North Carolina NCDOT-Amtrak Carolinian Service

Oops, you're right: OPEBs are in a separate column. I missed that.

I see that interest and some other items are factored in on a nationwide basis in the chart at the bottom of the route-by-route page, but I'm still not seeing where a capital charge is factored in on a route-by-route basis.

I'm also not seeing that state revenues are excluded on a route-by-route basis.

So Amtrak's accounting still seems like the general idea is "let's include all revenues as we can, even from states, but let's exclude as many costs as we can". That wouldn't cut it in the private sector--surely GAAP has rules about transportation accounting--but if it allows Amtrak to claim that it's "profitable" on some routes, all the better.

Separately, both the Acela and Northeast Regional trains are shown as "profitable". OK, if both are profitable, then why does the Northeast Corridor need a cent of investment from other sources? (Hmmm, maybe those trains are "profitable" because Amtrak excludes the enormous capital costs involved in running them!)

SouthernRailway wrote:Separately, both the Acela and Northeast Regional trains are shown as "profitable". OK, if both are profitable, then why does the Northeast Corridor need a cent of investment from other sources? (Hmmm, maybe those trains are "profitable" because Amtrak excludes the enormous capital costs involved in running them!)

The costs of the rails are a tough problem. Where Amtrak "rents" the rails from the freight RRs it is fair to say that whatever the allocated cost of the rails are (as charged the the freight railroads) Amtrak pays for its rails.

On the NEC Most of Amtrak's accounting is "above the rails" which is believed by some to be analogous to how AIrlines don't really pay for their airports (or that PFCs pay for them separately) or their runways, or their ATC.

When a train is "profitable" that means that it covers its operating costs. This does not include capital investment needed to maintain the right-of-way. This is true with fixed-guideway transit aroudn the world. Many trains can cover their operating costs but the infrastructure costs are huge. Britain has figured this out by, much like the U.S. interstate highway system, maintaining a public railway network and contracting out actual operating services to private companies. In America we have the exact opposite case in most situations, a private railway network and a public operating company, which makes little economic sense.

The capital cost calculation is even more complicated for the Carolinian since its Charlotte to Selma run is on tracks owned by the NC RR (a quasi-public agency). NS leases these tracks and is responsible for maintaining them during its lease term -- however the lease allows for unlimited passenger traffic, as long as it does not interfere with freight. Given the nature of the NS lease agreement, the tracks west of Selma are free of capital expense to the Carolinian. (I am neither a lawyer nor an accountant so take this perspective for what it is worth).

Amtrak's accounting is warped. "Profit" to it means "operating profit", excluding fixed costs and other large expenses. That's not the same thing as "profit" usually means. I'd want to know what part of Amtrak's total costs were covered by fares, food & beverage revenues, fees, etc. from passengers, since that would show how viable Amtrak really is if the government plug were pulled.

I'm not an accountant, but I am a corporate lawyer and deal with balance sheets and statements of cash flows all the time. No business could continue if its products and other revenue sources made enough to cover the marginal costs of producing them, but not the total capital costs, which is what Amtrak's "profitable" trains do. Eventually the business would go under.

It's also somewhat misleading for Amtrak to include state subsidies in "revenues". I recall a few years ago the NYC transit system did the same for the NYC subway. There was a boom in tax collections dedicated to the MTA, and so the MTA was running a "surplus". But it turned out that the NYC subway at least still earned only about 1/2 of its total costs from fares, and tax revenues covered most of the rest. Profitable? Only by government entity standards.

SouthernRailway wrote:I'm not an accountant, but I am a corporate lawyer and deal with balance sheets and statements of cash flows all the time. No business could continue if its products and other revenue sources made enough to cover the marginal costs of producing them, but not the total capital costs, which is what Amtrak's "profitable" trains do. Eventually the business would go under.

In some ways the freight railroads are no different, except for a difference of timing: *their* rights of way were acquired and first built out by companies that then went bankrupt and all *that* capital investment was never paid back either.

I recall as recently as the mid-1990s that the head of the then-Santa Fe railroad saying that his railroads annual profits were only possible because the capital investment to acquire and lay his rails had been written off in a combo of bankruptcies and ongoing disinvestment/divestiture (eg. when the SF sold off/spun out its California landholdings)

Everywhere, there are folks who put money into railroad ROW and MOW who never got paid back, but upon whose rails the freight railroads today return their ongoing capital costs (tie replacement, signal upgrades, and CWR laying) but not their true costs (ie not producing a reasonable return on their land, the same way that farming can't really pay for the land it uses).

So Amtrak's accounting isn't so different, except that it happens in "real time"

The only similarities I see on this topic between freight RRs and Amtrak is that both have earned less than the cost of capital. (For example, if a dollar invested somewhere could earn 5%, and borrowing money to build infrastructure costs 5%, but a railroad's profits are 2% on its invested dollars, then it's profitable but below the cost of capital.) Freight RRs have fallen below that threshold in some years, and Amtrak has always been below it.

