Turn ownership and governance of Amtrak over to private RRs?

SouthernRailway wrote:The incentive will be for Amtrak to be run in a way that minimizes losses...

I don't want to be rude or anything, but don't you think this is already being done? I'm pretty sure Amtrak wants to operate in a manner which minimizes losses.

Calls for Amtrak to be operated "more efficiently" are frequent, but nuts-and-bolts examples on how this should happen would make for a more convincing argument.

SouthernRailway wrote:Accountability.

A board of directors is accountable to stockholders. Now, the board is accountable to the Federal government, which controls the stock that appoints the board. The incentive now is for the board to run Amtrak in a politically-acceptable way, as the Federal government wants.

Under my proposal, the board will be accountable to Amtrak's private owners instead (subject to limitations that the Federal government may impose, though). The private owners will have financial incentives if Amtrak loses less money than it does now. The incentive will be for Amtrak to be run in a way that minimizes losses (subject to requirements for providing acceptable levels of service, etc.). So Amtrak will be pushed to run more efficiently.

To repeat, however: This is not turning over trains to private operators, or ending subsidies or cutting trains; Amtrak would stay as an independent company as it currently is; it'd continue to run the trains that it does; and it would continue to receive significant government subsidies.

Why do you advocate placing Amtrak largely in the hands of American Premier Underwriters, the majority common stock holder, which (as Penn Central) singlehandedly ruined three railroad companies and led directly to the downfall of nearly a dozen more? If anything, it seems more cost-effective and useful to the American public to effect a total buyout of NRPC by the Department of Transportation. At that point, pay the railroads something more like $3 or even $30 a share, rather than giving them a theoretical but useless hand in a not-really private corporation.

mtuandrew wrote:

SouthernRailway wrote:Accountability.

A board of directors is accountable to stockholders. Now, the board is accountable to the Federal government, which controls the stock that appoints the board. The incentive now is for the board to run Amtrak in a politically-acceptable way, as the Federal government wants.

Under my proposal, the board will be accountable to Amtrak's private owners instead (subject to limitations that the Federal government may impose, though). The private owners will have financial incentives if Amtrak loses less money than it does now. The incentive will be for Amtrak to be run in a way that minimizes losses (subject to requirements for providing acceptable levels of service, etc.). So Amtrak will be pushed to run more efficiently.

To repeat, however: This is not turning over trains to private operators, or ending subsidies or cutting trains; Amtrak would stay as an independent company as it currently is; it'd continue to run the trains that it does; and it would continue to receive significant government subsidies.

Why do you advocate placing Amtrak largely in the hands of American Premier Underwriters, the majority common stock holder, which (as Penn Central) singlehandedly ruined three railroad companies and led directly to the downfall of nearly a dozen more? If anything, it seems more cost-effective and useful to the American public to effect a total buyout of NRPC by the Department of Transportation. At that point, pay the railroads something more like $3 or even $30 a share, rather than giving them a theoretical but useless hand in a not-really private corporation.

Yea, i think the "oh we are doing it on the freight roads' behalf" mentality needs to be tossed out the window, and have it be looked at as a government funded, government run, public service. Might help morale a bit too, who knows. That's just my peon perspective on it...

JoeG wrote:There are about 9 million Amtrak shares. There was some notion that Amtrak would eventually have to redeem them. Amtrak did eventually offer 3 cents each, which would have valued Amtrak at about $300K.

Wow, and I thought my 100 million share $3million guess was too little for the railroads to gobble. And you're even rounding up from $270,000.

byte wrote: I don't want to be rude or anything, but don't you think this is already being done? I'm pretty sure Amtrak wants to operate in a manner which minimizes losses.

Calls for Amtrak to be operated "more efficiently" are frequent, but nuts-and-bolts examples on how this should happen would make for a more convincing argument.

I'm sure Amtrak wants to be efficient, just as politicians want to be honest, but I believe, and I'm pretty sure most folks who believe in capitalism also believe, public agencies tend not to be as economically efficient as private enterprise. But we also have to beware since there are many opinions about what's efficient, which is why you and I like real examples instead of vague promises.

mtuandrew wrote:Why do you advocate placing Amtrak largely in the hands of American Premier Underwriters, the majority common stock holder, which (as Penn Central) singlehandedly ruined three railroad companies and led directly to the downfall of nearly a dozen more?

I think 'singlehandedly' is pretty extreme. Pennsy and New York Central had troubles before the merger, and there's no way I'm gonna let you blame Penn Central for New Haven's bankruptcy.
http://www.nhrhta.org/htdocs/history.htm" onclick="window.open(this.href);return false;

Expensive hurricane and flood damage during 1954 and 1955, competition from government subsidized highways and airlines, high rates of taxation, enormous commuter service losses, and the out-migration of heavy industry from New England to the south and west caused the New Haven Railroad to go bankrupt again in 1961. After a decade of struggling along under trustees Richard Smith, William Kirk, and Harry Dorrigan, the New Haven Railroad was absorbed by the ill-fated Penn Central Transportation Company on January 1st, 1969.

