EXECUTIVE SUMMARY

URPA Strategic Vision and Plan for Amtrak

Updated November, 2001

Prepared by
UNITED RAIL PASSENGER ALLIANCE
3733 University Boulevard West, Suite 135
Jacksonville, Florida 32217

Telephone: (904) 636-6760 Facsimile: (904) 636-8966

1. 30 years of consistent experience proves conclusively that the "Field of Dreams" approach to intercity rail passenger service (RPS) does not work, including "high speed rail" (HSR).
   • Amtrak is NOT short of capital: it has used $25 billion in free public capital since 1971 ($50+ billion in constant 2001 dollars), $5 billion in just the last four years, but has very little to show for it:
     • modest increase in transactions and output; but declining market share (air travel has grown 400% in same period)
     • $12 billion (and growing) in deferred maintenance in NEC; no investment at all in other potential HSR corridors
     • constant half a billion dollars annual operating loss
     • capital starvation everywhere except Northeast Corridor (NEC) (which has received approximately 90% of the $25 billion in capital)
   • Amtrak merely has invested its capital poorly; "Acela" HSR service has failed to capture traffic from air
     • train 2180 (non-stop express perfectly positioned to compete with DC - NY air shuttles) failed, spring '01
     • no significant gain in HSR ridership despite complete grounding of air shuttles after September 11, 2001
     • NEC total ridership and output largely unchanged in '01 vs. '00; no significant growth in NEC output in 40 years
   • By contrast, incremental service enhancement in California corridors produced significant gains in transactions and output in markets with no air competition but significant dependence on motor vehicles
   • No evidence exists of cross-elasticity of demand between air and rail in 200 - 300 mile U.S. markets at any velocity; but substantial evidence exists that RPS can draw growth from motor vehicle markets
   • National system interregional trains' load factors are double those of the short distance corridors, and their output (revenue passenger miles) dwarfs that of the short distance corridors, even the NEC; average trip lengths far exceed "corridor" distances; long distance trains produce huge revenues from single daily trains
   • Mail and express business still losing money in large amounts; no sign of imminent turnaround
2. NRPC (National Rail Passenger Corporation, "Amtrak") capital assets are misallocated (measured by demonstrated demand and output) because heaviest concentration of resources has lowest load factors, and highest load factor services have the least resources:
   • Corridor services are over-equipped relative to actual demand
     • NEC, and other short-distance, corridor load factors = 20 – 40%
     • half of all NEC ridership is merely New York - Philadelphia local (90 mile) traffic
   • Interregional services are underserved relative to demand and network potential
     • interregional service load factors = 50 – 70% (70% = functionally full)
     • interregional service fleet assets have fallen below minimum daily consist requirements even for the skeletal route system operated
     • interregional services as now operated do not network effectively, defeating interroute usage and therefore severely limiting interregional patronage; key segments/connections are missing, or deliberately broken
     • interregional services on time performance (40 – 60%) is unmarketable
     • interregional services include two less-than-daily routes, and all but one = only 1 service/day each way
     • several of America's largest cities have no service (Phoenix, Las Vegas), others have service only at unmarketable times (Salt Lake City, Omaha)
     • major routes are unserved altogether (Texas - Colorado; Chicago - Florida)
   • Assets (human, physical, capital) are imbalanced to other-than-revenue-producing functions and uses
   • NRPC employs 2,600 "management" employees + 24,000 agreement employees, yet transportation output/labor hour is less than Greyhound's
3. NRPC strategies and capital allocations produce its financial results. NRPC's results do not come about despite the strategies and capital allocations. NRPC'S HSR corridors product negative financial return on investment.
   • Ordinary business logic applied to 30 years of totally consistent results proves conclusively that results occur because of NRPC's strategy and investments of obsessive focus on high density short distance corridors, not despite them
   • More than 90% of NRPC's $50+ billion in cost-free capital has been invested in the NEC, with the results we see.
   • Financial returns on capital invested into NEC assets and operations, measured by Generally Accepted Accounting Principles (GAAP), have been negative
4. Different strategies and asset allocations will produce different – and superior – financial results and higher social utility (measured, respectively, by GAAP and by transportation output).
   • Empirical experience (Palmetto extension; Portland Section of Empire Builder; Sunset Limited extension to Orlando) and theoretical models (Southwest Transcontinental Corridor model; Albany hub model) show that prudent, and modest, investment in interregional services produces significant, disproportionate, growth in transactions, output and revenues
   • Increased ridership, output and revenues are also available from prudent investment in moderate-speed (i.e., 110 to 125 mph, auto-competitive) networked 100 - 400 mile corridors: San Diego - Santa Barbara - San Luis Obispo; San Jose - Sacramento - Roseville; Oakland - Bakersfield; New York - Albany - Buffalo; Vancouver - Seattle - Portland - Eugene; Chicago - St. Louis
