minutes.  I was starting to think there was a problem with the train.  Then a freight rumbled by on the main line.  After it passed, we started moving again.

Now if you understand railroading, you know how significant this is.  Back in the golden age, before planes and the interstate highway system, it would have been the other way around.  Passenger trains got the priority because they made more money.  Back then, freight trains pulled onto sidings.  But today, though heavily subsidized, passenger trains don’t make money.  Freight trains do.  They can pay for themselves.  And make a profit.  Therefore, passenger trains take to the sidings to get out of the way of profitable freight trains.

Freight trains make money because they can move a lot of freight cheaper and faster than other means of transportation.  Passenger trains, on the other hand, are neither the fastest nor the cheapest.  Planes are faster.  Cars are cheaper.  And this is why most passenger rail, including high-speed rail, don’t make money.  Even with huge government subsidies.  Not the same for planes or cars.  One way or another, we pay our own way with these faster and cheaper alternatives.

A Public Works Project that doesn’t End

Despite this, the Obama administration is proposing to spend billions on high-speed rail.  And it’s an ambitious plan (see GOP critic calls Joe Biden’s $53 billion high-speed rail plan ‘insanity’ by Daniel B. Wood posted 2/8/2011 on Yahoo! News).

According to the plan laid out Tuesday by Biden, the first step of the six-year plan would be to invest $8 billion to develop or improve three types of interconnected corridors:

Core express corridors would form the backbone of the national high-speed rail system, with electrified trains traveling on dedicated tracks at speeds of 125 to 250 m.p.h or higher.

Regional corridors would lay the foundation for future high-speed service, with trains traveling between 90 to 125 m.p.h.

Emerging corridors would provide travelers with access to the larger national high-speed network and travel at as much as 90 m.p.h.

During times when oil prices soar, air and truck transportation costs soar.  But not rail transportation.  Why?  Because the massive rail infrastructure costs are greater than their fuel costs.  Unlike with planes and trucks.  Trains have to buy land (or right-of-ways).  Grade the land.  Build tunnels.  Bridges.  Lay track.  Switches.  Install communication systems to control those switches.  And more.  And they have to do this everywhere a train will travel. 

Planes fly between airports.  And trucks drive on roads paid for by fuel taxes.  They don’t have the infrastructure costs railroads do.  So volatile fuel costs impact them far greater than they do the railroads.  So the plan Biden laid out won’t be cheap.  It will be very, very expensive.  And take a long time to build.  It will be a public works project that doesn’t end.

But building high-speed rail is no easy process, says Leslie McCarthy, a high-speed rail expert at Villanova University’s College of Engineering. “Whether or not a bill would or should pass is the easiest part of all this,” she says. “The bigger part of the question is purchasing the land, getting right of ways, zoning issues, environmental impact assessments, laying dedicated tracks in a reasonable amount of time.”

She says the typical US highway project can be held up anywhere from three to five years at the low end to 12 to 20 years at the high end. “Legislators and the public aren’t aware of the number of federal, state, and local laws that agencies have to comply with that can’t be gotten around,” she adds.

The plan will employ a lot of people to build these railroads.  And they will have jobs for a long time.  But it will cost us a fortune in taxes.  Will the investment pay off?  When completed, will these railroads make money? 

In fact, the very thing that makes the Northeast so attractive for high-speed rail – its population density – could also make it the most difficult place to build. “There is so much population in the Northeast corridor that I don’t know if there is even enough room for the dedicated tracks needed for high-speed rail,” says Professor McCarthy. “And if the distances you are going are not sufficient to make efficient use of the high speeds, what’s the point..?”

Critics agree. Only two rail corridors in the world – France’s Paris to Lyon line and Japan’s Tokyo to Osaka line – cover their costs, says Ken Button, director of the Center for Transportation Policy at George Mason University in Fairfax, Va.

“Both of these are the perfect distance for high-speed rail, connect cities over flat terrain with huge populations that have great public transportation to get riders to the railway,” he says, dismissing French claims that other lines make money. He says they calculate costs in ways which ignore capital costs.

Well, with only two high-speed rail lines actually paying for themselves, I guess the answer is ‘no’.  The proposed high-speed rail project will just be a sinkhole for tax money. 

