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Why is Amtrak So Expensive? Here's the Answer


Amtrak is the business name used by the National Railroad Passenger Corporation in the United States. Said corporation is very curious in that it is quasi-public in nature, meaning that it is operated for the purpose of earning a profit even while it receives both federal and state subsidies. These subsidies are critical because Amtrak has been operating at a loss ever since it came into existence in 1971, though it has been improving step by step.

How Did Amtrak Come Into Existence?

There was a time when rail was the single most popular method of transportation between cities for U.S. consumers. However, rail's share of the market shrank bit by bit because of the expansion of cars, buses, and planes, with the result that rail became less and less viable because of less and less profit. During the Second World War, rail saw something of a surge thanks to rationing, but that surge was short-lived in nature. By the 1960s, a combination of outdated regulation, competition from government-funded airports, competition from government-funded roads, and other factors had brought rail to a crisis point, with the final blow coming when the U.S. Postal Service made the fateful choice to divert most of its mail from passenger trains to a combination of trucks, planes, and freight trains. In response, a trio of rail companies filed for the right to discontinue 33 out of 39 trains, which made it very clear that rail couldn't survive unless something drastic was done.

As a result, the Nixon administration cooperated with Congress to come up with the National Railroad Passenger Corporation, a quasi-public corporation that would take over passenger rail service between cities. It is interesting to note that no one in Washington, D.C. expected the corporation to last for very long. Some politicians thought that it would be a convenient way to satisfy U.S. consumers for a time until interest in the issue died down, at which point, it would become possible to pull the plug on Amtrak in a quiet and unobtrusive manner. Meanwhile, others hoped that Amtrak would become profitable in time, thus enabling it to make a transition into becoming a standard for-profit corporation. However, neither scenario has proven to be the case, which is why Amtrak continues to exist in the present time as a quasi-corporation that is responsible for all of the passenger rail service between cities in the United States.

Why Is Amtrak So Expensive?

Unfortunately for U.S. consumers, Amtrak service can be very expensive. In fact, it is so expensive that interested individuals cannot expect it to be cheaper than flying on a plane on a consistent basis, which has provoked ire from a wide range of U.S. consumers under a wide range of circumstances. Something that is particularly true when they start making comparisons to better passenger train services in other countries.

Sadly, there is no reason to believe that this state of things will change anytime soon because there are a number of factors that play into it:

Most of Its Routes Aren't Very Profitable

Since Amtrak is a quasi-public corporation, it finds it much harder to eliminate unprofitable operations than a standard for-profit corporation. This is important because most of Amtrak's routes aren't very profitable to say the least.

In short, most of Amtrak's revenues come from its rail service. For those who are curious about the numbers, close to 70 percent of its revenues in 2018 came from its rail service. However, it is important to note that some of Amtrak's routes are much more profitable than others. In fact, the Northeast Corridor that connects Boston and Washington, D.C. was responsible for 38 percent of its revenues in said time period, which is particularly remarkable when one learns that said route makes up 457 miles of the 21,400 miles on which Amtrak operates.

For comparison, the rest of Amtrak's short-distance routes made up just 16 percent of its revenues in 2018. Furthermore, Amtrak's long-distance routes fared much worse at just 14 percent of its revenues in 2018, which isn't even counting the potential for further decline because while Amtrak's short-distance routes have been expanding, its long-distance lines have been shrinking.

Based on this, it should be clear that Amtrak is very reliant on a single route for a huge share of its revenues while being forced to run a number of routes that are nowhere near as capable of producing revenues. Unfortunately, there doesn't seem to be a way out of this for Amtrak because it answers to the U.S. government, which can't seem to make up its mind  about whether it wants the quasi-public corporation to be profitable or to provide a public necessity. If Amtrak is supposed to be the former, it needs to reform its routes. In contrast, if Amtrak is supposed to be the latter, well, suffice to say that it was always operate at a loss, though that isn't necessarily a bad thing.

It Is Stuck in a Catch 22 Scenario

Speaking of which, Amtrak is stuck in a Catch 22 scenario as well. Essentially, Amtrak is struggling with the consequences of aging trains as well as aging railroads. This is very expensive because that means increased depreciation, increased maintenance, and other expenses that eat into its earnings. However, Amtrak can't change that unless it has the money needed to pay for new assets as well as other improvements. Theoretically, the simplest and most straightforward method for the quasi-public corporation to do so would be raising its ticket prices, but it will have a very difficult time justifying such a raise because of the poor condition of its trains as well as its railroads. Never mind the fact that some of Amtrak's operations are still carried out on railroads owned by other companies, which creates a whole host of further issues. Of course, the government could fix this problem to some extent by providing Amtrak with more funding, but under current circumstances, that seems to be more optimistic than what the evidence would warrant, particularly since the Trump administration has proposed funding cuts.

Garrett Parker

Written by Garrett Parker

Garrett by trade is a personal finance freelance writer and journalist. With over 10 years experience he's covered businesses, CEOs, and investments. However he does like to take on other topics involving some of his personal interests like automobiles, future technologies, and anything else that could change the world.

Read more posts by Garrett Parker

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