Is this a proposal to GIVE them the preferred stock? If the common stock's $270,000, how much should they pay to BUY the preferred stock?

SouthernRailway wrote:If private railroads want nothing to do with this, they could sell their shares to other transportation companies- say, United and Delta or even European railroads.

Why should the government restrict selling the preferred stock to just the 1971 railroads' current survivors? Why not just make it publicly traded stock?

Patrick Boylan wrote: Why should the government restrict selling the preferred stock to just the 1971 railroads' current survivors? Why not just make it publicly traded stock?

That's a good idea. I'll go for that.

JoeG wrote:I have 2 more problems with your idea, Mr Southern. First, if Amtrak actually would be in the black with your hypothetically more efficient operation, then the stockholders could be rewarded with dividends.But you admit that this will never happen. The best you could hope for is a deficit reduction. So what then, Amtrak would say to the Feds and the states, "Our deficit is less, but we expect you to pay subsidies at your old rate so we can pay dividends?" This is magical thinking.

Some UK passenger operators, some commuter railroads that have private operators under contract in the US and plenty of contracted-out government services operate as I propose, with incentive payments for cutting losses. Since plenty of other entities do as I propose, why is it "magical thinking"?

JoeG wrote:Second, suppose your newly-empowered owners decide to make operational changes. Let's face it, allowing passengers to order food with their iphones isn't gonna change the bottom line much. So what you would undoubtedly want to do is change work rules and lower wages. Any other changes the owners might make would have fairly minimal effects. Of course, the unionized employees would refuse. Now what? Unilaterally reduce wages? Have a long strike? There goes US passenger service, right down the drain.

There are plenty of examples of industries restructuring as lower-cost operations. I'd be happy if Amtrak's losses fell by even 10%.

SouthernRailway wrote:The choice offered to freight railroads in 1971 was "run your own trains and lose your shirt, or let the government take over".

Mr. Southern, under RPSA 70, roads declining an offer to join Amtrak would have been required to operate their trains until 1976, at which time they would have been free to petition the Interstate Commerce Commission to discontinue them. The trains would have come off as ever since 1967, the ICC was not standing in the way of the inevitable. Yes, there would still have been the 'City of Everywhere' operating over the Overland Route and there would likely been more route and train miles operated than there were on A-Day, but I would not have been too optimistic with regards to the quality of the service offered, let alone their duration.

The environment in a post-May 1 world would have been "every man for himself". The Seaboard, with their reported
'cookie jar profit" would have been content to operate until the equipment wore out or the tracks were needed to handle additional freight traffic, would have been at the mercy of the RF&P. Somehow, I don't think SCL trains would have continued as moneymakers if they terminated at Richmond.

With the Penn Central already a ward of the State, some kind of passenger service would have continued over their Corridor, but I'll bet there would have been no Acelas, no East End electrification, and likely only feeder service NH-Boston.

Amtrak was to have provided for the orderly discontinuance of the long distance passenger train, for that is how it was sold to the industry. For example, trains over the RF&P would not have been discontinued before those over the SCL. Reviewing the Carter Cuts in which the Floridian and the National Limited were killed, showed how the discontinuances were going to proceed in an orderly manner.

No one envisioned on A-Day that forty years later, there would have been any LD trains.

Mr. Norman, yes, you're correct and I agree with your post.

I just still think that Amtrak's future is certainly not assured, and by ensuring that everything is done to run it as efficiently as possible and keep losses to a minimum, it'll help the railroad survive and prosper, which is what we all want. By involving the private sector more in passenger rail, as many countries have successfully done, we can remove ammunition from the John Micas and John McCains of the world.

Southern, I can't imagine that any efficiencies that would be wrought by your plan would not ultimately result in a reduction in the level of service and comfort afforded to all Amtrak passengers, effectively reducing all services across the board to a level consistent with corridor (if not commuter) trains. Therefore, you're effectively arguing against your earlier position in the Crescent thread. If there are efficiencies to be found without affecting service, then management needs to be properly incentivized to find and achieve them.

Personally, I'm on the "just admit it's a market failing that will never make money; neither does the USDA so so what?" bandwagon.

markhb wrote:Southern, I can't imagine that any efficiencies that would be wrought by your plan would not ultimately result in a reduction in the level of service and comfort afforded to all Amtrak passengers, effectively reducing all services across the board to a level consistent with corridor (if not commuter) trains. Therefore, you're effectively arguing against your earlier position in the Crescent thread. If there are efficiencies to be found without affecting service, then management needs to be properly incentivized to find and achieve them.

