Another thread has debated the proposition that subsidies of any kind are inevitably bad. There seems to be common agreement that transport subsidies are extraordinarily complex, and unlikely to stop any time soon. I think the sense of the contributors is that the world would be a great place without subsidies, and that legislation of various kinds is required to achieve desirable community outcomes, though no one has faith in legislators to be either rational or bold and deliver these on a national basis- too many vested interests. The debate then becomes a political one, about if and how Government can improve the lot of its citizens, and to what extent it should interfere with their freedom to do exactly as they please.
Don Phillips in the latest edition of Trains writes about ‘The (US) transportation disaster’ and says that all modes of transport are failing, with private freight railroads being one bright spot, as they benefit from problems elsewhere, and make enough to do a reasonable amount of investment for expansion. Elsewhere, national disaster looms and only the Federal government can solve it, he argues. I certainly think that the US transportation system has deteriorated sharply over the last 30 years, but recent, infrequent experience says it is not yet so bad as to be widely perceived as a National disaster, just something older folk moan about over cocktails, as they remember how it was.
Let us however suppose that Phillips is right and that the disaster will one day become clear to all, and precipitate Federal action, and that only Federal action can deal with the scale of the problem. (Not discussable). Suppose further that you are the budget holder to whom the Government says ‘Fix it. For the next twenty years’. You are given a cheque with so many noughts on the end, you feel dizzy. At first glance, it looked like one trillion dollars over 10 years, though maybe there were more. You may adopt the libertarian position, and tear
Nobody made or makes money hauling people. Never did and never will. The bus companies, the railroads and the airline industry have all rued the day they started hauling passengers. If I had been a railroad CEO the day Amtrak went into business I would probably have gotten drunk out of giddiness. There are no solutions and European governments are divesting themselves of passenger trains as fast as their constiuents will allow them to. Hauling passengers is a bottomless hole from whcih there is no escape not even by filling it with money from people who don’t want or can’t use the service.
Assuming a 40-50% farebox recovery rate, look at the fare on your commuter rail, transit or Amtrak ticket and double it…and ask yourself if the product is worth the price.
I have yet to receive my issue, but I am sure Commissar Phillips recycles the same rants as in the past, etc.
With Bank of America/Countrywide writing a portion of the $300 Billion Senate housing bailout, I am sure the railroads would get a crack at writing the Railroad Investment Act of 2009.
We can even wait trackside…err…I mean on a public sidewalk for a chance to take a picture of the Pork Barrel Special rolling through town.
I have read Mr. Phillips latest article and it does come across to me as his same old line. He is quite taken with the idea that government must run things in order that they are done right. I dealt with many government agencies on all levels for much of my career and I think he’s “full of beans” but that’s just my opinion based on my experiences. I do wish TRAINS would publish another critic besides him that would couterbalance his viewpoint so the readers get different editorial viewpoints.
As for the comment in another post that no one can make money carrying passengers, that’s not true from a historical basis. Various airlines made money in the past and Southwest might even end up this year in the black. Some of the carriers looked like they were turning the corner until the current upsurge in fuel. Private transit systems often made money until the widespread use of the auto. Intercity Bus companies made money for quite a few years. Rail passenger service generally made money, with the help of the US Mail, until the combination of the auto and the Great Depression. It was actually the locals and the passenger light density lines that were the major rail passenger financial drain until the advent of modern air travel along with the interstate highway system. People tend to forget that while the loss of the US Mail was the final straw for non-commuter rail passenger service, it was also the failure of both the rail Unions and their members and the Federal Government to accept reality and change with the times that greatly contributed to the demise of passenger rail.
Well, I finally received my magazine to check out the column. Mr. Phillips states he doesn’t want to get political but then does throughout the entire piece. He seems to blame President Bush for the lack of a transporation strategy, Federal overspending, and the ongoing wars.
But Congress assembles, debates and actually approves all those expenditures, adding special-interest, pork-barrel spending along the way.
He once again talks of the rails grinding to a standstill due to lack of capacity, yet doesn’t mention declining rail traffic and reduced dwell times experienced by the majority of railroads. I railfan the BNSF Transcon weekly, and there is a noticeable lack of freights from a year ago.