Freight RRs, however, would use GAAP accounting, and they make "profits", meaning that total revenues are greater than total costs (including the costs of building and maintaining rights-of-way). Amtrak, however, seems to use sham accounting methods to create "profits", which are really "operating profits", while its trains in fact lose money.

SouthernRailway wrote:The only similarities I see on this topic between freight RRs and Amtrak is that both have earned less than the cost of capital. (For example, if a dollar invested somewhere could earn 5%, and borrowing money to build infrastructure costs 5%, but a railroad's profits are 2% on its invested dollars, then it's profitable but below the cost of capital.) Freight RRs have fallen below that threshold in some years, and Amtrak has always been below it.

Freight RRs, however, would use GAAP accounting, and they make "profits", meaning that total revenues are greater than total costs (including the costs of building and maintaining rights-of-way). Amtrak, however, seems to use sham accounting methods to create "profits", which are really "operating profits", while its trains in fact lose money.

Freight RRs don't amass capital the same way as Amtrak. Freight RRs sell shares of their stock to amass capital. Investors buying the shares expect dividends in return and can always sell the stock to get their initial investment back quicker.
Amtrak has never paid one penny in dividends, nor repaid one penny back to the US Government any funds (capital or operating) the taxpayers have sent its way.

1) This thread is about the Carolinian. It isn't about GAAP--both because GAAP is silent on the question of network accounting and because it is wrong to say that Amtrak does not use GAAP: its accountant affirms Amtraks use of GAAP for all relevant purposes (see auditor's statement here: http://www.amtrak.com/ccurl/46/94/Amtra ... 202011.pdf ) However route-accounting is not one of GAAPs relevant purposes.

2) This thread is about the Carolinian--a route that can be separately evaluated financially. Transportation network accounting of routes-vs-system and fixed/capital-vs-variable/operating is always hard (even at the best private companies), and rarely done in public (which is why GAAP is silent on it, see above). Airlines and Railroads both struggle with how to allocate costs and revenues between a route (like a hub spoke) and "the network." (typically, spokes/routes appear to have negative profits and hubs/systems appear profitable). PRIIA mandates that Amtrak come up with a better, uniform, publicly-disclosed system to allocate costs and revenues. The more we see, the better the Carolinian looks.

3) This thread is about the Carolinian. It shows a positive contribution margin when separately evaluated financially. Thanks to PRIIA and the ongoing overhaul of its Amtrak route-accouting, it is becoming clearer where Amtrak's winners are (Acela, NEC, Virginia, and the Carolinian, by a hair) and where its losers are.

4) This thread is about Railroad capital formation only as pertains to the Carolinian. As a route with a positive contribution margin, the Carolinian should have more capital steered toward it, especially as capital steered away (rollling stock, in contrast to track, is particularly steerable from Amtrak's negative contribution margin losers. However, like *all* railroad (and airline) capital formation *everywhere* (including Freight RRs) the Carolinian has and will be funded with a mix of assets from bankrupt predecessors, assets that do not pay for their costs of capital, and outright government gifts and grants (like the Freights original land grants...and that they've never been asked to produce a return on).

One on-topic question remaining is whether the Carolinian's positive contribution margin comes *after* a payment from North Carolina (for Amtrak Virginia, it does not, but for contributions-per-seat-mile near zero, like the Ethan Allen Express, it may). Stepping back and looking at the route analysis on p48, your takeaway should not be that Amtrak's accouting is messed up, nor that the Carolinian is or isn't subsidized, but that there are many, many other Amtrak routes that are much bigger losers that should get *disinvested* and those assets should get steered toward the winners--even the state-subsidized winners. For-profit RRs and Airlines chase subsidies too. Start trimming routes from the bottom and start investing in the routes at the top. It will cut Amtrak's losses and move it closer to a more-commercial, more-sustainable financial footing. Some routes, even though contribution-margin losers, can't be trimmed because they are essentially revenue-equipment-moves (and therefore "support" the system in this way).

Still, the positive-contribution margin of Carolinian says it is unlikely to be cut, congratulations are in order, and future growth/investment should be considered.

Arlington wrote:However, like *all* railroad (and airline) capital formation *everywhere* (including Freight RRs) the Carolinian has and will be funded with a mix of assets from bankrupt predecessors, assets that do not pay for their costs of capital, and outright government gifts and grants (like the Freights original land grants...and that they've never been asked to produce a return on).

