This Week at Amtrak; November 26, 2008
A weekly digest of events, opinions, and forecasts from
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Volume 5, Number 31
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1) Joy! We’re still 24 hours away from the official start of the Christmas season when Santa Claus brings up the rear of New York City’s Macy’s Thanksgiving Day Parade, but the holidays are coming a wee bit early.
Today, the Amtrak Board of Directors chose one of its own as Amtrak’s Interim President and Chief Executive Officer for a term of one year, while the board searches for a permanent replacement for the departed Alex Kummant.
Why the unrestrained happiness? Because the board has acted like a normal, professional corporate board and made a wise decision to elevate one of its own members into a daily executive position to keep the company on an even course (Even though that course may be very wrong if it continues to emphasize short distance corridors.).
Federal Railroad Administration Administrator Joseph Boardman, who will be leaving that position January 20, 2009 when the new administration takes power in Washington, and has served since 2005 as the United States Department Secretary of Transportation’s designee on the board, starts his new job today as Amtrak’s Interim President and CEO. It’s a very common occurrence for a sitting board member to take daily control of a company when its chief executive is removed in a unpleasant way, as was Alex Kummant earlier this month.
Here’s the official press release from Amtrak.
Amtrak Media Relations
AMTRAK SELECTS TRANSPORTATION INDUSTRY VETERAN AS PRESIDENT & CEO
WASHINGTON – The National Railroad Passenger Corporation Board of Directors announced today that it has chosen Joseph Boardman, a nationally recognized transportation industry professional, to become president and chief executive officer of the company, effective November 26.
Boardman offers nearly 34 years of experience in the surface transportation industry at city, county, state, and federal government levels; most recently as the administrator at the Federal Railroad Administration.
"In an attempt to maintain the momentum at Amtrak, while finding a permanent CEO candidate, the board has appointed Mr. Boardman for one year, but will conduct a search in the coming months for a permanent CEO," said Board Chairman Donna McLean. She added that "Amtrak is at a critical juncture and needs a vigorous management vision and ability to take advantage of this unique time. The board has unanimously chosen Mr. Boardman in this capacity because we have complete confidence that his depth of experience and leadership skills will allow Amtrak to maintain growth and implement the requirements of the recently enacted authorization legislation."
"Joe Boardman knows the industry extremely well, but what makes him exceptionally qualified for the position is that he has the unique perspective of having known Amtrak as a customer and state partner, administrator, and has been involved with Amtrak, in one role or another, over the course of many years," said board Vice Chair Hunter Biden. "Joe is the right person to help Amtrak during this important period," he added.
Having served as administrator of the Federal Railroad Administration since April 2005, Boardman was the Department of Transportation designee on the Amtrak board of directors. Prior to his tenure at FRA, he served as commissioner of the New York State Department of Transportation beginning in July of 1997. There, Boardman led a transformation effort that better enabled the agency to respond to the challenges associated with an expanding global marketplace. In this capacity, Boardman was deeply involved in the operation of the large complement of Amtrak service in the state. In addition, he was chief operating officer of Progressive Transportation Service, Inc., a transportation management company. He was chairman of the Executive Committee of the Transportation Research Board in 2005 and chair of the American Association of the State Highway and Transportation Officials’ Standing Committee on Rail Transportation from 2000-2005.
"I am humbled that the board selected me to lead the company, on an interim basis, at this very exciting time. Over the past decade – in one capacity or another – I have been an active participant in the affairs of Amtrak. I have come to know the company, the culture, a number of employees, and I am keenly aware of the challenges facing us right now," said Boardman. "In my view, a national intercity, interconnected passenger rail service is critically important for the mobility and energy independence of the United States."
Joe Boardman fills the position following the departure of Alex Kummant earlier this month. Chief Operating Officer William Crosbie served as acting CEO in the interim. "The board is grateful to Bill Crosbie for his dedication to Amtrak and for managing the company during the transition," McLean added.
Boardman is a lifelong resident of New York, and is the second of eight children born and raised on a dairy farm in Oneida County, which two of his siblings currently operate. In 1966, he volunteered for service in the United States Air Force, serving in Vietnam from 1968 to 1969. Upon receiving an honorable discharge from the Air Force, he earned a Bachelor of Science in Agriculture Economics from Cornell University in Ithaca, N.Y., and a Master of Science in Management Science from the State University of New York at Binghamton. He presently resides with his wife Joanne in Washington, D.C., and has three grown children.
