Q&A with Amtrak President Alex Kummant

BOSTON Thu Jun 12, 2008 5:12pm EDT

BOSTON (Reuters.com) - As oil prices surge, many Americans are rediscovering the railroad. Amtrak, America's struggling passenger railroad, saw record numbers in May when ridership rose 12.3 percent from a year earlier, and ticket sales climbed 15.6 percent, according to company data. Reuters Boston Bureau Chief Jason Szep spoke with Amtrak President Alex Kummant. What follows are excerpts from that interview.

Q: What has been the effect of gas prices on Amtrak's ridership?

A: "We are clearly growing at an increasing rate. Two years ago we grew a little more than 1 percent ridership. Last year 6.3 percent and this year we believe certainly ridership will grow north of 10 percent and we might hit 11 percent year over year growth. It depends on the service but certainly our ridership growth is linked to the fuel prices. And we would say roughly that system-wide about half of our growth is because of overall gasoline prices. It varies a little bit by service. We also believe we have been better at retaining customers over the last few years than we did perhaps five years ago. We have worked very hard on the product. Our on-time performance on the Northeast Corridor is very strong. The last two years we have flirted with 90 percent on-time performance with the Acela but we are certainly north of 85 percent on time, which is significantly better than the airlines and on a tighter window.

And in market share - if you take air-rail share on the Northeast Corridor combined - we are up to 63 percent share between (Washington) D.C. and New York and 49 percent share between New York and Boston."

Q: What is the barrier to expanding the high-speed Acela service?

A: "We are up against capacity limits. On the Acela product overall, again in round numbers, we move 3 million plus on Acela and 7 million plus on what we call the regional product. But we are in near sold-out conditions in the peak hours, certainly out of New York and out of D.C. We would say we have less than 10 percent capacity left on Acela . On the regional product there's probably something a little south of 20 percent, maybe 15 to 17 percent yet. "

Q: Do you need more investment to bring on rolling stock (added cars)?

A: "Fundamentally it comes to rolling stock. And even with the Acela product, it is time to start looking at a replacement for that product. If we started today, particularly with a high-speed product, and we said we need to replace that. It would be six to eight years until one got a serious flow of new equipment in, so there is work to be done there. And frankly at the end of the day we don't know where that capital would come from other than really a stand alone appropriation.

At some point, someone has to look at the Northeast Corridor operation and say if we really want new equipment there we - and we're talking in the end multiple billions of dollars just for the equipment - we have to start looking at that now and we have to start getting serious about funding that as well."

Q: How much of that $14 billion authorized by the House do you expect to reach Amtrak?

A: "To give you a sense of the capital flow, we today get between $500 million and $600 million a year on capital. We asked for the coming year for $800 million. We could easily spend twice of that if you look at the state of the repair backlog. And if you look at the appropriation, the kind of sliding scale here, the capital grants range in 2009 from $1.2 billion to $1.4 billion. The states themselves in the state grant actually end up having access to about 40 percent of that. So in round terms that moves our number from $600 million to a $1 billion. That's an important and significant increase. But it still doesn't leave that much headroom for additional equipment. So if you are still talking about a multi-billion type of acquisition program to replace all the equipment in the Northeast Corridor I think we have to look at more than that."

Q: Nationwide, what are the barriers to high-speed rail in the United States?

A: "Clearly, we would all love to have TGV-style 200 mph trains. But there are a couple of things there. Those are tens of billions of dollars of investment. So the question becomes: How do we find the public, financial and political lift for that'. We get beaten up every day over raising an appropriations request for $40 million. And in the next breath we are asked Well, when are you going to go high-speed?' And the answer is If you have $40 billion we will talk about it'.

So there has to be a genuine political will and genuine political headroom to do that. Not to go too far afield here, but it begs the overall question on When is the federal government going to get serious about fundamental spending on infrastructure in this country like it did in the 1950s and early 1960s. We are way below the GDP levels of spending as a percentage of the federal budget. That's a question for people that are in a higher pay grade than I am in terms of the political realities here. But that's still what it comes back to.

Now, that being said, my life is one of pragmatism. There's an old definition of engineering I love which is to be able to do for $1 what any damn fool can do for $2. There's actually an awful lot that we can do with single digit billions. And if you talk about 100 to 110 miles an hour you can expand capacity along existing freight lines. You can buy capital equipment. And you can expand facilities. And you can do an awful lot.

