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United Rail Passenger Alliance Statement

In all of the confusion and noise (both intentional and unintentional) generated over the deselection of former Amtrak President and CEO David Gunn yesterday, here are URPA Vice President and guiding light Andrew Selden's thoughts on a healthy and robust post-David Gunn Amtrak.

"Amtrak can flourish in the post-David Gunn era, if it is run by someone with a non-traditional vision for a commercially-successful, national, network of intercity rail passenger services.

"The traditional vision for a rail service has failed: Amtrak's annual financial losses are still rising, year after year, even as its output and market share, i.e., it's relevance to Americans' travel needs, is falling. Nationally, Amtrak's total production of transportation is less than what motorcycles produce. For more than a billion dollars a year in taxpayer support, that is just not acceptable by any rational standard. Even in the vaunted Northeast Corridor, Amtrak's total market share is less than 2%, and its load factors are stuck in the mid-30% range, proving irrefutably that it is putting out far more service there than anyone wants to buy - and again, at a cost of nearly a billion dollars a year, that is just not good enough.

"The biggest failure of David Gunn's tenure at Amtrak was not his insubordination to the Board (the body that is charged by law with the responsibility and authority to manage the property and affairs of the company), or his failure, well-documented in the recent GAO indictment of Amtrak's utter failure to control its annual spending of hundreds of millions of dollars in federal capital grants, to institute effective financial control over the company, or even his neglect of most of the country's travel needs. Rather, Mr. Gunn's greatest failure was that he was aggressively executing a failed business strategy: the uses to which he was putting Amtrak's abundant federal subsidies, recently exceeding a billion dollars a year, resulting in very low, sometimes even negative, returns on investment, at the same time that other uses that would return far higher returns on investment were ignored.

"Mr. Gunn seemed oblivious to the fact that each dollar of capital invested into interregional markets served by the handful of long distance trains produced five to seven times more ticket revenue and transportation output than any dollar invested into shorter corridor markets, even, or especially, the Northeast Corridor.

"No business can succeed by plowing its available capital into activities that have the lowest possible return on investment, or even a negative rate of return (which means that the business is actually worse off financially after the investment than it was before). And the chronically low load factors in the corridors that are so dear to the politicians prove that Amtrak is basically wasting money by its obsessive fixation on 'high density urban corridors.'

"Amtrak's Board is finally taking tentative steps to force the deeply-entrenched company to focus its activities and its financial resources on what it was chartered to do: operate a national network of modern intercity passenger trains. Amtrak was NOT chartered to own rail facilities, provide engineering services to others, be a contract operator of commuter trains, or provide deeply-discounted and heavily-subsidized commuter services in the markets of key senators. Splitting off ownership of the NEC assets to a sister entity is a long-overdue improvement that will allow Amtrak to focus on running trains that people want to ride, which it isn't doing very well right now, and getting a billion-dollar a year monkey off its back and off its balance sheet. The financial results of repositioning the NEC infrastructure are of incalculable benefit: it will sharply reduce the subsidy associated with running trains, it will force out into the open for all to see the vast expense of the NEC property, and that in turn will force an economic rationalization of train operations in the NEC by all of its many users, so that only trains that make economic sense to run will be run, whether commuter, freight and intercity passenger (conventional and premium alike).

"Much has been said about the long distance trains. They still produce the lion's share of transportation output, at a very small cost. An FRA study two years ago pegged the cash cost at well-under $100 million a year, at the time, less than 8% of Amtrak's annual subsidy. That is a GOOD return on investment, in fact the best in the whole Amtrak system. Only Amtrak's discredited accounting system artificially makes these trains look bad. (They continue to be well-used: their load factor varies from 50 to 65%, and they produce nearly half of all of the transportation output in the entire system.) The Amtrak Board cannot be blamed for its misunderstanding of them: if Amtrak's managers and its accounting system were your sole source of information on these trains, you would question them also. But this can be reversed. Splitting off the NEC infrastructure, and installing an all-new, objective and competent accounting system, both current Board priorities, will allow a very different understanding of the critical financial role of the long distance trains to emerge.

"Next, a better understanding of the powerful mathematics of networks (of any kind) as it applies to Amtrak will show the Board (especially if Mr. Gunn's successor understands the math and presents it cogently to the Board) that slight enhancements to the scale of the interconnected national network can for the first time drive very large increases in both use and the financial results of operation of Amtrak's services. Then, the Board itself will insist that a far greater share of Amtrak's capital resources be invested into these very high-return applications. At the same time, for purely political reasons, an ample, but smaller, share of capital can continue to be used to subsidize a rationalized set of regional services in the Northeast and elsewhere, where capacity will be better matched to demand, such that load factors are consistently kept above 50%.

"Along the way, but early on, Mr. Gunn's successor must aggressively embrace business fundamentals that Mr. Gunn neglected: installation of an effective accounting system; modernization and outsourcing of support services at which Amtrak does not excel (and is not even especially competent) such as information technology, catering, and equipment maintenance; restoration and return to service of more than 700 idle pieces of capital equipment; and execution of the business fundamentals that are well within Amtrak's own management control, such as consistently dispatching roadworthy trainsets, on time at their terminals of origin. Amtrak may not be able to control Union Pacific's dispatchers, but it can sure get the windows of its coaches washed and the toilets in its sleepers cleaned.

"David Gunn's successor has a fantastic opportunity before him or her. But it will take imagination and drive and a fresh perspective to realize it. Replacing Mr. Gunn with yet another in the long line of succession of traditional transit managers beholden to uninformed politicians is not the way to succeed."

Andrew Selden
Vice President--Law and Policy
United Rail Passenger Alliance

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