He does point out that California is ahead of the game…but CA passed prop. 108, 111 and 116 in 1991 ($18 billion for public transportation), which paved the way for the creation of Amtrak California and expanded Pacific Surfliner, Capitol Corridor and San Joaquin services. In 2006, CA passed Prop. B which increased spending another $19 billion ($4 billion for rail)
States that want expanded rail service need to bite the bullet, and pay for it.
Airlines and bus companies make money carrying passengers. Over time they have to generate net income or they go out of business, although they can have some really bad years. This is the nature of business.
Most of the nation’s airlines had a relatively good financial year in 2007. This year is likely to be much more difficult, given the dramatic increase in fuel costs. Many of the nation’s carriers will finish the year in the red, although Southwest is projected to have positive net income for the year.
Southwest Airlines had an operating profit of $838 million, with net income of $590 million, for the four quarters ended October 31, 2007. However, it is not the only U.S. carrier that made money on domestic operations. Other domestic or largely domestic carriers, e.g. AirTrans, Air Wisconsin, American Eagle, etc. had solid operating profits. In fact, most of the carriers had a positive return on their domestic operations, although the big carriers had a better return on their international operations.
U.S. passenger airlines with annual revenues of more than $20 million had a combined return of $7.4 billion on operating revenues of $130.9 billion and realized a combined net income of $4.6 billion.
Operating profits were 5.7 per cent of revenues or sales, whilst net income was 3.5 per cent of revenues. These margins are slim when compared to many businesses, but they are solid for the airline business, which has always operated with razor thin margins. It is the nature of the business.
Had it not been for an extraordinary net income loss at Comair ($479 million), the country’s largest carriers would have realized net income of $5.5 billion or 4.2 per cent of revenues. The extraordinary item was related to Comair’s crash in Ohio.
Airlines and bus companies make money carrying passengers. Over time they have to generate net income or they go out of business, although they can have some really bad years. This is the nature of business.
Most of the nation’s airlines had a relatively good financial year in 2007. This year is likely to be much more difficult, given the dramatic increase in fuel costs. Many of the nation’s carriers will finish the year in the red, although Southwest is projected to have positive net income for the year.
Southwest Airlines had an operating profit of $838 million, with net income of $590 million, for the four quarters ended October 31, 2007. However, it is not the only U.S. carrier that made money on domestic operations. Other domestic or largely domestic carriers, e.g. AirTrans, Air Wisconsin, American Eagle, etc. had solid operating profits. In fact, most of the carriers had a positive return on their domestic operations, although the big carriers had a better return on their international operations.
U.S. passenger airlines with annual revenues of more than $20 million had a combined return of $7.4 billion on operating revenues of $130.9 billion and realized a combined net income of $4.6 billion.
Operating profits were 5.7 per cent of revenues or sales, whilst net income was 3.5 per cent of revenues. These margins are slim when compared to many businesses, but they are solid for the airline business, which has always operated with razor thin margins. It is the nature of the business.
Had it not been for an extraordinary net income loss at Comair ($479 million), the country’s largest carriers would have realized net income of $5.5 billion or 4.2 per cent of revenues. The extraordinary item was related to Comair’s crash in Ohio.&
I am not a free-market purist and that Amtrak or airlines or sports teams receive subsidies does not bother me to the degree it does with some.
But.
The size of the Amtrak appropriation is a major item of contention of the Amtrak critics, some of them Libertarians, some of them closet Highway Lobby people, some of them “deficit hawks” or “anti pork-barrel spending”, or whatever reason.
We say Amtrak is “underfunded” at a billion+/year when aviation is getting, say 15 billion and highways around 40 billion. The critics counter that Amtrak is “overfunded”, even when dismissing the “self funding” of the Aviation and Highway Trust Funds through airline ticket and transportation fuel taxes. Amtrak may be getting a small percentage of total transportation funding, but it is getting a high degree of funding in subsidy per passenger mile by orders of magnitude, and all of it comes from General Revenue.
They say Amtrak is subsidized. We say, oh yeah, what about all of that subsidy going to those “other modes.” They say, oh yeah, what about that subsidy because Amtrak is funded at ten times the rate (does this point need all-caps, exclamation points, or red letters?). Then we say that the other modes have all manners of indirect subsidies, and so on.