Take for example 100 to 300 mile routes, going 110 miles per hour is not a bad thing at all. We have a great example, the Keystone Corridor, that we got up and running a little over a year ago - 110 mph, a nice electrified line, pretty good railroad and that ridership has grown dramatically. And it's a very successful service from Harrisburg to Philadelphia. And we can do that in a lot of different places given some capital.

Take for example, Chicago-Detroit, we actually own 96 miles of railroad in that stretch where we could go 110 miles per hour. There's another stretch into Michigan where if you spent $100 million you could get signalings and sidings up, which leaves you with the stretch into Chicago which is highly congested. But for let's say less than $1 billion you could build that out. You could go 100 miles an hour between Chicago and Detroit. That would be highly competitive."

Q: Do you think the outcome of November's elections will lead to a change in the national will when it comes to Amtrak?

A: "If you look at the history of Rs and Ds (Republicans and Democrats) in the Big Office, the funding that Amtrak has gotten is not always correlated with party. In fact, what we sitting in this office find most important is the engagement and interest of the Secretary of the DOT. So I think a lot comes down to who he or she who is in that office. If you have a DOT Sec who is very interested in passenger rail, things can happen as well."

Q: Is there a goal for Amtrak to be profitable, and should it be profitable?

A: "I think it is absolute mythology that there's any national system that is profitable. And I think the naysayers just have to get over it. There is no example. If you peel apart the British rail privatization, there were a tremendous numbers of problems with that. People say Oh look at these wonderful new trains running around here. It's all because of the miracle of the private market.' That's complete nonsense. There's a bunch of new trains running around there because they spent five times as much tax money today as they did in 1990. And actually if you look at the subsidy structures, we are awash in subsidies for all modes of transportation. There's a $10 billion a year cash transfer from the general fund to the Highway Trust Fund. FAA gets $2.7 billion. We pay all security at Amtrak and yet there is a $1.5 billion subsidy that goes beyond any user fees for security in air travel.

There's $8 billion that goes into security and life safety for cruise ships. There's four-plus billion dollars that goes to waterways. Let's not even get into airport construction which is a miasma of state, federal and local tax breaks and tax refinancing and God knows what. And then there's private aviation which gets huge subsidies in accelerated depreciation loss for small aircraft. So I always get a good chuckle, if I'm in a good mood, when people talk about subsidized Amtrak. It's always a lot of fun then to reel off every other mode that is subsidized. And one final point. If you actually look at the amount of public capital that flows into the rail network per passenger, it's like $40 a passenger for Amtrak and $500 to $700 per automobile out there through the highways.

One final point is that the network matters. So you can find some juicy little piece of railroad that has just the right density and say Wow we make money here'. But guess what? If you peel that out and privatize it, your costs for running the rest of the network just went up. And it's actually connectivity that matters. So it's an entire network that matters. And if you don't have an entire network, you end up with a ridiculous patchwork of short little lanes of things that make no sense from a national system."

Q: Talking about a national system, do you think at some point Amtrak has to own its own tracks if it wants to forge a competitive national network?

A: "No, not necessarily. It's something you would love to have. But that's just not going to happen. Let me also make a statement. The freight railroads themselves are beginning to recognize that they are going to need public money to flow into capacity dollars for their network. Otherwise they are never going to be able to really meet demand. And I think they are beginning to realize that they can do that in partnership with passenger rail: that we really should become - or are in the early stages - of really becoming one political alliance.

The freight railroads have done amazing things in the last 10 years in terms of the freight they are moving. They are moving about twice the density of freight they did in 1990 if you look at ton miles moved per mile of class 1 railroad. They are really pushing the capacity. And yet even though they are highly profitable these days they are at the lowest rungs in industry of return on capital. They cannot continue spending 17 percent of revenue on capital and build out the capacity. Therefore there is going to have to be public money that flows into the freight network, and certainly passenger rail is an avenue to do that. Sure we would love to have dedicated rail across the country. I don't think that is going to happen. But I do think it's possible for passenger and freight rail to co-exist if public money is spent in the freight rail infrastructure."