Many will recall Mr. Boardman’s outrage as commissioner of the New York State Department of Transportation when Amtrak took New York’s money to upgrade and rehab the Turboliners, which were owned by the State of New York and promised for service between Albany and New York City, and then mothballed by Amtrak management because it claimed the Turboliners used too much fuel and carried too few passengers. The train sets were stored out of New York State, and Mr. Boardman let Amtrak know of his unhappiness of the whole mess. Now, he’s running the company. How much better can it get than this, that someone former Amtrak management scammed in recent history is now running the company?
It is important to make note of his statement, "In my view, a national intercity, interconnected passenger rail service is critically important for the mobility and energy independence of the United States." If this statement is interpreted correctly, he’s saying "national intercity" as in "all over the country," "interconnected" as in a "seamless system with decent connections and a smooth flow of traffic," and "mobility ... United States," which, again emphasizes the entire country, and not just relatively useless short, disconnected corridors.
The coming actions of Mr. Boardman hopefully will give us a better view of how the Amtrak Board or Directors believes Amtrak should fulfill its mission of providing a truly nationwide passenger rail service to cities and towns both large and small.
2) Some further information has become public, courtesy of Paul Weyrich, Chairman and CEO of the Free Congress Foundation in Washington, D.C., and former member of Amtrak’s Board of Directors. The following column appeared Monday, November 24th in newspapers around the country, and was released the next day (yesterday, Tuesday, November 25th) through the Free Congress Foundation’s daily commentary service.
Here is Mr. Weyrich’s information.
Free Congress Foundation Commentary
The Possibility of a Better Future for Amtrak
By Paul M. Weyrich
November 25, 2008
The 111th Congress recently passed an authorization bill which provides more money for Amtrak than any bill passed in history. President George W. Bush signed the bill. For the first time Amtrak has been granted more money than required to keep the railroad operating. True it is that the appropriators will determine how much money Amtrak actually receives. But for the first time the President-elect has said he supports Amtrak. Moreover, the Vice President-elect rode Amtrak to and from Wilmington, Delaware every day Congress was in session from 1973 through 2008. He said, "I intend to see to it that Amtrak will become a first-class railroad." Amtrak has been carrying a record number of passengers on almost all its trains. Even with gas prices dropping Amtrak has continued to set new records. This is as close to Nirvana as it gets.
So why would Alex Kummant abruptly resign at this moment when an Amtrak President finally can accomplish something? The explanation given by Amtrak itself was inadequate and maybe disingenuous. He has been unavailable to comment. Amtrak officials zipped up like a third-grader’s snowsuit. We don’t know whom the Board has in mind to take Kummant’s place. Amtrak Presidents in the post-Graham Claytor era have not lasted long. With a new more sympathetic Congress, some stability would be appreciated.
After weeks of trying to learn what was going on, I finally determined that there apparently was a personality conflict between Kummant and the Board. It began back in Seattle at an off-site meeting when the Board believed that Kummant talked down to them. Matters continued to deteriorate all summer. It seems that Kummant thought the Board ought to set broad policy and should not be heard from again. Having served on that Board for six years I can tell you that the Board is very active. I was Chairman of the Strategic Marketing Committee. I was continually in touch with management people in my area. In fact, I was the first person on that Board to challenge some of the policies of Graham Claytor. The more the Board continued to intervene in management matters, the more Kummant resented it. Finally the Board made it clear that it regarded Kummant’s tenure as the equivalent of a bad marriage. In fact, Kummant and the Board engaged in a nasty exchange of e-mails. The Board set about trying to come up with a statement which would have given Kummant cover. The decision to let him go was made some time before he actually left. The story got out because Kummant’s packed boxes were seen. Also, a complex California trip which had been designed for Kummant was cancelled. Instead it was an extremely tense time at Amtrak. The Acting President is someone whom David Gunn had brought in. At age 44 he has had a long career in Canadian railroading and transit. He has dual Canadian and America citizenship. His tenure is thought to be short-lived. The Board apparently had been searching for a new CEO even while Kummant was still in charge.
So watch for an announcement, perhaps at the first of the year, of a new CEO who understands that the Board will be active in management issues. Whoever it is will come in at an unprecedented time for Amtrak. The railroad always has had strong support in Congress. This is the first time since President Richard M. Nixon signed the Amtrak Bill against the advice of his aides Haldeman and Ehrlichman that the railroad will have strong support from the Executive Branch. Perhaps this time the Board will come up with a CEO who will cultivate better relationships with Board Members. If there is such a person he or she probably will have a long tenure. If the new person could get along with Board Members life at 60 Massachusetts Avenue, NW, would be much better.
