NARP Calls IG Analysis Fatally Flawed

Release #05-22
Contact NARP

Washington--The National Association of Railroad Passengers today said DOT Inspector General Kenneth M. Mead’s report on eliminating sleeper, diner, lounge and checked baggage services is seriously flawed. The IG's report was “released” yesterday by Transportation Weekly.

NARP projects that eliminating sleeping, food and checked baggage services would worsen Amtrak’s bottom line by $50 million, not improve it as the IG claims. An increased loss of any size, coupled with dramatically reduced ridership and revenues, could lead to the system’s demise. Even if the IG’s savings were real, they would come at an unacceptable cost: depriving most Americans of the choice to use existing and potential intercity rail services. Moreover, the wide range of the IG’s estimated net savings underlines the uncertainty of his analysis.

The IG assumes that, since average coach trip length is less than the average sleeping-car trip, coach passengers do not need the targeted services. Accordingly, he incorrectly assigns costs of these services 100% to sleeping-car passengers, and incorrectly assumes these services can be removed with no coach revenue loss.

In fact, coach passengers outnumber sleeping-car passengers for all trip lengths. For trips 800 miles or longer, FY 2004 ridership was 819,870 in coach and 318,378 in sleeper. Also, in ignoring connecting passengers using coach and sleeper on different segments of the same trip, the IG ignores coach revenue that would be at risk with loss of sleepers even if other services remained.

Cash sales account for almost half of on-board food and beverage sales. [Cash is mostly from coach passengers. Meals come with the sleeping-car ticket; on AutoTrain, meals come with both coach and sleeping-car tickets.]

Checked baggage need is a function of length of stay at destination, and one's ability to handle luggage. It is not a function of distance traveled, or of whether one travels in coach or sleeper.

In sum, coach passengers make many long trips and generate much revenue, and the IG is wrong to assume that elimination of food and baggage services would not result in significant loss of coach ridership and revenues.

The IG likewise is wrong to assume that food service of any kind can be provided on a break-even basis, regardless of labor cost assumptions. Food service cannot be profitable when the only buyers are passengers on board one train. As Amtrak testified on June 9, the primary purpose of food and beverage service “is to enhance ticket sales and ridership, not serve as a profit center.”

For example, Maine provides a $210,000 annual food subsidy for the Boston-Portland “Downeaster” trains (116 miles one-way). The menu is limited, satisfactory only for short trips, and sold by non-union workers who spend less time away from home than do Amtrak long-distance on-board workers. But, using the rough measure of food subsidy per passenger-mile, extending even this inadequate service and unrealistic cost assumptions to the long-distance trains implies a food loss of about $27 million.

The IG ignores loss per passenger-mile, which could skyrocket if sleeping-car revenues disappear. A passenger-mile is one passenger traveling one mile. It is the standard measure in the intercity travel business, except when the goal is to attack our national passenger rail network. Clearly, however, loss per passenger-mile is more relevant to economic performance than loss per passenger, which ignores the distance a passenger travels.

It is unfortunate that the IG did not consider positive strategies for improving cost efficiency and fare-box recovery:

• There is general agreement that the Amtrak/GateGourmet contract covering commissaries and provision of food will either be terminated or improved when it expires in September 2006, if not sooner, and Amtrak’s bottom line should benefit.
• The IG does not make clear that dorm cars are gradually accommodating more revenue passengers. Also, the need for overnight crew space is declining as where some diner crew members swing on and off during runs.
• Employee job descriptions could be broadened, perhaps similar to what VIA Rail Canada has done. Transportation Weekly incorrectly cites “labor protection agreements” as a reason why “Amtrak’s costs are so high (and so difficult to cut).” Labor protection provisions indeed make it costly to eliminate routes, and thus have been attacked by those seeking to eliminate the systm or big parts of it, but these provisions do not impact ongoing operating costs.
• Amtrak could consider having sleeping-car passengers pay for meals (as coach passengers always have done and sleeper passengers did until about 15 years ago). Alternatively, Amtrak might consider offering coach passengers the option of higher-priced tickets that include meals. [Sleeping-car riders are 44% of all AutoTrain riders, a higher share than on any other train. This is partly because AutoTrain offers more sleeping-car rooms than any other train.]