Personally, I'm on the "just admit it's a market failing that will never make money; neither does the USDA so so what?" bandwagon.

I'd think, to the contrary, that changes to the following wasteful practices would save money and allow more money to be invested in revenue-enhancing passenger comfort enhancements:

1. Inefficient work practices

"Amtrak also backed off of sweeping demands to change work rules, including contracting out more work and giving the railroad more leeway over terminations and overtime."

"Amtrak officials have argued that part of their financial problems are related to the number of unions, many of which duplicate functions. For example, the officials say three different unions are responsible for repairing air conditioners."

Source http://www.washingtonpost.com/wp-dyn/co ... 03437.html" onclick="window.open(this.href);return false;

2. Failure to have a functioning and experienced board

Amtrak's board members are appointed for political reasons, generally. Amazingly, some of Amtrak's recent board members "have never been on an Amtrak train" and "didn't know what an Acela was". The board's job is to set company policy and give management its marching orders. Just how effective would advice from such a board be?

Conversely, I regularly attend board meetings for my job and am a member of one advisory board. In all of those meetings, members are experienced people in the industry and regularly challenge and question management, and challenges and questions come from experience in the industry and the desire to have the company be more efficient. (Not all private-sector boards are good, but they're almost always better than Amtrak's.)

Source: http://www.washingtonpost.com/wp-dyn/co ... 01703.html" onclick="window.open(this.href);return false;

3. Not effectively using technology to the same extent that other modes of transportation use it- for example:

* Why aren't all trains equipped with Wi-Fi (which can be sold to passengers for a fee if needed in order to increase profits), unlike planes? US Airways has most, if not all, of its planes with Wi-Fi.

* The Viewliners used to have TV screens in them. I understand that they were taken out because Amtrak thought that passengers would have laptops with plenty of video options in them. Why doesn't Amtrak use those screens for taking customer dinner orders instead of sending a crew of 3 people around to each room? Why doesn't Amtrak provide premium video content on them, for a fee?

4. Not using fee-for-service options to the extent airlines do:

* ClubAcelas have zero revenues. While it's good to let passengers in certain classes of service have free access (which airlines do), why not sell ClubAcela memberships to anyone who wouldn't otherwise have access- either on an annual basis or per-visit? Why not contract out ClubAcelas to United Airlines, which runs a much larger network of lounges? ClubAcelas could lose less money or maybe even show a profit, as airline ones do.

* US Airways sells all sorts of comforts for a fee, such as priority boarding. Why doesn't Amtrak sell priority boarding to coach passengers at large stations for a few bucks? I don't take Southwest, but I understand that even it does that.

4. No-bid or one-bid contracts

"Passenger Trains > Amtrak cancels additional Acela coaches

--------------------------------------------------------------------------------
Date: 12/05/12 07:54
Amtrak cancels additional Acela coaches
Author: GenePoon
--------------------------------------------------------------------------------


Late in 2011, Amtrak decided to increase its Acela fleet by
adding forty coaches. Amtrak issued a request for a price
proposal to a sole source...no competing bids. In February 2012, a
proposal and quote was received from the sole contractor.

Because of the high dollar value of the contract and the lack of
information from any other source for comparison, the Amtrak Office
of Inspector General initiated a review of the sole source price
proposal.

As a result of investigation pursuant to the review, the Inspector
General found that the price proposal contained amounts that "were
not based on well-supported and/or reasonable cost data."

In addition, the proposal contained comments that "suggested
modifications to significant terms and conditions" that Amtrak had
included in its request...including a provision for audits.

The Inspector General recommended that Amtrak attempt to negotiate a
lower price, and retain the audit provision that had been specified
by Amtrak and altered by the contractor.

The purchase of forty additional Acela coaches has now been
cancelled."

5. All sorts of wasteful and inefficient internal procedures

See http://www.amtrakoig.gov/" onclick="window.open(this.href);return false;

6. Not using public-private partnerships at all

Plenty of state-owned railroads that face funding issues use partners in the private sectors to scrounge up additional revenue. For example:

http://ppp.worldbank.org/public-private ... way-trains" onclick="window.open(this.href);return false;

When has Amtrak done anything with PPPs? Maybe it has with work on 30th Street Station in Philadelphia or Union Station in DC, but I don't know.

All of these things could make generate additional revenue or cost savings for Amtrak, some of them would help customer comfort and none of them would hurt customer comfort.

Amtrak's losses matter because they give ammunition to Amtrak's opponents, who are doing everything they can to shut the railroad down, and often come close to succeeding. If we want an Amtrak whose long-term survival and prosperity assured, Amtrak must be run as efficiently as possible, which will deprive its critics of their ammunition.