Paul M. Weyrich is Chairman and CEO of the Free Congress Foundation.
3) So, what is Mr. Boardman walking into? Let’s go to the blackboard.
Everyone has seen Amtrak’s constant happy talk about rising ridership and revenues. Yes, well, that’s all very nice if you believe in Santa Claus (If you do believe in Santa Claus, please stop reading, now.).
We will start with Amtrak’s annual report for fiscal year 2007. Keep in mind these are Amtrak figures. Waaaaay in the back of the annual report is a page of performance indicators. A table is shown, displaying figures from FY 98 to FY 07, a 10 year period. Take a look at some of the comparisons.
Federal operating grant (free federal monies) – FY 98, $202 million; FY 07, $485 million, an increase of 140%.
General capital funding – FY 98, $134 million; FY 07, $772 million, an increase of 476%
Operating ratio – FY 98, 1.50; FY 07, 1.48 (Operating ratio is total expenses to total revenue; a profit is only shown when the ratio is under 1.)
Current assets – FY 98, $868 million; FY 07, $605 million, a decrease of 30%
Current liabilities – FY 98, $621 million; FY 07, $960 million, an increase of 55%
Working capital ratio – FY 98, 1.40; FY 07, 0.63, a ratio less than 1 indicates negative working capital
Year-end cash, cash equivalents, and short-term investments – FY 98, $275 million; FY 07, $234 million, a decrease of 15%
On time performance, systemwide – FY 98, 79%; FY 07, 69%, a decrease of 10 percentage points
Systemwide passenger miles – FY 98, 5,304 million; FY 07, 5,654 million, an increase of 7%
Systemwide seat miles – FY 98, 11,426 million; FY 07, 11,568 million, an increase of 1%
Systemwide load factor – FY 98, 46%; FY 07, 49%, an increase of 3 percentage points
Systemwide route miles – FY 98, 22,000; FY 07, 21,000, a decrease of 5%
Train miles – FY 98, 33 million; FY 07, 37 million, an increase of 12%
Passenger miles per train mile – FY 98, 160.7; FY 07, 151.4, a decrease of 6%
Ticket yield (ticket revenue per train mile) – FY 98, 17.8 cents; FY 07, 26.9 cents, an increase of 51%
Yield (Passenger related revenue per passenger mile) – FY 98, 18.9 cents; FY 07, 27.9 cents, an increase of 48%
Average length of trip, per passenger – FY 98, 251.4 miles; FY 07, 219.1 miles, a decrease of 13%
Total revenue per seat mile – FY 98, 14.9 cents; FY 07, 19.5 cents, an increase of 31%
Total expense per seat mile – FY 98, 23.1 cents; FY 07, 29.2 cents; an increase of 26%
Core revenue per seat mile – FY 98, 11.3 cents; FY 07, 16.4 cents, an increase of 45%
Core expense per seat mile – FY 98, 18.8 cents; FY 07, 26.1 cents, an increase of 39%
Systemwide ridership – FY 98, 21.1 million; FY 07, 25.8 million, an increase of 22%
Stations served by Amtrak – FY 98, 508, FY 07, 497, a decrease of 2%
• Federal operating grant – 140%
• General capital funding – 476%
• Operating ratio (declined, which is a positive increase)
• Current liabilities – 55%
• Systemwide passenger miles – 7%
• Systemwide seat miles – 1%
• Systemwide load factor – 3 percentage points
• Train miles – 12%
• Ticket yield – 51%
• Yield – 48%
• Total revenue per seat mile – 31%
• Total expense per seat mile – 26%
• Core revenue per seat mile – 45%
• Core expense per seat mile – 39%
• Systemwide ridership – 22%
• Current assets – 30%
• Working capital ratio from positive to negative
• Year-end cash – 15%
• On-time performance by 10 percentage points
• Systemwide route miles – 5%
• Passenger miles per train mile – 6%
• Average length of trip, per passenger – 13%
• Stations served by Amtrak – 2%
More reporting areas increased than decreased. But, it’s the critical areas which decreased which make such a difference:
– Amtrak has a negative working capital ratio, meaning it’s always starved for ready cash
– Current assets are down, giving the company less to work with for growth potential
– On-time performance went from bad to abysmal, and puts the company in a bad light with its passengers
– Systemwide route miles declined, shrinking the system and providing less opportunities for growth
– Passenger miles per train mile declined, meaning fewer passenger were on a train at any one time a train was moving one mile
– The average length of trip sharply declined, and when combined with fewer passenger miles per train mile means Amtrak’s actual transportation output declined (further rendering the ridership figures even more meaningless)
– The number of stations Amtrak serves declined, meaning Amtrak has the potential to reach fewer and fewer Americans.
