Amtrak to spin off NE Corridor?

No, I was thinking of B, or possibly G. However, JoeG is getting closer to the truth - "In the US, no mode of public passenger transportation makes money." Vitally important distinction here. And what's more, this cloaks a lot of underlying complexity.

It's true that, over its existence, the US airline industry has lost money. There are many reasons for the troubles the major airlines are having, but a large reason (if not THE reason) they've continued to lose money all this time, is because the bankruptcy laws allow them to keep trying forever. This is not capitalism at work; it's anti-capitalistic. A more capitalistic regime would give the bankrupt airlines a very limited time to try to get their act together, say six months. If at the end of six months they are not profitable, they are liquidated. If this were the case, the airlines as a whole would indeed have been profitable, because the unsuccessful ones would die, instead of limping along sucking the blood of their slightly more healthy competitors. It is possible to make a profit in the airline industry consistently, over a long period of time, and regardless of economic conditions; Southwest is proof of this. It is not the fault of Southwest that its competitors are incompetently run.

I am not familiar in detail with the rules governing Greyhound, but my understanding is that there is some board somewhat similar to the one the railroads used to have, which prevents bus lines from discontinuing unprofitable services. Obviously this would prevent them from making a profit. This is not necessarily the fault of the bus line, nor is it because of a lack of government subsidy (isn't that your primary argument, that roads are provided by the government?) - it is the fault of incompentent and unrealistic governance.

To recap: It is flatly false that no form of transportation turns a profit; most modes of freight transport do, including railroads. It is similarly false that passenger transport does not ever turn a profit; there are at least some examples in other countries. It is technically accurate that, collectively, no entire passenger-transport industry in the US turns a profit, but this obscures a great deal of detail, which is very revealing when examined.

Is it a wise strategy for the government to regulate an industry to death, and then to attempt to subsidise it back into health? No. It is much better to clean out the excess regulations and excessive taxes, as well as the subsidies. The Globe (for once) might have a point, that providing a consistent revenue stream to Amtrak would be a good idea. I think it would be even better to remove some excess costs and regulations, such as property taxes on railroad equipment, as an "essential service." Whether or not the Feds would do that is a different issue, but they do have the power to.

It is also true that Amtrak management is poor. But that's to be expected. What bright, up-and-coming executive would want to work for Amtrak? There's no money there, no way to succeed except by trying to sweet-talk politicians. To improve Amtrak, it has to be in a situation where its own efforts in running trains, make a significant financial difference to the company, and to the executives. Remember the rule about perverse incentives.

Of course, the government provides tons of money to airlines, but that isn't the only reason the bankrupt airlines avoid liquidation. Even the airlines that didn't get Federal loan guarantees, and then went bankrupt, are still running. Turns out there are lots of sources of financing that want airlines not to liquidate, including plane manufacturers and leasing companies, and airline unions, as well as credit card companies. Maybe these dis-incentives to airline rationalization could be handled by changes to the tax code, but I doubt they will be.

What's needed is a change in the bankruptcy code - six months of Ch. 11, then either you emerge from bankruptcy, or automatic Ch. 7. That would clean out the failed airlines in a hurry.

And again, $$billions have been dumped into airlines, and wasted, but Southwest proves that it's possible to have a reliable, profitable airline.

What's needed is a change in the bankruptcy code - six months of Ch. 11, then either you emerge from bankruptcy, or automatic Ch. 7. That would clean out the failed airlines in a hurry.

The bankruptcy code is not broken. Six months is nowhere near enough time for an airline of any size (or any large company) to reorganize. If this proposal was implemented, chapter 11 would be useful only for prepackaged plans.

Just yesterday, the bankruptcy code sufferred its own assault by the neocon experiement. (Believe it or not, Amtrak is not the only American institution under attack.) I think we've done enough damage to the bankruptcy code for now.

The changes to personal bankruptcy are not a good thing, I agree. But corporate bankruptcy is a totally different matter.

Six months is plenty, because knowing that they only had six months, the executives would have more incentive to do a better job, or the board would have more incentive to replace them earlier. And for sure, they'd be much more reluctant to use that as a way of slashing labor expenses.

Mr Taylor's concept is enticing, particularly since I have both an IRA and a 401K.

I think we need to discuss the how long, though. Six months is a good "sound bite" if you will. I suspect a small group of experts in this area could give us a number that would be finite, a motivator to Boards of Directors, and appealing to both institutional and personal shareholders.

After all, the institutions are watching REFCO go down as we speak.

John Perkowski

krtaylor wrote:I did not say that private enterprise was always more successful than a government operation. I said that it was more efficient. Obviously, a government operation that spends ten times as much has a good chance of having better success.

efficiency comes at a price

you can bet quality will take a drop (even when you think it CANT anymore), employees who have worked the job for sometimes decades and are very competent at what they do will be replaced by temps or part timers who know nothing and there will be a rotating door of labor.

