Cost allocation

[Amtrakfflyer]

Came across this today. It’s from 2019 regarding Anderson and Gardner but just as relevant as ever, probably more so now. If we had real true numbers maybe the LD vs NEC finger pointing could be put to bed and a symbiotic relationship could be started between ALL Amtrak lines.

The last line of this article from 2019 sums up everything we’ve witnessed the last 3 years.

“The bottom line: management’s no-growth priorities are a reality”

Amtrak’s money mystery - Trains

From January 2019 Trains When the Southwest Chief rumbles across New Mexico’s Raton Pass, with sleeping-car passengers paying as much as $1,058 to ride in a roomette, what is the train’s revenue-versus-cost effect on Amtrak’s bottom line? According to the “route level results” of the fiscal 2017...

www.trains.com

 

[AmtrakMaineiac]

The problem is, if you have a philosophy that emphasizes cutting costs, as service is cut, the remaining overhead such as administration, reservations, stations, etc. gets spread around to a smaller base and costs per train actually increase. What they should be doing is increasing service which would spread the overhead over a larger basis. A classic example of this is the 3 times a week service. Imagine a store that only opened on Tuesday, Thursday and Sunday for a few hours each day, yet had to pay rent, heat, etc. for a full week. That is Amtrak in a nutshell.

 

[MARC Rider]

The problem is, if you have a philosophy that emphasizes cutting costs, as service is cut, the remaining overhead such as administration, reservations, stations, etc. gets spread around to a smaller base and costs per train actually increase. What they should be doing is increasing service which would spread the overhead over a larger basis. A classic example of this is the 3 times a week service. Imagine a store that only opened on Tuesday, Thursday and Sunday for a few hours each day, yet had to pay rent, heat, etc. for a full week. That is Amtrak in a nutshell.

This is, indeed, why kosher restaurants are almost always way more expensive than the equivalent non-kosher restaurant and not always easy to find. Yeah, kosher meat is more expensive than non-kosher, but even kosher vegetarian restaurants are more expensive. The main reason is that most rabbis who certify kosher places require the place to be closed Friday evenings (usually starting in the afternoon), and all day Saturday. Thus, the establishment loses 2 days of business right from the get-go, and thus they have to make it up by charging higher prices. You will also only find kosher restaurants in cities with a large community of Orthodox Jews who won't eat out anywhere else. But a kosher place has the same overhead as a non-kosher place.

We had a place in our town that nearly closed due to Covid, but he saved himself by getting a liquor license, and so has a liquor store in addition to his restaurants. The liquor store is also closed Friday nights and Saturday, but he does have the (rare) kind of liquor license that lets him sell on Sundays, so I guess that makes up some of the loss. His booze prices are higher than Total Wine's, but he does stock various kosher wines that you can't find anywhere else.

 

[neroden]

Yeah, I've been hammering on this for years. In 2008 Congress required Amtrak to publish the "avoidable cost" numbers, i.e. without the overhead allocations. Stephen Gardner refused to do so for a decade, and finally did so last year.

It shows that nearly all the long-distance trains are profitable.

FY21 Q4 Financial Metrics – Revised (April 2022) | FRA

railroads.dot.gov

It costs a billion dollars a year to keep the lights on for Amtrak -- to keep all the overhead going. Railroads are a very-high-overhead business. This means the only way to operate them in a financially sound manner is to be big: have lots of economies of scale. More trains on every line.

 

[west point]

Alot of good posts here. IMO here is what Congress and others need to do.
1. Separate Amtrak into 4 divisions.
a. LD operations. Any off corridors will onl pay proportion of miles costs that NEC has. That will mean Capitol will only be charged station costs for WASH and CHI and the short probably less than 10 mile - mileage costs.trains
b. Regional / state supported operations.
c. NEC operations.
d. Amtrak non-operating divisions.
e. each division will be allocated and use funds only for the divisions.