Some of the areas which increased bring negative results, too.
– A larger federal operating grant means Amtrak was unable to run its own trains with its own resources by a greater deficit.
– A larger general capital funding grant means more things had to be fixed or upgraded, and the physical plant is deteriorating.
– Current liabilities soared, meaning more money is owed, creating more interest expense.
– Total expense per seat mile almost kept pace with total revenue per seat mile, negating gains.
– Core expense per seat mile almost kept pace with core revenue per seat mile, negating gains.
Overall, this is a dismal picture. Amtrak is standing on the steps of the coliseum playing its fiddle while Rome is burning all around it. Amtrak’s foolish and desperate public relations fog it has created to mask its true performance in the end will only hurt the company and the efforts of any honest president and CEO to turn the company around with real financial performance so when it is time to figure costs and benefits of new equipment, new routes, and new trains, the figures will be so skewed no one can make sense of them.
Hopefully, Mr. Boardman, working in harmony with the Amtrak Board of Directors, will cease all of this public relations silliness and start concentrating on the real work of improving Amtrak financially, so the rest of the company can naturally grow.
Here’s a final example. Amtrak says it had a 49% systemwide load factor for FY 07. That’s about 16% lower than it should be for a common carrier to even begin to break even. Amtrak says for the same period of time it took a federal operating grant of $485 million to run every train in the system beyond the revenues generated by the trains.
Okay, if Amtrak is running a 49% load factor, that means the load factor can be increased to 65% without any additional costs of equipment, personnel, stations, or other most major cost factors. We will be talking about very minor increases in items to take care of a larger group of people, and very small incremental costs of the reservations system. But, no increases in extra cars or locomotives or onboard employees because all of these things are in place to serve the current 49% load factor.
So, we spend an extra $25 million in marketing to attract an additional 16% load factor on current trains on current routes on current schedules. Suddenly, we’re up to a 65% load factor. What revenue did we gain by spending that $25 million? Based on current Amtrak figures, an addition 16 percentage points of load factor generates an additional $277 million dollars, with no increases in operating expenses. That $277 million, less the $25 million for increased marketing, leaves $252 million to reduce the federal operating grant need to $233 million systemwide. Using this same logic by adding additional coaches and sleepers to existing trains and/or adding new frequencies on existing routes which will not add any infrastructure costs such as stations costs, and, suddenly, Amtrak’s need for federal operating grants (free federal monies) quickly and easily disappears. That leaves only capital needs which can be dealt with much easier without operating grants, and silly numbers like the Sunset Limited losing over $400 per passenger. With only capital needs for the NEC and a few other isolated spots, there are no losses per passenger.
No matter how much whining there is from those who falsely believe government has to run a passenger railroad because someone says it has to lose money, it’s tough to argue with cold, hard, facts. From a purely operating standpoint, Amtrak is not that far away from running a company which needs operating grants.
We will leave it to other issues of TWA to delve into Amtrak’s unholy accounting, and how many accounting items are mis-categorized and mis-labeled. It’s entire possible that today the long distance system, consisting of the Empire Builder, California Zephyr, Southwest Chief, Sunset Limited, Coast Starlight, City of New Orleans, Lake Shore Limited, Crescent, Silver Meteor, Silver Star, and Auto Train already operate without the need for operating subsidies if everything in Amtrak accounting was properly labeled an allocated.
4) We welcome Mr. Boardman as a learned caretaker of Amtrak’s presidency. We welcome the Amtrak Board of Directors making such a decision in the best interests of the company while the political landscape calms down from the presidential election and change of power in Washington. Even though such an interim appointment in the past brought us the late George Warrington and the accompanying disasters (many of which are reflected still today in the numbers above) when he was permanently awarded the top job, we can’t help but hope for a better Amtrak and a better future under a permanent, new president in the next year.
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