And then we say, look how the airlines are in crisis and are losing money, it is only a matter of time before they require high rates of subsidy. Oh gosh help us, if the Amtrak experience is any guide, it is then only a matter of time that we are spending 100 billion/year on transportation subsidy or making do with a greatly diminished air transportation system.
Here is the Grand Bargain. I believe that we are past the times when the Libertarian position prevails that transportation will have to do without subsidy or government intervention. I also think that most non-railfan people are accepting of the fact the Amtra
I’d be keen to see some hard data to support the contention that the airlines have had negative retained earnings since their inception.
An equity business can be viable for a period even though it is racking up loses, but not for as long as the airlines have been collectively in business. One can argue that the airline business could not survive without government subsidies; although as I have shown, most of the subsidies have been paid indirectly by the users.
It is true that Southwest Airlines, as well as the other new carriers, have a financial advantage over the legacy carriers. Instead of opting for expensive legacy pension plans, they gave their employees 401ks. Most of them supplement employee contributions to the 401ks, but at the end of the day they are less expensive than the traditional pension plans. This is part of the advantage. But a bigger part of the advantage accrues to better management. Southwest Airlines decisions to use just one model of airplane and hedge its fuel are two examples of smart management.
To the best of my knowledge American has never been in bankruptcy or at least not for as long as I have lived in Texas, which is coming up on 33 years.
I would be equally keen to see the Laidlaw financials, by operating division, to assess whether Greyhound dragged them into bankruptcy. I have heard, although not been able to verify it, that sloppy management and the other operations did the trick.
First Group executives, i.e. CEO, CFO, and COO for North American Operations, are stating publicly that Greyhound is generating a positive cash flow. Given the sensitivity to honest financial reporting in a post Enron world, I would be surprise if they are cooking the numbers. It is interesting to note that First Group, because of hedging, paid an average of $74 a barrel for oil in 2007. This is slated to increase to slightly more than $80 in 20
Samantha has pointed out one key variable of the discount airlines (pensions) that doesn’t get discussed enough. No company in its right mind goes with a defined benefit retirement plan for its employees anymore unless its locked into one by contract or law. Side Note: That’s also one of the reasons for sending jobs abroad if your company is indeed locked into one. All the news media and politicans focus on the lower wage cost of foreign labor but retirement/fringe benefit (including medical) costs as well as corporate income (and property) taxes (Federal, state, local) also play major roles.
As for her comment about Amtrak changing its model, its a political and bureaucratic organization so it will never change its model unless forced to by the Congress and Executive branch. Since politicians and the unions have a stake in the status quo, I don’t forsee that happening.
Question for someone: the last time I was in the Trenton, NJ station arround Christmas in 2002, there were 2 ticket sellers for Amtrak and two for NJT (and I presume they handled SEPTA too although I can’t remember). Although the station was very crowded, the two NJT’s weren’t that busy and the two Amtrack sellers were just sitting around the hour or so I was there. It was pretty obvious to me that two or at least just 3 ticket sellers could have handled it all if they could sell all the tickets. At the time, I remeber thinking that’s a waste of Amtrak’s money. Has the staffing situation changed at all in Trenton since then, ie. ticket machines?
I’ve wondered the same thing, why 2 sets of employees selling tickets, these are not operating employees, they’re ticket agents. But it’s not just the trains. Camden and Philly, Greyhound and NJTransit share bus stations, but have separate ticket windows and agents.
Anyway there’s still more than 1 agent for both Amtrak and NJT at Trenton. But it’s not just Trenton, although that’s one of the few places where the agents are near each other and the 2 agencies’ trains always use the same platforms, and New Haven’s the only place I can think of where the Amtrak trains serve the same stops as all of the local trains. Philly 30th St, Newark NJ and New York Penn also have separate ticket agents, but some of those local trains go to lines that Amtrak doesn’t serve. I assume the other Wash-Boston stations have similar agent arrangements.
Bear in mind that Trenton to New York passenger loads have increased since 2002, so even with increased ticket vending machines they might also still need to maintain the same manpower level.
One advantage the Europeans have is that Europe is made up of relatively small countries all packed together, so there are many runs in the 2-3-400 mile range that are ideal for train operations. America has a few places like the Northeast corridor where this is true, but most US and Canadian runs are much longer - making airline travel more appealing for most people.