2. OIG will be tasked to determine that Amtrak is following these guidelines each month.
3. An independent auditor will monitor all of the above.
4. Now do I think this is possible? not at all.

 

[MARC Rider]

Alot of good posts here. IMO here is what Congress and others need to do.
1. Separate Amtrak into 4 divisions.
a. LD operations. Any off corridors will onl pay proportion of miles costs that NEC has. That will mean Capitol will only be charged station costs for WASH and CHI and the short probably less than 10 mile - mileage costs.trains
b. Regional / state supported operations.
c. NEC operations.
d. Amtrak non-operating divisions.
e. each division will be allocated and use funds only for the divisions.

2. OIG will be tasked to determine that Amtrak is following these guidelines each month.
3. An independent auditor will monitor all of the above.
4. Now do I think this is possible? not at all.

Far more simpler would be to simply have "overhead" as a separate line item on the budget and review the financial performance of the various service lines relative to "avoidable costs." Yeah, there's still the issue of how to charge overhead on to ticket prices, but really, that should be left to supply and demand, or else "subsidized" (by charging more overhead to the ticket prices of other service lines) if there's some overwhelming social/political reason (like getting as many people out of cars as possible) to encourage use of a particular service. It's time to start treating Amtrak like the public service it is, just like all of the other public transportation infrastructure.

 

[neroden]

I agree with what MARC Rider says. Amtrak needs a "Central Overhead Operations" line, which would include facilities like Bear and Beech Grove and the reservations system and and so forth, and wouldn't be assigned to any "service line".

 

[John Bredin]

Came across this today. It’s from 2019 regarding Anderson and Gardner but just as relevant as ever, probably more so now. If we had real true numbers maybe the LD vs NEC finger pointing could be put to bed and a symbiotic relationship could be started between ALL Amtrak lines.

The last line of this article from 2019 sums up everything we’ve witnessed the last 3 years.

“The bottom line: management’s no-growth priorities are a reality”

Amtrak’s money mystery - Trains

From January 2019 Trains When the Southwest Chief rumbles across New Mexico’s Raton Pass, with sleeping-car passengers paying as much as $1,058 to ride in a roomette, what is the train’s revenue-versus-cost effect on Amtrak’s bottom line? According to the “route level results” of the fiscal 2017...

www.trains.com

I would think Amtrak's devising a corridor development program -- nobody imposed that on them from above or outside -- is a significant change since 2019 and belies the idea of Amtrak still having "no-growth priorities".

Yes, it's corridor-focused, but at least it's seeking to extend and expand service where it doesn't exist now. And the effort that Amtrak has put into fighting the freight railroads on Gulf Coast service shows it isn't a plan meant to be an impressive read but then put on a shelf.

Much of the "last 3 years" has been occupied by Covid, which suppressed travel demand generally for over a year and confounded absolutely everyone's planning. In the middle of it, Congress changed Amtrak's marching orders by lifting profitability requirements and providing adequate funding, arguably for the first time. I emphasize again, in the midst of Covid; there was a significant period when Amtrak was facing its preexisting costs and funding but a catastrophic drop in ridership, and had to make decisions without knowing whether Congress would bail them out. When the money came, the labor* and equipment** situations meant Amtrak couldn't just turn on a dime and flip from contraction to expansion.

*widespread across most industries and still ongoing.

**more particular to Amtrak but not completely. Just as Amtrak stopped repairing and renovating equipment in the face of a demand collapse of unknown duration, car rental firms sold off vast portions of their fleets. Both of which seem stupid ...in 20-20 hindsight.

 

[JLChicago]

Yeah, I've been hammering on this for years. In 2008 Congress required Amtrak to publish the "avoidable cost" numbers, i.e. without the overhead allocations. Stephen Gardner refused to do so for a decade, and finally did so last year.

It shows that nearly all the long-distance trains are profitable.