In addition, every penny that Amtrak wastes is a penny that cannot be spent on what I hope we all want: running more, better and faster trains.

Mr. Southern Railway, many of your points are well taken, but I must take issue with the presumption that out- sourcing, by it's very nature, is preferred. Out- sourced functions are driven by one thing, the bottom line of the private company. I have been eyewitness to many companies who have provided inferior service and products, when they could get away with it, to improve THEIR bottom line; without regard to the quality of the service provided. This was on a consrtuction site, and on a railroad. I know you will say proper oversight would protect that but the vendors get so good at what they do, it becomes difficult, or they "buy" their overseers with gifts (sports tickets etc). Have you ever seen that in your line of work?

pbj123 wrote:Have you ever seen that in your line of work?

Yes, I have seen outside suppliers give gifts--which violated my then-employer's gift policy, resulting in the termination of a very senior officer of the company who oversaw my division.

Outsourcing might or might not be a good thing; I'll be the first to admit that it's not a cure-all.

While your basic line of thinking is honorable, I'm still not sure how you think adding another layer of hands in the pot will increase efficiency. If anything, there is another (possibly) obstructionist layer of muddle to plow through that will still have to answer to the Feds for the subsidies. When you say turn it over to private railroads, which ones are you talking about? The major class 1s or any private railroad that may want to buy stock? What makes you think a freight company will add efficiency to a passenger operation which has far more regulations and moves a different product? If they thought they could do it, why did CSX, who received the full operating costs of providing MARC passenger service say they didn't want the service they provided for years? N&S had the chance to snatch up the VREs and in the end, didn't even put in a bid (which kind of surprised me.)

If operators don't want passenger service on a state level with their costs all but guaranteed, what makes you think they'd want to take on Amtrak's woes, particularly if they have to answer to the ground rules of Congress?

ThirdRail7 wrote:If operators don't want passenger service on a state level with their costs all but guaranteed, what makes you think they'd want to take on Amtrak's woes, particularly if they have to answer to the ground rules of Congress?

That's certainly a valid point.

I would say that being a shareholder (of Amtrak) is much less of a commitment than being a direct operator of trains, and some Class Is have plenty of related businesses in which they own equity, and some of them are already owners of Amtrak equity (and I'd propose giving Amtrak's preferred stock to the Class Is that already own Amtrak stock), but you're certainly right in that they may want nothing to do with ownership of Amtrak no matter what.

One other poster suggested an initial public offering for Amtrak. I'd be all for that, as long as shares couldn't be sold to competitors (e.g., we surely wouldn't want Delta buying Amtrak to eliminate the Acela as competition for the Delta Shuttle). Or perhaps the Class Is would be allowed to transfer their Amtrak shares to anyone, other than a competitor of Amtrak.

One clarification: I wouldn't really want yet another layer of ownership and management. Rather, I'd simply replace the current owner of Amtrak's preferred stock (the Federal government) with another (Amtrak's current Class I shareholders) and, with the change of ownership, would replace the current government-appointed and dysfunctional board with a board accountable to the private shareholders. Amtrak's corporate documents would prohibit certain changes (e.g., downgrading routes) and would require certain actions (e.g., keeping the Northeast Corridor in a state of good repair and perhaps meeting certain infrastructure and operations criteria) without the Federal government's approval, but the Feds wouldn't be involved as they currently are.

I like your ideas of adding board members from freight railroads, Mr. SouthernRailway, so perhaps the AAR could be given a spot to argue for Amtrak becoming less obnoxious to its member companies. Certainly Amtrak needs more and better PPPs and public-nonprofit partnerships (an area in which it has some experience.) Also, the ClubAcela (and Metropolitan Lounge) idea to sell day passes is also superb, and I would suggest rolling the concept to major off-NEC regional markets wherein Amtrak rents a Metropolitan Lounge concession to a private contractor.

None of these require full private oversight of a publicly-funded corporation. They only need a publicly-appointed board committed to reasonable goals and improving the muddle of labor, work, and contractor restrictions. That said, I don't know the best way to ensure that Amtrak gets a reasonable board year-in and year-out, not stocked with hacks or haters. Even though I don't think your idea is the best, I like the spirit in which it was suggested.

mtuandrew wrote:Also, the ClubAcela (and Metropolitan Lounge) idea to sell day passes is also superb, and I would suggest rolling the concept to major off-NEC regional markets wherein Amtrak rents a Metropolitan Lounge concession to a private contractor.

You can already do this, but currently only through the Rewards sight. 5000 points gets you 5 day passes to all the ClubAcela and Metropolitan Lounges. Admittedly it is a convoluted path if you don't have enough (or any) points, requiring additional points be purchased, but it can be done.