The solution to Amtrak? Decentralization and privatization
A hundred years ago, the best way to get from one city to another was jumping on a passenger train and enjoying the sights from your seat, or turning down for the evening in the Pullman car, enjoying a fresh dinner in the dining car and an evening in the lounge watching the scenery slowly roll by.
If you lived in a large city, you could choose between scores of competing options and times — much as you can with airlines today.
Today, traveling by train sounds romantic but is often a cumbersome experience. It’s significantly slower than flying, trains often arrive and depart at odd times, routes are limited, and arrival times are often late.
Today, only 1% of intercity trips are made by rail. While, expectedly, 90% are made by car, when you want to let someone else do the driving, Americans tend to choose to ride airplanes or buses. In Fiscal Year 2022, 736 million passengers rode airplanes, while 22.9 million rode Amtrak — about 3% of the number of people who flew the friendly skies.
Unlike air and bus service, intercity passenger rail is run by a Amtrak, government-owned and heavily-subsidized monopoly. Outside of the Northeast Corridor — the only area where Amtrak makes a profit —it doesn’t own its own rails. Its system is based on a largely obsolete mode of overland travel — long-distance routes — rather than focusing on regional carriage.
And any expansion of the system is typically tied up in a lot of red tape, none more obvious than in California, where a proposed high-speed route runs from nowhere to nowhere — Bakersfield to Merced — rather than connecting major cities, such as San Diego, Los Angeles, the Bay Area and Sacramento. Only politicians would choose such a route, and only they would screw it up as badly as it has. Fifteen years after its approval — and well past its expected completion date of 2020 — not a single mile of track has been laid. Nearly $10 billion has been spent, and the cost has ballooned from $33 billion to $128 billion. The most optimistic projections have the initial line ready by 2033.
So the federal government’s means of dealing with this? Shovel more money at this attempt at a state-run passenger service, mostly in “studies” for high speed rail that haven’t laid track.
Meanwhile, there’s a success story in Florida — Brightline. A privately-run intercity passenger railroad that uses existing rights of way, started small and has continually expanded its service. It now runs between two popular tourist towns — Miami and Orlando — at 125mph.
The difference? One is privately-run and uses its own tracks. The other is a state-run monopoly that has to rely on the charity of host railroads.
Amtrak was created in 1970 to keep passenger rail alive, because existing railroads were trying to shed their passenger routes, which had become money pits. As people shifted from rails to cars and planes for intercity trips, the only thing keeping passenger rail afloat was mail service. When Railway Post Office service ended in 1967 and the federal government pulled mail contracts from railroads, that marked the end.
And Amtrak is run like a government program. Its own records show more than 1.1 million minutes of delay. Nine of 16 major intercity routes outside the Northeast Corridor arrive late more than 50% of the time.
The reasons for this are myriad, but they largely come down to two things. First, Amtrak’s primary customers are not those buying tickets and riding the trains, but the members of Congress who control the purse strings. As long as the federal money rolls in, Amtrak will be solvent no matter how many or few people are hopping on when the conductor yells “All Aboard.”
Second, Amtrak doesn’t own its own routes. It must coordinate schedules with host railroads. While, by law, they are required to prioritize Amtrak trains, that doesn’t always happen. And from the railroad’s perspective, it shouldn’t — freight service is profitable and the railroad is more likely to raise revenue by keeping its shippers happy than turning its routes over to another railroad.
Third, it has no competitors in the rail industry. Amtrak’s main competition comes from the bus station and the airport, but outside of Florida, there is no other intercity passenger rail network.
The solution would be to do what the government did with Conrail — privatize it, and eventually, allow it to be sold off and broken up into competing parts. Conrail was an amalgamation of bankrupt railroads, most notably the Penn Central, whose demise was hastened in part due to overregulation from the government. After the Staggers Act deregulated the rail industry, Conrail ended up on solid footing, was privatized and eventually purchased and split up by CSX and Norfolk Southern, essentially undoing the Pennsylvania-New York Central merger and creating two competing Class I railroads in the Northeast.
While it is understood the major Class I railroads — CSX and Norfolk Southern in the east and CPKC, BNSF and Union Pacific in the west — might be hesitant to take on passenger service, they can be incentivized by taking the billions of federal outlays currently going to Amtrak and directing them to those railroads as a subsidy to provide passenger service.
The latest infrastructure bill allocated $66 billion for passenger rail, and encouraged Amtrak to apply for $44 billion more in competitive grants. Amtrak asked for $3.6 billion from the federal government last year. That’s $157 in subsidy per passenger. It frequently receives about $2 billion, about half of its operating costs.
Disband Amtrak, take those subsidies and instead direct them to the major railroads to provide passenger service. They’ll likely be able to do so at a lower cost per passenger-mile and provide greater frequency and on-time performance, simply because they’ll have a different incentive structure.
While, as a libertarian and a free-market economist, I am philosophically opposed to government subsidies to private industries, they are better than state-owned enterprises. If it is a national priority to maintain intercity passenger rail, it is best to do so through competing private entities.
The benefits to the consumer will be numerous. By having the freight railroads provide passenger service, a layer is eliminated in the coordination of schedules. The railroads, as well, will have incentive and infrastructure to expand service where it will be used, rather than running trains in lightly-populated areas, as California is trying to do. They can achieve economies of scale and reduce costs.
By being profit-seeking enterprises, they’ll be incentivized to provide better-quality service as their profitability will be impacted by the number of customers they serve. In doing so, customer service should improve. For example, Brightline’s stations are clean, modern, comfortable and full of amenities for passengers — a far cry from the cheap Amshacks that Amtrak became known for in the 1970s and 1980s.
Not only that, but there would be competition between the railroads. NS and CSX — and possibly some short lines — would compete for passengers, which would be a much greater incentive to give schedule priority than “the law says you have to let Amtrak go first,” as better service would mean more revenue. In larger cities, it would lead to easier coordination between the host railroads and regional rail systems, especially in areas like Chicago where the commuter trains run on routes owned by the major freight railroads. Tying the subsidy to passenger numbers would further incentivize better service.
For this to work, the federal subsidies would have to come with as few strings attached as possible. If the federal government wants to subsidize a route between a city-pair, the railroad should be able to choose the most optimal route, oversee the infrastructure build-out and land acquisition — if needed — and craft its own schedules to maximize the potential for both passenger and freight revenue. Keeping compliance costs down incentivizes the railroads to provide better service.
While subsidies are not ideal, they provide action rather than talk, trains rather than studies, and would actually put things in the hands of those who would prioritize customer service.
I’m looking forward to the day when I can pick up a CSX-painted Siemens Charger followed by a host of navy blue passenger cars in my town on the way to Cincinnati. But until then, we can continue to wait for “studies” and endure the inconvenient and infrequent departure times and the chronically-late service on the routes that do exist from the state-owned railroad.