FY21 Q4 Financial Metrics – Revised (April 2022) | FRA

railroads.dot.gov

It costs a billion dollars a year to keep the lights on for Amtrak -- to keep all the overhead going. Railroads are a very-high-overhead business. This means the only way to operate them in a financially sound manner is to be big: have lots of economies of scale. More trains on every line.

@neroden, I looked at the Excel file you posted from dot.gov but when looking at the Avoidable Op Exp by Psgr Rev page, I don't see hardly any long distance trains that cover their avoidable costs. Did you mixed up the two columns? The Avoidable Operating Expense column is listed before the Passenger Revenue column and in most case the Expense is larger than the Revenue. Very few routes cover Avoidable Op Expense if you exclude State Operating Payments. Only the below cover their avoidable costs. Below I filtered out the lines with State Payments and with a Recovery Ratio less than 1.

FY	Quarter	APT_Code	Route	Adjusted with State Operating Payments	Avoidable Operating Expense	Passenger Revenue	Avoidable Operating Exp Covered by Passenger Revenue
2021​	Q4	APT_RT_63	Auto Train	No​	$ 18,753,996	$ 25,597,355	$ 1.36
2021​	Q4	APT_RT_46	Washington-Lynchburg/Roanoke	No​	$ 2,397,235	$ 3,156,901	$ 1.32
2021​	Q4	APT_RT_66	Carolinian	No​	$ 4,400,160	$ 4,928,312	$ 1.12
2021​	Q4	APT_RT_47	Washington-Newport News	No​	$ 4,687,040	$ 5,078,475	$ 1.08
2021​	Q4	APT_RT_05	Northeast Regional	No​	$ 100,260,359	$ 105,110,486	$ 1.05
2021​	Q4	APT_RT_99	NEC Special Trains	No​	$ 507,259	$ 529,386	$ 1.04
2021​	Q4	APT_RT_50	Washington-Norfolk	No​	$ 3,944,408	$ 4,103,463	$ 1.04
2021​	Q4	APT_RT_07	Empire West/Maple Leaf	No​	$ 6,031,006	$ 6,144,174	$ 1.02

 

[MARC Rider]

You just looked one quarter in 2021 when business has been messed up pretty badly, especially with regards to the long-distance trains, which are running well below normal passenger loads because of equipment shortages.

 

[JLChicago]

But Neroden specifically referred to that report he attached and inferred from it that LD trains are profitable. Which they were not for that report. I looked at the FRA website and could not find comparable reports for any previous period(s). Hopefully they will continue going forward. Agree that FY 21 Q4 is hardly representative of a normal quarter.

 

[CCC1007]

@neroden, I looked at the Excel file you posted from dot.gov but when looking at the Avoidable Op Exp by Psgr Rev page, I don't see hardly any long distance trains that cover their avoidable costs. Did you mixed up the two columns? The Avoidable Operating Expense column is listed before the Passenger Revenue column and in most case the Expense is larger than the Revenue. Very few routes cover Avoidable Op Expense if you exclude State Operating Payments. Only the below cover their avoidable costs. Below I filtered out the lines with State Payments and with a Recovery Ratio less than 1.

FY	Quarter	APT_Code	Route	Adjusted with State Operating Payments	Avoidable Operating Expense	Passenger Revenue	Avoidable Operating Exp Covered by Passenger Revenue
2021​	Q4	APT_RT_63	Auto Train	No​	$ 18,753,996	$ 25,597,355	$ 1.36
2021​	Q4	APT_RT_46	Washington-Lynchburg/Roanoke	No​	$ 2,397,235	$ 3,156,901	$ 1.32
2021​	Q4	APT_RT_66	Carolinian	No​	$ 4,400,160	$ 4,928,312	$ 1.12
2021​	Q4	APT_RT_47	Washington-Newport News	No​	$ 4,687,040	$ 5,078,475	$ 1.08
2021​	Q4	APT_RT_05	Northeast Regional	No​	$ 100,260,359	$ 105,110,486	$ 1.05
2021​	Q4	APT_RT_99	NEC Special Trains	No​	$ 507,259	$ 529,386	$ 1.04
2021​	Q4	APT_RT_50	Washington-Norfolk	No​	$ 3,944,408	$ 4,103,463	$ 1.04
2021​	Q4	APT_RT_07	Empire West/Maple Leaf	No​	$ 6,031,006	$ 6,144,174	$ 1.02

