Freakonomics Quorum: Can Amtrak Ever Be Profitable?
01/05/2012 | 11:37 am
Amtrak’s ridership and revenue has been steadily increasing over the last 10 years, and 2011 set a new ridership record with 30.2 million passengers, and $1.9 billion in ticket revenue. But, even though it took in $1.42 billion from Congress last year, it still manages to lose $1 billion annually. This is hardly a new development. Amtrak has a long and storied history of functioning at a loss despite government subsidies.
So, as we enter what appears to be a new era (maybe?) of government austerity, it seems worth asking if Amtrak can ever turn a profit without government help. We rounded up some people who pay attention to this issue and asked for their ideas to fix Amtrak, if it can be fixed at all.
Thanks to everyone in the Quorum for participating — and as always, let us know what you think in the comments section.
Whether you agree or not with these comment authors, these are really useful observations about Amtrak, and therefore, high-speed rail.
HSR is, whether the rail authority wants to believe it or not, the icing on the Amtrak cake. It's not a very good cake and adding HSR icing won't make it any better. Other countries have much better passenger rail service, even at the low-end, low-cost local train levels. Their HSR icing is more effective because their rail systems for passengers are so comprehensive in a culture acculturated to public mass transit, be it trolley cars or inter-city rail.
Except for a few limited mega-population centers like NYC or Chicago, urban/regional transit is pretty bad. It's a persistent mistake for us to ignore and under-fund population center public mass transit. Regional commuter rail is part and parcel of such urban networks and should be supported and expanded. Yes, it's necessarily subsidized, but the overall economy does benefit and thereby refunds these subsidies.
That will not be the case with HSR. The biggest misleading assumption about HSR is that it's going to serve everybody who will prefer it to driving and flying. That's not the case anywhere on this planet. It is an elite train ride that only the elite can afford. And that, as we all know, is, in a classless society, un-American.
Even as these several authors disagree about various aspects of Amtrak, they do agree that inter-city passenger rail is a low priority in the US, even with its currently swelling ridership numbers, and that there are only a very few corridors between cities that justify subsidized passenger rail (of any kind).
Eric Morris makes a point, better than I ever have, about the efficiency of freight rail vs. passenger rail. And projecting passenger rail efficiencies with freight rail performance data is highly fallacious. I would add that on a spectrum of cost/efficiency, freight rail is the highest, especially with bulk freight such as coal, and at the lowest cost/efficiency when it carries people and especially when the trains are expected to go the fastest.
As I like to say, Speed Costs! With each additional mile per hour, as speed goes up, the costs go up faster and the cost/effectiveness goes down. A three hundred mile per hour Chinese train is not only a third faster than a two hundred mile per hour train, it's operating costs are more than half again as much. And far fewer of us will be able to afford those tickets, even as each seat is subsidized more highly than other, slower passenger rail seats.
"The answer is almost certainly that any purported societal benefits from Amtrak do not match its subsidies, or even come close. Rail backers make a big deal about how much road and airport congestion their pet mode is relieving. But traffic congestion, while a big problem inside cities, is rarely an issue on highways between them."
Robert Puentes at Brookings has written about rail transportation frequently and is a friend of Amtrak and HSR. He also makes the "profits" error since businesses that are not for-profits, don't make profits. He should acknowledge more forcefully that only the short-haul commuter lines within high density regions cover their operating costs, more or less, with farebox receipts. Inter-city is not, by definition, for commuters who are daily to work riders.
While we can argue that inter-city rail should not be subsidized, it being a "luxury" unlike going to work daily, urban and regional rail (as well as other modalities) that do support these commutes enables a broader spectrum of the population to access work and thereby facilitates the general economy. Clearly HSR falls totally outside these general guide-lines.
We've run Yonah Freemark's articles in this blog before, sometimes with, and sometimes without approval. Freemark picks up on the Republican penchant for privatization of public mass transit and compares the unsuccessful efforts in the UK. Freemark also points out the higher construction and operating costs in the US vs. other countries. Indeed, it has been noted that projected construction costs for HSR per mile is twice as high as that of other countries.
That alone, I would think, should inhibit all those fruitless comparisons of "Why can't we do what they do?" The answer is, among other things, we would have to pay twice as much as "they" do. Said a better way, we need to understand that European or Japanese HSR and passenger rail generally operates with far greater cost/effectiveness than our Amtrak system does now, or any HSR system in the US in the future, and I include the more likely HSR in the NEC.
Nate Berg agrees that Amtrak is a part of the Nation's infrastructure and like a bridge or dam, should be government built and supported. He compares it to our interstate highways system or the US postal service. Both were bought and paid for by the government. The postal service, like Amtrak, even with its fees through stamps, etc. can't break even. I believe he overstates the value of inter-city travel as a critical service commodity for all of us as a benefit to the economy.
Essentially, as a Democrat, he defends the subsidizing of Amtrak as a social service provider that bolsters the economy of ever higher density urban centers. Perhaps. But even here, a parsimonious operation, functioning optimally, not at super-high speeds and costs, should meet the needs of most of us.
Finally, Stephen Smith points out that population dispersal, produced by rail as well as other transit modes, now needs to be taken into account to justify continued and certainly elevated levels of government investment in rail transit.
That can already be seen in the aggressive promotion of high-density housing within population centers to justify transit service expansion. Consider it an effort to undo prior dispersal. (Abandon the suburbs, everyone!) Oblige urban density in order to create the market for passenger rail. Create passenger rail to create the demand for greater urban density. This is "social engineering" at its worst, and I deplore it.
Mr. Smith is a "de-regulator," a political position which I consider the re-introduction of "moral hazard" for consumers, workers, and the general public at large. And, Mr. Smith would like to break up Amtrak, as John Mica has proposed, making the so-called profitable NEC privatized for investors, leaving the other costly, subsidized inter-city services to fend for themselves and fail.
All these guys have interesting perspectives although I don't agree with much of what each one says. But, that's not important. What is important is that we take the big picture -- the context -- into account in our discussions of Amtrak, which, for better or worse, is the context for any future HSR in the US.
It is one of the great failings in our discussions about high-speed rail in California, that we have no context for such discussions; we don't consider the big picture of transit and the cost-benefits thereof. We cannot understand and make sense of high-speed rail in a vacuum; in isolation. The rail promoters argue that we can't afford to live without it, regardless of its costs. That's nonsense. The equation is much larger and more complex than that.
And one major clue to that context is how we see Amtrak passenger rail service. That becomes a useful predictor for how and why high-speed rail is doomed to fail in America.