Keep in mind when talking about subsidies that passenger trains were always subsidized, either by state/federal land grants to the railroads or by mail contracts. The steady trickle of passenger train abandonments became a torrent once the mail was taken off of trains in the early 1960’s.
Oil prices may temporarily go down in the future, but in the long term they’re going to continue to go up, since we’ve basically reached the peak of production in world oil - that is, we’ve used up the first 50% of the world’s oil, the oil that is easiest to find, transport and process. If we don’t continue to support - and in fact, expand - passenger service, we’re likely to be stuck in the future with autos that are too expensive to drive, and no way to go city to city by rail in an efficient manner.
the land grants would have subsidized the freight as well as the passengers.
Was the government giving inflated compensation for the mail contracts? If they were an honest price for an honest day’s work then they were not subsidies from the government to the railroads. The railroads may have accounted for the revenue so one money making division was subsidizing another
we don’t know that we’ve used up 50% yet. We can only know what we’ve used so far, and what we’ve found already. We can estimate what we expect to use in the future. We can guess how much we expect to find in the future. What we haven’t found, which is probably not the easiest to find, transport and process, is unknown. It could be less than what we know we have now, or it could be more.
I doubt that its true we’ve used up 50% of the world’s oil. Too many environmentalists, media types, and politicians talk about “old oil” but ignore the large strides currently being made in the production of oil from new sources. Examples: the oil sands in Canada and now the potential of oil shale deposits and making oil from coal in the USA. And the technology to safely recover oil from the seas keeps growing. Alternatives hold the future when it comes to producing power, particularly modern nuclear (if the politicians will let us), but anything to replace the gasoline and diesel engines is a long way off into the future. Even if the technology to do so is eventually developed, it will take many years before the change over can be basically completed.
There has always been subsidies for railroads (and all other American businesses). Charters, subscriptions, bond authrizations, grants, government contracts, US MAIL, patents, land grants, donations, and on and on. And anybody in the business of moving people does not make money from doing so, especially if not subsidized with traffic control, rights of way, terminal, policing: it is whatever “extra” an operator can charge for that may make money. This is true of buses and airlines as well as railroads. But the subsidies to highway and air transportation is measured in hundreds of billions of dollars annually while rail rarely makes it to a billion here or there. And further, this country has never had a Federal transportation policy beyond fiscal supports: no planning, no coordination, no comprehensiveness. Many have pushed for such a policy for years but it has fallen on deaf ears and otherwise open pocketbooks. Now push is shoving and congestion, environment, and energy are converging as major issues which have to be addressed in the transportation arena in order for us to both move freely and move goods and resources economically and safely. No one form or method of transnportation is a whole answer, so discussion and private and public sectors pocketbooks have to remain as wide open as necessary and prudent to meet the future.
Most American businesses have not been subsidized. Most of them are small to medium sized entities, sometimes referred to mom and pop shops. They have created most of the jobs in the United States.
Most forms of commercial transportation have been subsidized, at least in some form, since the beginning of the country. But at the end of the day, at least in recent times, the seat mile subsidy for passenger rail has dwarfed that for air or buses or any other form of commercial transport many times over. It is not even
As far as airlines are concerned, if the figures you stated, Samantha, are so great how come the airline insdustry is rife with cutbacks, layoffs, bankruptcies, and mergers? On the other hand since those figures are so good, then my tax dollars supporting airports, air traffic controllers, research and developement for the military (from whence come commercial aircraft designs), etc., should be paid back somewhere along the line and there should be no need for cutbacks, layoffs, bankruptcies, and mergers.
When it comes to business subsidies there are very few mom and pop operations of any kind any more. Retail complexes are built with tax breaks, easements, and “other concessions”; then the mom and pop operations rents from them. Large manufacturing facilities are given many of the same breaks for taxes, utility aid, etc. as communities bid or compete to attact them. In the past, communites and state legislatures, would guarentee bonds and offer other incentives and help to businesses, even allowing monopolistic practices (from 1776 in this country). Don’t be fooled by the “free enterprise” mantra…it never really existed except as a propaganda weapon to keep us from “socialization”. Business and governement always has been, and always will be, and should always be, a partnership of community and business development for the benefit of all.