   • Current intercity output = 1.5x NEC's, despite disparate capital support, revenue allocation and management attention
5. Significantly improved financial results and social utility can be achieved at constant, or declining, not increased, rates of public support.
   • Proportional redirection of NRPC capital to high growth, high return markets does not require any increase in public subsidy
   • After network development occurs, all operating subsidy (except in NEC), will abate (3 - 5 years); but substantial capital subsidy to develop rail industry infrastructure is necessary; NEC's capital needs exceed $1 billion/year for the indefinite future just to sustain the status quo - true growth in NEC output would require another $50 billion or more over 10 years
6. A better-balanced strategy of deployment of capital and assets will produce substantial growth in output, employment, utility and financial results of operations.
   • Empirical experience + theoretical models show that tripling of output (hence revenues) is possible in interregional markets with slightly additive increases in operating cost, given adequate lift/carrying capacity, without substantial capital subsidy
   • Most incremental traffic in interregional markets based on sunk fixed costs is inherently marginally profitable on operations because of multiplier effect of distance
   • All necessary fleet assets to create growth (of proven, consistent, competitive, off-the-shelf designs) can be self-financed from willing private sector sources
   • Growth in output will drive increases in line employment of approximately 10,000 jobs
   • NEC markets are underserved by overdeployment of assets in Washington - New York - Boston spine market, underserving the matrix of market opportunities in the Northeast; substantial growth is possible even in the NEC by developing a larger regional network of services, rather than simply a point-to-point para-transit service on a single route
7. New strategic relationships must, and can, be negotiated with rail labor, host railroads, state and local agencies, and travel service providers and destinations.
   • Rail labor must be offered:
     • active participation in and responsibility for business process decision-making
     • significant growth in employment
     • significant enhancement of quality of work experience
     • continuous training, and opportunity to innovate and grow
     • enhanced personal responsibility for customer experience
     • access to eventual equity in NRPC
   • Host railroads must be offered:
     • increased compensation commensurate with the value of the use of their facilities, structured as growth-based incentives
     • indemnity against passenger-related liability
     • participation in the planning, application, and benefit of public investment in RPS infrastructure
     • professional, competent and disciplined rail passenger operations that do not interfere with rail freight operations
     • strategic business partnership relationship
   • State and local agencies must be offered:
     • incremental cost-based contracts to operate intercity RPS sought by local agencies
     • seamless interchange of traffic and information
     • joint planning and execution through joint venture relationships
   • Other passenger transport providers and destinations must be offered:
     • joint venture planning and execution of promotions and operations; open cooperation
     • seamless interchange of traffic and information
8. An entirely new Board of Directors and executive leadership is indispensable to achieving meaningful improvement in RPS financial and operational results.
   • Board must be comprised of experienced consumer-service business executives, plus state governor and labor representative
   • Entirely different executive management team drawn from customer service-related businesses (cruise lines, resorts, restaurant and hotel chains, incentive travel, and franchise companies)
9. In the foreseeable future (3 - 5 years) substantial public-sector investment in RPS infrastructure (including host railroad plant and systems) will become necessary to sustain growth in RPS.
   • Enact the Young Bill (HR 2950)
10. Public investment should not be made in RPS which in any way threatens the financial health of America's private, tax-paying, air carriers. Rather, public investment in RPS should be directed to establishing RPS as a viable option or choice available to travelers. The marketplace should be allowed to allocate consumer preference among modes. Growth should be targeted to motor vehicle users.
    • Stated goal (per HR 2950): infrastructure to sustain 125 mph operations, with multiple daily frequencies, in corridors up to 450 miles; 90 - 100 mph and double-daily frequencies in interregional markets, all networked into a fully-integrated national matrix of interconnecting services, with franchised motor carrier feeder services to off-line markets; tailor capacity to meet anticipated, demonstrable demand; operate no route with less than 50% load factor
11. Federal public policy as it relates to RPS should restore the manifest benefits of competition to the marketplace for RPS.
    • Anticipate probability of AT&T-model break-up after five to eight years into autonomous regional corridor networks (e.g., NEC; northern California; Texas) and one interregional services operator, with 5-year standstill, then open competition among them
12. The direction, and financial and operational results, of NRPC can be changed within six months through an intense, selective, focused series of operational changes and reforms in ways that demonstrate and presage the different results available from a different strategy and resource allocation.
    • See Appendix, "First 180 Days"