High-Speed Rail:  Huge Expense with Little Benefit

All right.  So the proposed high-speed rail will never pay for itself.  And it will become a permanent sinkhole for our tax dollars.  But it will at least get cars off the road, right?  Reduce our carbon footprint?  Make the earth a greener place?  Or at least take us to our destinations faster?  Probably not (see Obama’s High-Speed Sale by Ernest Istook posted 2/8/2011 on Heritage’s The Foundry).

The “high speed” adjective invokes thoughts of bullet trains speeding at 150 mph, 200 mph or more.  The reality of Obama’s plan is—at best—the 85 mph that is the average speed of America’s fastest train, the Amtrak-run Acela.

When Obama claims his trains would reach 100 mph and more, he’s talking about peak speed reached only for short stretches, not the average.

I’ve actually traveled on Amtrak.  Not the Acela.  But we did reach speeds in excess of 60 miles an hour.  For a short period of time.  In the middle of farm country.  In a metropolitan city, for about 20 minutes or so, we crawled.  The track was so bad that speed limits were reduced.  To prevent further trains from derailing. 

City to city high-speed travel in excess of 150 mph will require new, dedicated track between point A and point B.  Until you have that you’ll never ‘average’ anything close to those high speeds.  And that will require a grand, bold and expensive plan of railroad building.  The question is, knowing that such a railroad will never pay for itself and may never move people faster (unless you build terminals outside of cities where you’ll be able to build these dedicated lines and bus people to and from these terminals), will we at least save the planet?

An exhaustive Department of Energy analysis by Oak Ridge National Laboratory concludes, “intercity auto trips tend to be relatively efficient highway trips with higher-than-average vehicle occupancy rates — on average, they are as energy-efficient as rail intercity trips. Additionally, if passenger rail competes for modal share by moving to high speed service, its energy efficiency should be reduced somewhat12 — making overall energy savings even more problematic.”

The lack of energy or pollution savings leaves us with the key problem:  Huge expense with little benefit.

So we spend a fortune for what?  Surely there must be a better way.

Rail travelers don’t pay their own way as drivers must do.  Obama’s plan would increase the rail subsidies, which already are heavily subsidized with tax money–often by hundreds of dollars a trip for each passenger–whereas the U.S. Department of Transportation reports that drivers receive no subsidy:  Drivers buy the roads through fuel taxes, and also must pay for their own car, gas, insurance and repairs.

Well, there appears to be a better way.  Cars.  And we already have them.  So wouldn’t it be cheaper and more efficient to stick with what we already have and works?

Big Infrastructure brings in Big Federal Money

Yeah, well, that’s not how politics work.  Politicians run for reelection based on how much money they’ve brought home to their districts.  And big infrastructure brings home big federal money (see High Speed Funding in President’s Budget Means More Waste of Taxpayer Dollars by Kathryn Nix posted 2/9/2011 on Heritage’s The Foundry).

Heritage’s Ronald Utt writes that a high-speed rail program would create “perpetual massive government subsidies and larger budget deficits” and “additional burdens imposed on hard-pressed state governments, which will be required to match the perpetual federal subsidies to build the system.”

And bringing home federal money to their districts will be the only benefit of high-speed rail.

Despite its cost, high-speed rail will be ineffective at achieving its goals, if Europe’s experiences are any indicator. High-speed rail is expected to reduce auto and air travel, but in Europe, the trend is actually the opposite: Despite huge government subsidies, travelers are opting more and more to take non-subsidized and less expensive forms of travel.

Per capita spending on rail alone in six European countries was comparable to the United States’ entire transportation budget, yet, says Utt, “these countries received a poor return on their money given that more than 90 percent of passengers in these countries chose other travel modes—mostly auto—despite the subsidies.” Moreover, Utt cites the U.S. Department of Transportation’s Inspector General’s finding that reducing travel time between major East Coast cities by 30 minutes would cost $14 billion but only reduce auto transportation by less than 1 percent.

Can you say boondoggle?

Passenger Rail cannot Subsist without Taxpayer Subsidies

High-speed rail will never pay for itself, it will require perpetual government subsidies, it will not reduce our energy consumption or reduce our carbon footprint.  All it will do is increase deficit spending at the federal and state levels. 

There’s a reason why government subsidizes passenger rail service in the United States.  Because the railroad companies know there is no money in it.  They can make money moving freight.  But not people.  So they move freight.  And let people fly or drive their cars when they want to travel.  Or let the government pay for those passenger trains the way only government can.  With our tax dollars.

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