Saturday, March 24, 2012

Passenger trains are becoming profitable.

Your Cap'n is not psychic, he just has his finger on the pulse of the universe. A week ago, Yonah Freemark tweeted a story about Amtrak trains in Michigan. In February the State of Michigan completed stimulus-funded upgrades to a section of state-owned track between Kalamazoo and the Indiana state line, allowing passenger trains to travel up to 110 miles per hour. Last week Norfolk Southern Railroad, which owns the track from Kalamazoo to Dearborn and is trying to sell it to the state, placed "slow orders" on that section, forcing all trains to travel below 30 miles per hour.

In a press release, Norfolk Southern management made it clear that they had no incentive to upgrade the line. “Until ownership of the Michigan Line is transferred, Norfolk Southern is willing to perform work on the line on behalf of Amtrak or Michigan DOT to address any passenger operating concerns,” said John V. Edwards, Norfolk Southern’s general director passenger policy. “This work is not necessary to provide freight service, but if the passenger service providers want to provide the necessary funding, we will do it."

After thinking about it, I tweeted, "At some point it'll be profitable for railroad companies to offer passenger AND freight service in the US. Until then:".

Until the late twentieth century it was the norm for passenger trains to be operated by private companies, usually the same companies that owned or leased the tracks, but sometimes a different railroad company under an agreement. It was only when Penn Central went bankrupt that Amtrak was formed to take over the intercity passenger trains, but the railroads had been losing money on passenger service for decades. How could they compete with government-subsidized roads and parking?

So it recently occurred to me that with the price of gas rising and road budgets across the country being cut, ridership on passenger trains may rise enough to generate profits, and nobody's better placed to reap those profits than the companies that own the tracks. Clearly, Norfolk Southern doesn't see enough demand on the Michigan Line to justify upgrades, but they must have noticed that Amtrak is making a $2 million annual operating profit between Lynchburg, Virginia and Washington, DC, because starting soon they're going to be getting most of that money in "access fees."

When I tweeted that I figured it was only a matter of time before some railroad executive figured out that if the market conditions are right they didn't need Amtrak or state governments to run passenger trains. Turns out it took about a week. Yesterday, the Florida East Coast Railway announced that they're planning to invest a billion dollars to start passenger service on the tracks they own between Miami and Orlando.

I wonder who's next?


crzwdjk said...

As was mentioned on Alon's blog, the FEC is something of a special case, in that they mostly run fast intermodal trains and so their operation is generally already fairly compatible with passenger service, and their passenger service will be mostly on their existing tracks, in a place where there's no effectively competing Amtrak service. It's hard to think of any other place that can replicate those conditions anywhere else in the country.

Ken Prendergast said...

Also consider what BNSF CEO Matt Rose recently said about gas prices, private railroads and passenger trains:

Or that Iowa Pacific is scheduled to provide private passenger cars attached to the back of Amtrak trains between Chicago, New York and New Orleans starting as early as Fall 2012:

Not all of these will pan out, of course. But there does seem to be renewed interest by private operators which all the more amazing considering they will be using privately owned infrastructure which must compete against the government-owned and subsidized infrastructure of highways and airports/air traffic control.

crzwdjk said...

The "land cruise" model has been tried before, specifically including having privately-owned train cars on the back of Amtrak trains. I believe the people behind Colorado Railcar were originally in that business, then decided to convert some cars to their own needs, before finally branching out into the DMU business and eventually failing at all of it.

John Morris said...

Isn't the next obvious thing to do is take the governemet to court to stop the unfair, destructive free competition with privately owned railroads.

I know one won't win at first, but it will at least place some thoughts in people's minds.

neroden@gmail said...

America: land of rent-seekers.

In the UK they nationalized the railroads back in the '40s. Most of Europe did so even earlier. Keynes told the US to do so in the '30s.

We didn't. So we end up with "lemon socialism"; when it's 'unprofitable', the government pays for it, but the moment it become profitable, private interests steal the money.

The government has to run crucial pieces of infrastructure whether they're profitable this year/decade or not.