Can Amtrak Ever Make Money?

By Nate Berg

The Freakonomics blog recently invited me and a few other people to share some thoughts on Amtrak – the money-losing, somewhat underutilized national passenger rail system. The question Freakonomics posed is simple: Can Amtrak ever be profitable? Answering it, though, is much more complex.
As the editors note, Amtrak set ridership records in 2011, but still ends up losing about $1 billion annually. Amtrak’s situation was interpreted in the five very different responses as everything from a sign of little concern to outright proof that the service needs to be dramatically changed. I’m posting some excerpts from each of the responders, but I’d recommend reading through all of it to get a flavor for the troubles facing the system and possible solutions to consider.

My own thoughts are fairly brief and mainly operate under the premise that Amtrak should be thought of as a government infrastructure service which, like other public services, shouldn’t have to be profitable. I also argue that increasing urbanization increases the need for and value of this type of infrastructure.

Think of transportation as a line connecting two dots. The economic value of this connection is captured not by the transportation method itself, but by the people and places it connects. The value is in the dots, not the line. But without the line, the two (and in reality many) dots would have trouble sharing and compounding their relative economic powers.

These dots, the mid and endpoints of these transportation corridors, though, are not just single businesses or factories. They are cities, which are increasingly the centers and enablers of economic power. And while it’s true that Amtrak lines aren’t the only ways to get from one city to the next, they can play a valuable role in allowing people and services to travel between these economic centers in as many ways as possible. 

Eric Morris, a transportation scholar at UCLA, argues that Amtrak is losing money because nobody needs it. The extensive subsidies it receives, he argues, are falsely propping up what he sees as a largely unwanted service.

It is true that there are travelers out there who enjoy taking Amtrak. On rare occasions I have been one of them myself. However, society has no interest in paying for benefits—in terms of things like comfort, convenience or time savings—that are enjoyed by travelers. In our market system, which, recent speed bumps aside, is working quite well for us, the traveler himself should pay for the benefits he receives. If government has to step in and pay to produce a product customers won’t pay for, it is a sign that the product isn’t a particularly good one and is destroying wealth and resources that could be more profitably deployed elsewhere. 

Robert Puentes, a senior fellow with the Brookings Institution Metropolitan Policy Program, counters that Amtrak is indeed a wanted and needed service. He argues that its value – and potential to pull in more revenue – lies in cities and intercity routes.

Amtrak’s growth mirrors the rise of America’s largest metropolitan areas, many of which are served quite well by rail. In fact, half of Amtrak’s ridership comes from just five large metros: New York, Washington, Philadelphia, Chicago, and Los Angeles. These places are generally well positioned geographically with good connectivity to other key metros. They are also home to the nation’s largest aviation delays and highway congestion with which travelers in these metros have to contend. Indeed, Amtrak says it has a whopping 62 percent of the air/rail market between New York and Washington, and 47 percent of the market share between Boston and New York.

Stephen Smith, who blogs about urbanism for Forbes, maintains that the key to making Amtrak work is privatization. But, he writes, that would have to be a long process, with major operational and regulatory changes made before the transition.
The first thing that must be done is not even management-related, but rather regulatory: the Federal Railroad Administration’s approach to rail safety must be radically restructured. The FRA can no longer be allowed to lag behind European and Asia regulators, foisting unrealistic and outdated safety mandates on all mainline passenger rolling stock in the US, from Amtrak trains to regional/commuter railroads. Our unique standards for bulk and other more technical aspects of rail car design should have been abandoned half a century ago.
And finally, Yonah Freemark of The Transport Politic blog writes that privatization won’t work and that Amtrak can only survive with government support. He also offers some thoughts on how Amtrak is improving and suggests some ideas to help it function more economically.
The Obama Administration’s investments in intercity rail will bring faster and more dependable Amtrak services to states like Illinois, Michigan, and North Carolina within the next five years. Similar improvements over the past decade have led to dramatic increases in the company’s ridership along such routes as California’s Capitol Corridor and Pennsylvania’s Keystone Line. In addition, the national railway company must invest in increasing its capacity, a step it is already taking with new cars for regional services and its Acela trains on the Northeast Corridor. More room on trains will mean increasing efficiencies of scale, potentially lowering ticket prices for consumers. Finally, Amtrak must make an effort to reduce capital construction and operations costs, both of which are higher than those of similar railway companies overseas.
The problem, clearly, is not solved. But the discussion raised some interesting ideas about how to think about Amtrak’s role in the country and the government’s role in Amtrak. As government spending continues to be a highly political issue, how the government and the public approach the idea of keeping or dramatically altering passenger rail in the U.S. will only become more fraught.
Source http://www.theatlanticcities.com/