Richard Anderson, the former CEO of Delta Air Lines who now runs Amtrak, claims that:
- In fiscal year 2019 passenger revenue covered 99% of operating costs
- Amtrak will be profitable in 2020 (for the first time ever)
Both of those statements are false. In fact Amtrak lost over a billion dollars in 2019 but accomplishes their accounting chicanery in at least two primary ways.
- They count government subsidies from states as ‘passenger revenue’
- They do not count capital expenses or depreciation (wear and tear) as expenses, even though these represent about 20% of expenses
- As a result Amtrak’s 2019 losses are about 35 times greater than they claim
If you inflate Amtrak’s revenue and you ignore costs you can make Amtrak look like a financially responsible operation.
Amtrak reports that it has a $33 billion maintenance backlog, which are also excluded from their numbers (and “doesn’t count the backlog on parts of the Northeast Corridor use by but not owned by Amtrak”). And so is the need to replace older rail cars – approaching or past their expected life – at a cost of $4 billion.
Randal O’Toole writes that the purpose of these shenanigans is to make it appear that Amtrak has been turned around, in order to make its requests for increased federal subsidies more palatable. When Anderson ran an airline his job was to rail (see what I did there) against subsidies while getting the government to assume liability for his pensions and block competition at his hubs. Now that he runs Amtrak his primary job is to aggressively pursue greater subsidies.
To be fair Amtrak has made real progress controlling costs, such as their new forced arbitration clause that takes away your right to sue them in the event of a crash. And Anderson is right that losing nine figures on food service makes no sense, which is why Amtrak has cut its food service (not to ‘appeal to millennials’ as they claimed – millennials are in fact more likely to be foodies).
Does any of this surprise you or anyone else out there? One, it’s Anderson, 2 It’s DC accounting
For context, how many airlines count state subsidies as revenue? All that receive them.
As of today, there is simply no viable alternative to the development of rail, particularly high speed rail. That the US is unwilling or unable to see this gives us the context that explains why the CEO feels the need to resort to less than transparent accounting.
I wish we would simply redirect the massive subsidies we give to parking automobiles in dense urban centers and that alone would buy us high speed rail.
And perhaps reporters would do well to refocus attention on the massive subsidies given to the auto industry rather than writing about the chump change the US currently throws at passenger rail.
do airlines count the massive amount subsidised by tax payers as an expense? no. so why should Amtrak not apply it to either side of the balance sheet?
I find it interesting that you endorse forensic accounting of Amtrak yet give the Middle East airlines a complete pass on their even more dubious accounting. The reality, of course, is that both groups are massively subsidized by the government.
For Amtrak, the question becomes whether these subsidizes are “worth it” to the American people. There’s obviously some value in their Northeast Corridor service — to at least some people who live in the Northeast Corridor. That said, Amtrak has little value to most Americans who live in that part of the country because their service is too limited and their fares are too high. Like I can typically fly 1000 miles for less than the cost of taking a 100 mile Amtrak ticket. But that should be the real debate. Alas, I suspect the status quo is what we’ll continue to get: a very mediocre rail system for a relatively high cost.
Should airlines account for EAS subsidies in their profit calculations?
Do the low landing fees at US airports constitute a subsidy we should use to adjust the profits of airlines which operate US flights? (I’m fuzzy on the math but I think I read that LHR charges about 5x as much as SFO for landing fees?)
That all may or may not be accurate, but I am not aware of a single rail service that makes money. It is almost a money losing operation by the very definition.
They were never supposed to be profitable. They were supposed to be subsidized by the freight railroads. This was the trade-off for those rail roads–the freight rail roads are exempted from their (passenger) common carrier obligations in exchange for agreeing to form and support a separate rail line that would take those obligations on for them. The freight rail lines got their part of the bargain, but never kept up the other end of the bargain.
Why is this important?
@bhcompy You must live in South Dakota. Amtrak is the # 1 passenger carrier mode between DC and NY, and you’re asking why this is important?
Show me any public transit system …
That’s required to make A PROFIT,,,,,
that’s actually making A PROFIT…..
@Sumner Herrick
My point is their profit situation is absolutely meaningless, whether they’re lying about it or not. They’re government backed and they’re going to run regardless of the truth. It’s like complaining about the postal service or PBS not turning a profit.
Why do we only demand that trains be profitable but not cars/roads or even, to a lesser extent, airlines? As others pointed out, airlines get subsidies in different forms, not least of which are the airports we build for them! We throw billions into roads and auto subsidies (required parking, stilted gasoline tax, low registration fees, the list goes on). Randal O’Toole has a known blind spot for all of this and is anti-transit.
Great article. I really appreciate and respect O’Toole’s work on transportation.
Also, @jdh, we can bemoan that the government loses a lot of our money on Amtrak and ALSO dislike federal bailouts of the airline/auto industry. These are not mutually exclusive things.
Also, lastly, @John, Brightline/Virgin operates a new PRIVATE rail service in Florida. They’re obviously planning on staying alive via profit as opposed to subsidies. Much of their profit will come from real estate, which is quite clever of them.
A real story that continues to be avoided would be how the media, Congress, and the public have been bamboozled by Amtrak with false accounting, punitive full cost allocation ascribed only to non-Northeast Corridor states, and a smoke and mirror approach to the long distance routes and national network.
