Friday, December 13, 2013

Why Amtrak Is Such a Train Wreck

People have an affinity towards trains, whether it's due to nostalgia or a desire for having a more scenic way of traveling. Trains have been a part of American infrastructure for many years, and for those who advocate for a public rail system, it constitutes as "an invaluable public good." In 1970, the government stepped in and created the entity known as Amtrak, which was created as a publicly funded, for-profit company to provide intercity passenger rail service to American citizens. From its inception, Amtrak was rightfully criticized as Big Government subsidizing Big Railway. Rather than hail Amtrak as a ingenious step in transportation policy, we should be steamed that Amtrak has a lousy track record.

In spite of being a for-profit corporation that has received approximately $40B in government subsidies, Amtrak has not managed to create a profit since its inception. Take a look at Amtrak's audited financial statements from the past year: it generated a net loss of $1.2B (p. 4). Pew Research found that back in 2008, Amtrak generated a loss of $32 per passenger. I'm sure proponents would argue that Amtrak doesn't have enough money to fund and maintain the infrastructure, but when compared to other forms of intercity transport, Amtrak receives more subsidies per passenger-mile (O'Toole, 2012, p. 5).

Amtrak does not get animus simply for running a net deficit. It also produces other inefficiencies, which would make sense because it acts as a de facto monopoly. Without direct competition, Amtrak has very little incentive to improve upon its operations. For instance, Amtrak's food and beverage service has had the ongoing problem of losing approximately $80M per annum, which has totaled to nearly $1B in losses in the past decade (Office of Inspector General report here, as well as Congressional testimony). Restaurants, fast foods, and other food service entities can make a profit. It is reasonable that Amtrak should be able to create profit, as well.

According to the Department of Transportation [DoT] (Table 3-16), the average cost per passenger-mile for Amtrak is significantly higher than air or bus travel. Rather than become an inexpensive alternative to other modes of intercity travel, the government has made traveling via Amtrak a more expensive option. Not only that, the government meddling has actually caused prices to increase. This doesn't even count the rate at which Amtrak trains are late (DoT, 2012, Figure 1), something which I have personally experienced. And why can't Amtrak update its locomotives more often? An average age of 20.6 years per locomotive is not flattering.

There is also the matter of how employee salaries match up to comparable private sector jobs. A Global Insight Inc. study (p. 20) shows that although wages are 4% below the private sector, the benefits are 81% higher than the private sector, which more than makes up for the wage differential. No wonder the Amtrak quit rate is lower than the private-sector equivalent (p. 21)!  

This past fiscal year, Amtrak had a "record-breaking" ridership of 31.6 million passengers. Since 1970, there have been less total railway passenger-miles (DoT, Table 1-40). On top of that, consider that the total amount of railway passanger-miles was actually decreasing prior to 1970 (Census, series Q 307-308), which is to say that government subsidies perpetuated a form of passenger transport that was antiquated.

My issue with Amtrak is not that it is a leading driver of the federal debt. In the "grand scheme of things," Amtrak is only four one-hundredths of the federal budget. The federal government greatly subsidized Amtrak under the guise of "Big Government knows best." The end result? Rather than be an example to emulate, our rail system is a laughing stock amongst developed nations.

We need to stop this public-private partnership and create policy to start the process of privatizing our passenger railway system, much like Japan and the European Union have. New entrants should be allowed to gain access to the intercity transit market. If railway trains cannot make it in the private market, buses are more than adequate to fulfill the demand. As the growth of Coach USA or Megabus illustrates, a return to intercity buses would be prudent because intercity buses are showing to be more efficient, including lower fares, lower per-passenger costs, and decreased carbon emissions. As was so eloquently put in a Freakonomics quorum, "trains are a 19th century technology that we are attempting to apply to a 21st century problem." The federal government needs to end the coddling of the railway industry and remove regulations over the intercity bus system. Only then can our transit system get back on track.

11-22-2016: In 2016, Amtrak has done little to nothing on improving upon its efficiency, and this Cato Institute article nails it on the head. Not only are they happy that they have "the lowest operating costs ever," but passenger miles, ticket revenue, and the average length of a trip have all declined.

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