One on-topic question remaining is whether the Carolinian's positive contribution margin comes *after* a payment from North Carolina (for Amtrak Virginia, it does not, but for contributions-per-seat-mile near zero, like the Ethan Allen Express, it may). Stepping back and looking at the route analysis on p48, your takeaway should not be that Amtrak's accouting is messed up,

Four points:

1. Sorry, I caused this thread to stray. Back on topic.
2. Freight RRs WERE asked for many, many things in exchange for their original land grants. For example, those RRs were required to give discounted rates to government. Stockholders also demanded returns on railroads beginning with their original construction phases.
3. Whether or not the Carolinian's "profit" comes before or after a payment from NC is the key question to me. The key question to me is to what extent Amtrak routes can support themselves, without government payments. The ones that can should be looked to for lessons in how to run the rest of the system, and for additional growth.
4. Amtrak's accounting, treating routes that earn "profits" due to state subsidies, is messed up in that it provides misleading evidence of profitability. To the contrary of your assertion, GAAP most certainly does have rules regarding allocation of capital costs and depreciation, including in the transportation business, and Amtrak should follow them in ALL of its public reports--not just its audited financial statements. See http://www.ehow.com/info_8647007_gaap-a ... costs.html

If all Amtrak did was chase routes that had fat state subsidies and guaranteed profits, it would chase routes like the Carolinian and you'd be able to privatize it, the same way that many for-profit airlines get fat all day long on Essential Air Service payments, or heck, the Scooter Store selling electric wheelchairs to Medicare/Medicaid beneficiaries. The little Ron Paul in each of us may not like it, but it is pervasive and a sustainable way of doing business (especially compared to the insanity of offering service in places *without* state subsidies)

Amtrak's performance reports never show the actual ticket revenues and operating costs on the same page; the numbers you are looking at show a profit AFTER the money paid by NC.

For the Carolinian, the ticket revenues were $18.6 million and the fully allocated operating costs (including OPEB) come to $20.7 million. This is about 90% recovery from ticket revenue which is not bad, given the fact that the Carolinian is not very fast, prone to delay, and is never longer than five coaches plus a cafe. To me a 10% subsidy is not an especially "fat" one, and the gap might be closeable, with nothing more than the capital projects that are already underway.

Since the Carolinian sometimes sells out, it would seem that adding cars would be a no brainer, but the length of the train is supposedly limited by the layover siding in Charlotte. A new maintenance yard in Charlotte that can accommodate longer trains was funded by ARRA but won't be ready for a few years. A new/better station in Raleigh (funded) and Charlotte (unfunded), more double track on the NCRR (funded), new crossovers on the CSX A-line in NC (funded), and the triple track project in Quantico, VA (Also funded) will all contribute to the experience of riding the train and result in better ridership.

But more than anything I would take this 90% cost recovery as proof positive that a higher speed rail route in this corridor would absolutely be profitable. The corridor is now just a few months away from getting the federal thumbs up for construction from a planning and environmental standpoint, but funding is another matter of course.

orulz wrote:Amtrak's performance reports never show the actual ticket revenues and operating costs on the same page; the numbers you are looking at show a profit AFTER the money paid by NC.

For the Carolinian, the ticket revenues were $18.6 million and the fully allocated operating costs (including OPEB) come to $20.7 million. This is about 90% recovery from ticket revenue which is not bad, given the fact that the Carolinian is not very fast, prone to delay, and is never longer than five coaches plus a cafe. To me a 10% subsidy is not an especially "fat" one, and the gap might be closeable, with nothing more than the capital projects that are already underway.

In addition to ticket revenues, there's also food and beverage revenue. A reasonable guess would be 5% of the ticket revenues or about $1 million. That means the cost recovery is around 95%.

jstolberg wrote:

orulz wrote:Amtrak's performance reports never show the actual ticket revenues and operating costs on the same page; the numbers you are looking at show a profit AFTER the money paid by NC.

For the Carolinian, the ticket revenues were $18.6 million and the fully allocated operating costs (including OPEB) come to $20.7 million. This is about 90% recovery from ticket revenue which is not bad, given the fact that the Carolinian is not very fast, prone to delay, and is never longer than five coaches plus a cafe. To me a 10% subsidy is not an especially "fat" one, and the gap might be closeable, with nothing more than the capital projects that are already underway.

In addition to ticket revenues, there's also food and beverage revenue. A reasonable guess would be 5% of the ticket revenues or about $1 million. That means the cost recovery is around 95%.

From Sept Performance Report:

$18.7m Ticket Revs (budget was 19.5) (from p.22)
$21.5m Total Revs (can't tell how much is Food/Bev and how much is State of NC) (from p.48)
$20.2m Costs excluding OPEBs and Capital
$20.7m Costs including OPEB but not Capital
+ 0.8m (contribution before capital charge)

OK, so I'm seeing that if you don't count the capital costs of buying and maintaining the train cars, locomotives, or other infrastructure (or depreciation), and if you count government subsidies, then the Carolinian makes a profit.

That's not profit in the real world. All that shows is that since Amtrak already bought the equipment and pays for infrastructure, and since NC chips in for the trains, it's helpful for Amtrak's finances to run the train.