Privatizing things always leads to a drop in quality of service, plus the displaced workers always end up getting the shaft

Take a look at United Airlines. More than 2 years in receivership and they still can't get it right.

Perhaps they are next in line to go the way of Braniff, Eastern and PanAm???????

It's going to be a race between them and Delta.

(Even though Delta just started the process).

John Perkowski

krtaylor wrote:The changes to personal bankruptcy are not a good thing, I agree. But corporate bankruptcy is a totally different matter.

Six months is plenty, because knowing that they only had six months, the executives would have more incentive to do a better job, or the board would have more incentive to replace them earlier. And for sure, they'd be much more reluctant to use that as a way of slashing labor expenses.

Ah, but the creditors. Six months in a complex bankruptcy will likely not afford sufficient time to adequate protect the creditors of the bankrupt. With more time to work out an arrangement, creditors might stand to recoup a larger percentage of their investment.

This is part of the purpose. It's also why the changes in personal bankruptcy law are a bad idea.

Think about the personal bankruptcies. The new law makes it very very hard for most people to have what we think of as a proper bankruptcy, in which your debts disappear. Almost no matter what, you will have to pay off your debts in some way. That being the case, there is NO burden of discipline or wisdom on the part of the lender. They can keep sending people more and more credit card and debt offers, knowing that even if you cannot support the burden of your debt, the law will MAKE you pay. This is a bad situation; there ought to be some risk to the lenders, to make them consider whether and to whom credit should be extended, thus enforcing some degree of discipline on people.

Similarly, since creditors know the airlines will never actually dissolve, they can keep on lending them money. If there was a risk that an airline might just roll over and die, leaving the creditors with nothing (or with their security), then they would exercise more care in who they loan money to. This would again contribute to forcing the management to be better, and helping the healthy at the expense of the weak.

It doesn't help anyone to have the airline industry full of zombies. Far better to kill off some, and let the remainder be healthy.

I am nervous that if this goes thru this will be the final straw for Intercity Rail.

krtaylor wrote:What's needed is a change in the bankruptcy code - six months of Ch. 11, then either you emerge from bankruptcy, or automatic Ch. 7. That would clean out the failed airlines in a hurry.

That has not been proven by history. For example, it took Erie Lackawanna nearly twenty years to completely pay off its debts in full. Unlike many of its contemporaries (e.g. Penn Central and Rock Island) the debts of EL were paid in full- because a sympathetic judge allowed the time to make it happen. The rush to create payments can result in liquidations that are valued at pennies on the dollar. The investors are shortchanged under the latter condition, and (as we've seen) the public can lose valuable service -even if they don't realize it.

krtaylor wrote:And again, $$billions have been dumped into airlines, and wasted, but Southwest proves that it's possible to have a reliable, profitable airline.

And what is the magic formula that allows Southwest, Jet Blue and others to turn a profit? And can this be applied fairly to a mode of transportation that must A. own its own corridors or B. operate on other corridors at the mercy of the owner?

what is the magic formula that allows Southwest, Jet Blue and others to turn a profit?

As my late father (a travel agent for several decades) noted, flying between airports with lower landing fees than the bigger airports closer to the city centers. There are other factors, such as a standardized fleet and tight controls on overhead; but that's the big one. (BTW, I see Southwest has now started serving EWR and LGA, as they now do PHL; not originally though. Capital buildup while evading these airports originally, then as other airlines fall by the wayside, they move in...)

BTW (and I've said this before), bringing up Southwest Airlines in any discussion of Amtrak should be the railroad board's version of Godwin's Law.

I think there's confusion over what the bankruptcy process entails. To emerge from bankruptcy, you do NOT have to have all your debts paid off; far from it. You simply have to have a convincing plan, hopefully with at least a short period of operating profits, that you won't keep losing money forever. It can take any amount of time to finally pay off the debts. Or actually, the way modern businesses are run, I don't think there would ever be a situation where there was NO debt at all.

Basically, what I mean is, 6 months to get into a positive cash-flow situation - by increasing revenues, reducing expenses, perhaps dumping some obligations (cancelling leases and other contracts), and so on. If you cannot straighten out the cash flow inside of 6 months, you probably aren't going to be able to. It's got nothing to do with paying off all debts in 6 months, as you rightly say, that'll never happen.

Southwest and the other airlines do indeed operate on other corridors at the mercy of the owner. I'm not aware that Southwest owns most of the airports at which it operates; it has to negotiate leasing arrangements with the airport authorities.

What's the magic formula that lets Southwest make money? Simple: management that understands they have to EARN money by convincing individual customers, one at a time, to pay money in exchage for a service provided; as opposed to simply BEGGING Big Daddy Government for a handout. Even some other airlines have forgotten this.