Why do the political and media sources continue to believe the Amtrak mantra perfected by Pravda how “profitable” the Northeast Corridor is, when in reality, Amtrak does not include the excessive infrastructure costs as required in accounting? If such high infrastructure costs were handled in a normal accounting system, they would come off from revenues; thus, which would show a deficit.
Why does Congress allow Amtrak to utilize the Passenger Rail Investment & Infrastructure Act of 2008 (PRIIA) as a cudgel against state-supported corridors beyond the Northeast? Amtrak’s own, unaudited full cost allocation methodology ignores GAAP (Generally Acceptable Accounting Principles) by shifting costs onto the states unequivocally created only in the Northeast Corridor. Amtrak relies on this stilted full cost approach of overcharging to subsidize its deficit-ridden Northeast Corridor. How many state treasurers paying such excessive charges and denied to work with any competitive force understand how Amtrak does not even charge the states along the Northeast Corridor for their intercity trains? This, despite that BOS-WAS is but 457 miles; PRIIA requires states to pay for all service under 750 miles. Although Amtrak operates at no cost to those states along the NE Corridor twice per hour, bi-directional frequencies, Amtrak refuses to acknowledge the common business approach towards incremental costs of increasing frequencies for all other states. Such regional bias by Amtrak has only inhibited state action to respond to increasing mobility needs.
As Amtrak has historically been a sock puppet to Northeastern political interests, the commuter lines of that region were not even properly charged for their heavier usage of the Northeast Corridor until mandated by Congress, but not until December, 2015. To this date, do we even know if the operational and infrastructure charges to states using the Northeast Corridor are accurate-and collected? Another example of inaction by Congress to ensure oversight; to not even require an external forensic audit to validate collection of all revenues and accurate allocation of costs.
In its fervent desire to focus exclusively upon its political backyard of the Northeast Corridor, Amtrak has dissed the long distance network, refusing to invest in replacement passenger cars. Now, to further discourage traffic and revenue, Amtrak has initiated the process to withdraw dining cars east of the Mississippi in favor of minimal menu tray choices; encouraging their consumption in compartments, all to cut labor costs. If Amtrak succeeds to derail the long distance trains, this will not only kill regional inter-connectivity, but, ironically, evidence the true costs of the Northeast Corridor, as Amtrak will not have the long distance sector to conveniently dump the costs of the Northeast Corridor into, in violation of GAAP.
In essence, for passenger rail to gain traction here, we need a separate operating company for the state-supported and long-distance routes outside of the NE Corridor, with the opportunity to outsource food/beverage and first class services for long distance routes; open competition for all state routes to eliminate the Amtrak monopoly that stifles meeting mobility and economic development opportunities. Ironically, those states along the NE Corridor would then be required to eat the full operational and infrastructure costs between BOS-WAS.
For those neophytes to understanding how the feds created an unlevel playing field between modes of transport, the commercial airlines and private aviation have historically benefited from government financed airports, runways, installation and maintenance of air traffic control, and reduction or elimination of fuel taxes. Privately-owned railroads finance their own capital investment to maintain their private infrastructure, which is thoroughly taxed by every jurisdiction. Congress mandated Positive Train Control in 2008 to be installed and maintained at the expense of all railroads (including commuter lines). Whatever the user fees and fuel taxes charged for trucks, buses, and autos comes nowhere near what their actual user fees should be to cover just the maintenance of the free interstate highway system.
For a good laugh, do note how Amtrak’s CEO Anderson professes potential growth opportunities in the short corridors, concomitantly taking legal action fighting the private Class 1 railroads over operation as a business requesting acknowledgment of the market valuation for track access and timely dispatching. With such an imperial monopolistic attitude, what railroad does Anderson think will allow further access to their infrastructure?
Who cares? Public transit doesn’t need to make a profit. Do airlines count subsidies, tax breaks, etc., in their books? Of course they do. Amtrak actually gets you around the East Coast without drama. That’s more than I can say for the airlines. Oh and BWI and EWR would be practically inaccessible without trains.
I completely disagree with this view. It is so far from reality. It so misses the point that, under Richard Anderson’s leadership, AMTRAK has made enormous strides to offer consumers a far better, far safer product than before and, at the same time, reduce the operating drag on the company caused by the pork inherent in an entity run by an organization — Congress — that has no P&L responsibility. As a frequent rider of AMTRAK, the improvements are obvious — new seats, better onetime performance, new nonstop DC-NY. And, the attempts to cut out historically unprofitable routes in AMTRAK’s schedule that AMTRAK has been required to operate by politicians under the guise of “public service” have been significantly greater under Anderson’s leadership than any other AMTRAK CEO. If Anderson did not have to operate the railroad with at least one hand tied behind his back, AMTRAK would be profitable. But, he can’t and that will not ever happen, nor necessarily should it if Congress deems loss-generating routes are a public benefit, as long as Congress pays for them. But, kudos, high fives and congratulations to Anderson and his team for doing a great job at AMTRAK.
Let me set the record straight. Airlines receive NO SUBSIDIES!
Every penny they get to build terminals, run air traffic control, pay for operations, etc. comes from the passengers. Not a bit of public tax money is used. Airlines are profitable, Amtrak is not.
I’m quite a bit late on this, but the people talking about airlines including “subsidies” in their balance sheets are puzzling me. In 2019, Delta made $4.8 billion, United made $3 billion, and American made $1.7 billion. Even if you took out the supposed “subsidies” they’re still profitable by a long shot. And what even are the “subsidies they receive anyways?”