Ok, one thing to mention right now is that the data has been revised. If @neroden was looking at the same data I looked at in Feburary, before the revision, then he was correct. I am attaching the copy I downloaded of the original data. (Not able to upload the excel file for some reason...)Not sure why they revised it, as I can't parse the revision notes at the moment...

Edit: here’s a link to the original file…

https://docs.google.com/file/d/1BvtzK_A3vf9sxZxwBMUjh4iwIwnnT2rd/edit?usp=docslist_api&filetype=msexcel

 

[JLChicago]

Thanks for sharing the link to the original file. It does show most LD trains covering their avoidable costs. It's a shame that the FRA or DOT or maybe even Amtrak, put together a bad file that had to be revised and then showing that these trains in fact really lost money.

I'm a CPA and it never ceases to amaze me how some people are with Excel. I always ask someone to review my work before sending it out. We all make mistakes! Smart ones ask someone to doublecheck!

Just yesterday a very senior exec at my company asked me to review her spreadsheet for a presentation she was making. Although meant to be shown in millions, many of her numbers were actually in thousands and thus overstated by a 1000x. She was glad I caught that before she made the presentation.

So Neroden hope you didn't take offense at my post. We were looking at two different files!

 

[neroden]

Yeah, I just looked at the new one. Definitely more accurate than the previous one in the state-supported cases....

...though frankly I would still like to see a proper accounting of the costs. The Lake Shore Limited costs don't look right when you compare them to the Texas Eagle, and Amtrak has a known history of double-counting expenses both there and on the Empire Builder. The Washington-Richmond costs look bizarrely low. How did Amtrak spend a million dollars on Non-NEC Specials for a revenue of $1415?


The Q2 report looks less fishy on the Washington-Richmond front. I still wonder about their definitions of avoidable costs, though.

And it's interesting that the Adirondack supposedly has $373,246 in avoidable costs when it's not actually running. So, not actually avoidable costs then, are they? (OK, maybe "avoidable after 5 years of non-operation", but not "immediately avoidable")

I'm starting to think they're playing allocation games with the "avoidable" costs too.

FY22 Q1 Financial Metrics | FRA

railroads.dot.gov

 

[JLChicago]

Hopefully they’re not playing games. Any management that lies to itself is a really bad sign. I’m thinking that Amtrak due to contractual reasons with either it’s employees or with the freight railroads still has to make temporary payments even though shut down. Or is still maintaining stations etc. If they do that for five years then that would sound unreasonable to me. But for less than a year seems reasonable to still consider avoidable.

 

[CCC1007]

I think I have figured out what the "Avoidable Operating Expense by Passenger Revenue" tab is calculated including...

It seems to include the cost of replacing the equipment in about 4-6 years, depending on route. It would seem to me that Amtrak is already "Banking" expenses for equipment that HASN'T been ordered yet, if I am right here... (Might be paying for the ALC-42 order?)

Either way, these expenses SHOULD NOT be included in "Avoidable Operating Expense by Passenger Revenue."

 

[JLChicago]

I would agree that such expenses should not be included but I can't see where they are being included. Can you point me to where you are seeing that? Thanks!

 

[CCC1007]

I would agree that such expenses should not be included but I can't see where they are being included. Can you point me to where you are seeing that? Thanks!

I am using a tool I built using some known and some estimated numbers for expenses. At this time, I am not willing to share more than a snapshot, so here it is...

Edit: This is a snapshot for the Empire Builder route, replacing the existing equipment with new Siemens Venture based LD equipment.