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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