Off The Rails

A look at the state of Amtrak ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

June 12, 2022 Read in Browser Happy Sunday.   Today we're breaking down the state of rail transportation in the US. But before we get into it, we have a short, crisp message from our sponsor. Investing is pretty simple in theory — buy incredible, disruptive, underappreciated businesses and….just wait.   Easier said than done, certainly. But the analysts at The Fool have been doing it for decades.   Netflix in 2004. Amazon in 2002. Nvidia in 2005. Eons before Reddit boards caught wind of the names or Wall Street "got it."   Now, the analysts at The Motley Fool have done it again and are confident they've found what could be the next big winner. 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The State of Passenger Rail in America, Explained Before the Covid pandemic hit, passenger rail operator Amtrak was on the cusp of realizing a milestone that — for much of its history — could most accurately be described as fanciful.   The for-profit corporation, whose preferred stock is owned entirely by the US government, was about to make…a profit.   Amtrak trains shuttled a record 32.5 million passengers in fiscal 2019, bringing in a record $3.3 billion in revenue. The company had narrowed operating losses to $29.8 million, a marked improvement over the $170 million loss the year before.   "Our expectation is that in 2020, we will actually make money, we will have positive earnings for the first time in the company's history," Anthony Coscia, Amtrak's chairman, excitedly told a November 2019 news conference. "This is an unbelievable accomplishment that a short period ago no one would have thought it possible."   Well, you know how the next chapter of the story goes. Just like vacationers on the scenic LA-Vegas line, commuters on the Northeast Regional NYC-DC route were abruptly confined to home offices and National Geographic reruns. The profit that seemed within grasp was out of reach like a train that left the station.   Finally, the passengers are starting to come back. As the US stands at the sunlit edge of summer 2022, Americans and tourists from around the world are traveling again despite the macroeconomic hurdles. Many are even riding trains.   With recovering passenger volumes and a historic $66 billion funding package passed just seven months ago, Amtrak may well course correct to a robust future. But the days of deficits will drag on. That's what we're exploring in today's deep dive.   History Lesson Railroads are essential to America's creation story and played a vital role in the Industrial Revolution and westward expansion. The country's first common carrier, the Baltimore & Ohio Railroad, opened to the public in 1830, and by the early 20th century, the US boasted over 200,000 miles of railroad track. One of the nation's most famous businessmen, Cornelius Vanderbilt, built a $200 billion (in today's dollars) fortune by consolidating rail lines in the northeast.    Yet by the 1950s, the automobile and the airplane had captured the American imagination. While Japan and Europe built extensive, modern passenger rail networks with high-speed trains, hitting the road in the car became America's dominant mode of travel.   Government funding was directed to highways and airports, while rail operators had to pay for much of their own infrastructure. The share of travelers taking trains in the US fell from 46% in 1950 to 32% in 1957. The severe contraction in passenger volume jeopardized the industry's future and supplied the impetus for creating Amtrak. America's "Quasi-Public" Corporation By 1970, Penn Central, the sixth-largest corporation in the US, declared bankruptcy and would remain the largest insolvency in American history until Enron's downfall in 2001.   Under immense public pressure, Congress enacted a law to create a private entity that would operate America's intercity trains with taxpayer support, and Amtrak (almost named Railpax) was born. But the government quickly learned that it had forged itself a double-edged sword.   Even though driving and flying had become far more popular modes of transit, the charm and practicality of passenger rail still held a place in Americans' hearts. The resulting political pressure has kept Amtrak running on an undercarriage of public subsidies, with little prospect of returning passenger train service to the private sector. Efforts to fix the problem have come up short: In 1997, the Amtrak Reform and Accountability Act mandated that the rail operator become self-sufficient within five years. Ten years later, with no profit in sight, the Senate voted to end the mandate and hand over $11.4 billion in funding, on top of the $40 billion Amtrak in subsidies up to that point. Amtrak averaged $1.9 billion in annual federal subsidies in the years leading up to the pandemic. In 2019, after many years of bringing down costs and increasing passenger capacity, the company came oh-so-close to turning a profit. Then came the destabilizing chaos of the pandemic. In 2020, railroad operators worldwide saw traffic declines between 40% and 60% compared to 2019 figures. At EU rail operators, traffic declined 46% and, at East Japan Rail, by 31%. Amtrak saw a staggering decrease of 65%.   The company's razor-thin $29 million operating loss in pre-Covid 2019 ballooned to $789 million in 2020 and $1 billion in 2021, leaving the government to cover those sky-high deficits with emergency funding.   Amtrak expects revenue to recover to 80% of pre-Covid levels by the end of 2022, but now concedes that it will be losing roughly $1 billion a year for the foreseeable future. A far cry from "we will actually make money," uttered less than three years ago.   The Amtrak President Pandemic or no pandemic, America elected arguably Amtrak's biggest ever champion to serve in the Oval Office in 2020. For the company, it's paid major dividends.   When politicians on both sides of the aisle hammered out the details of a $1.2 trillion infrastructure bill last fall, President Joe Biden stayed true to his "Amtrak Joe" moniker and helped secure $66 billion for Amtrak — earmarked for maintenance and extensive modernization of the Northeast Corridor. (Amtrak's proposed new rail network)   "We celebrated the infrastructure bill for about a day, and then I panicked," Jennie Louwerse, Pennsylvania's deputy secretary of multimodal transportation, said at a railway conference in March. "Just like the National Highway Act of 1956, this funding bill is transformational. But this is our one bite at this apple to prove we can do amazing things with this money."   The Need for Speed: While the agency may be grateful for the funding, the money will fail to rectify what many consider to be the most significant problem with US rail: its decidedly lackluster speed. In fact, the federal infrastructure bill earmarked not a single dollar towards the development of high-speed rail.   Today, America boasts just one passenger railway line capable of delivering high-speed travel, Amtrak's Acela, which spans 457 miles from Boston to D.C. The train only reaches high speed (typically starting at 155 miles per hour) for a single 33-mile stretch.   Just How Bad is It? According to a study published last year commissioned by Greenpeace, one-third of Europe's 150 busiest short-haul flights (categorized as any trip between 30 minutes and 3 hours), has a rail-alternative route that can be completed in under six hours. For reference, the rail alternative to the 2-hour and 50-minute flight from Los Angeles to Seattle would take 35 hours on Amtrak's Coast Starlight route.   High-profile, high-speed rail projects in the US have arguably been hurt by their well-earned reputation for going off the fiscal rails: In 2008, California voted to spend $33 billion on a high-speed rail connection between San Francisco and Los Angeles that would take less than three hours (Amtrak currently takes twelve). The project's budget is now expected to balloon to over $100 billion. The opening date has been pushed back a decade to 2030, at which point only a 165-mile segment between Bakersfield and Merced will launch. In Europe, by contrast, investments in high-speed and functional rail have paid off, creating a greener, cleaner, and even cheaper alternative to the budget airlines that have taken off on the Continent. In the meantime, a 2021 McKinsey report found that rail produces less carbon per kilometer ridden by an individual passenger than electric cars.   Over the Hill? As Amtrak recovers from the scourge of 2020, also the year of its fiftieth birthday, it appears that there is an unbridgeable gap between what Europe, Japan, and China have done to bring rail transport into the futuristic present, and what America seems willing to do for its quasi-public passenger transport network. With gas prices where they are, one can only hope we get our act together   *****   Is This Stock a Millionaire Maker?   It's a big claim. 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