Not All Aboard - Amtrak Needs $15B
Amtrak is federally subsidized and to call it’s forecasting capabilities a train wreck (pun intended) would not be an overstatement. The pseudo-company hasn’t made a profit or met its ridership goals in 37 years. And yet they’re asking for more money (to the tune of $15 billion) to replace old locomotives and rail cars with more efficient models.
There is a rule of corporate portfolio management and the organic growth it aids and that is you compare promise vs performance for projects and then give resources to those areas where past results and future opportunities are best. I sincerely doubt that Amtrak’s past projects have done very well, and so it’s fair to assume that this time is not going to be different. From a federal resource allocation perspective, there are probably better places to place bets.
Tags: amtrak, Corporate Portfolio Management, forecast, organic growth, railroad, trainwreck
August 8th, 2008 at 2:51 pm
Amtrak hasn’t made a profit in 37 years? Why does that matter when no railroad made a profit on passenger service over the previous one hundred years? You may not have realized it, but even in the halcyon days of World War II, railroads made their money on freight, and internally subsidized passenger travel. (Individual trains could make money, such as the luxury streamliners, but you couldn’t just drop the other trains and say you make a profit — the other trains allow you to amortize the cost of the track, and if you eliminate them, then suddenly your profitable trains become unprofitable.)
All the European railroads are subsidized, to a much larger extent than Amtrak is. The difference is, they’re dishonest enough to hide the subsidies. Amtrak puts their subsidies up front, and people start attacking them for their inefficiency.
See table at: http://www.amtrakoig.com/reports/E-08-02-042208.PDF
Facts can be so inconvenient.
August 8th, 2008 at 3:14 pm
Tom,
Thanks for your comment. I appreciate the viewpoint, but what I was stating was a fact. Amtrak hasn’t made a profit in 37 years. And in no way can an argument be made that this is a good thing. People ‘attacking’ (or rather questioning) Amtrak is justified because it is their money that goes into these massive capex projects and so like a shareholder in a corporation, they have the right to hold folks accountable.
With reference to your point that no other railroad has made a profit on passenger service for 100 years is an irrelevant benchmark - akin to picking the tallest midget. Organizations cannot run in the red constantly without eventual deleterious impacts, e.g., witness the US government and its fiscal predicament. While I would posit that there are strategic non-financial reasons to have a robust rail or air or road network, emotion and decibel-based arguments pointing to Europe that say “Look, they’re as screwed up as we are” shouldn’t be a rationale for justifying increased investment. By this same logic, Southwest Airlines would be content to lose money like all the rest of their airline brethren because they are the benchmark. That would be a cop out.
Ultimately, the government (or any organization) has finite funding and this a resource allocation decision. Projects which deliver strategic and financial benefits and which are proposed by those with a track record for success should be given priority over those that haven’t. Unfortunately, Amtrak doesn’t seem to have as much ground to stand on based on 37 years of history.
Thanks again for your comment.
Regards,
Anand