Amtrak's pursuit of profits - National Railroad Passenger Corp

Railway Age, March, 1991 by Robert Roberts

Amtrak's $1.3 billion in revenue last year (fiscal year 1990 ended Sept. 30, 1990) set a new record but fell below the company's goal for reaching break-even by 2000. it's still in reach, and an idea that might be called wrap-around profits may make it possible.

Despite higher ridership, Amtrak's revenue to cost ratio remained at 72%, leveling off after years of increases. To increase that ratio on a regular basis, Amtrak must increase its for-profit lines of business. The largest piece of the for-profit-$177.4 million-came from commuter and state-supported operations. Another piece headed other" totaled $122.9 million. This includes services performed, such as Beech Grove Shop's car building and maintenance for other railroads and transit properties, co-generation, etc. Development of real estate and leases for station businesses brought another $39.3 million to the table, while mail and express business contributed $38.4 million. It is this last category that Amtrak is pinning a lot on for bringing the closely watched revenue to cost ratio up to 100%.

* Expanding M&E. In a report delivered to the Transportation Research Board's annual meeting in Washington, Donald R. Skinner, manager of mail and express sales for Amtrak, said the M&E revenue now has grown to $45 million a year. Ten years ago M&E income was only $14 million. By 2000, Amtrak believes M&E will contribute more than $ 100 million a year. The plan calls for continued use of baggage-express cars on the head end and new RoadRailer trailers on the rear end. The U.S. Postal Service is providing research money for Amtrak to develop a RoadRailer express operation over the next two to three years.

The M&E operation has been a captive of Amtrak's passenger network; it can only deliver the mail and packages where Amtrak stops for passengers. While the company serves 500 points, only 200 have cargo services. Said Skinner, "The challenge for Amtrak is to mold the passenger network into a viable M&E operation." RoadRailers, which can be removed from the rear end of a passenger train to continue to their destination over the highway, address Amtrak's network constraints.

Amtrak's biggest M&E customer is the U.S. Postal Service, but a promising growth area is the business of corporate shippers. Amtrak is gearing up to handle more and heavier shipments. So far, it has the capability to handle palletized freight at 30 major cities. The attraction is speeds that are truck competitive to certain locations, and reliability at lower cost. According to Skinner, Amtrak provides overnight services between Chicago and the East Coast and second-day arrival from Chicago to the West Coast. Service between most points Amtrak serves is from two to three days, maximum, while arrivals from New York to the West Coast are third day, and from Boston, fourth day.

* An alternative to air express. Another TRB speaker substantiated Amtrak's claim to fast, low-cost service. Indeed, Robert Schwayer, transportation manager for Abbott Laboratories, said his company is using Amtrak for some of its business instead of air express. He described Abbott's typical package of medical supplies as from 15 to 18 pounds, which, he said, was "tailored to air express." However, "Amtrak can deliver such a package in about the same time for 40% lower cost. So now we offer our customers our standard second-day service by Amtrak or for a higher price, our guaranteed second-day service by air." Since Amtrak's on-time performance has been 96%, there still is room for improvement. The on-time performance by air is 981/2% to 99%, he said. But for those who can accept slightly slower delivery or don't require guaranteed delivery, Amtrak is fine, he added.

Abbott also uses a third party to handle pickup and delivery services and weighing and metering of packages. The trucker will haul Abbott's packages at Chicago either to a truck terminal or to Union Station for AmMA. United Parcel Service delivers the package at destination at eastern delivery points. Abbott began using Amtrak between Chicago and Washington, D.C., but has expanded its usage to additional eastern cities.

Amtrak, and railroads generally, see a growing niche for themselves in handling freight at lower cost where reliability is acceptable. According to Abbott's Schwayer, Abbott's customers are not demanding "instant delivery," but a reasonable time and a lower cost.

* RoadRailer's longer reach. Amtrak believes RoadRailers may become the basis for a much more rapidly growing express business because they would allow the company to serve off-line points. Thus, a passenger network that has not changed much over the years and isn't expected to in the near future no longer will be the constraint for the handling of profitable M&E business it once was. So don't be surprised to look out the rear end of your train in the days ahead to view from one to three trailers instead of the rails disappearing into the horizon.

In addition to rapidly growing M&E volume, which the company notes does not come off freight railroads but rather off air express planes or trucks, it expects its real estate revenues to more than double over the next decade. It will receive more revenue from state commuter authorities, with the total at about $200 million in the next five years. And it expects to be the operator of one or more high-speed rail operations as they get built in the next decade. According to the High Speed Rail Association, there are nearly two dozen high speed lines in various stages of planning.