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Amtrak: Losing Money on the $10 Hamburger

By now, it is well known that Amtrak is bleeding money and not even coming close to breaking even on the majority of its routes—with one notable exception being the popular northeast corridor routes between Boston and DC. But running profitable train lines isn’t Amtrak’s only problem; it is equally bad at the much simpler task of selling food.

The Times explains:

Amtrak lost more than $800 million on its food and beverage services over the last 10 years, largely because of waste, employee theft and lack of proper oversight, government auditors have found.

[…]

Mr. Alves, who issued a report on the problem last year, estimated that theft by Amtrak food service employees could cost the agency $4 million to $7 million annually. According to charts shown by Republican committee staff members during the hearing, Amtrak charges about $2 for a soft drink, but the cost to taxpayers is about $3.40 when labor is included. A $9.50 hamburger on the train costs taxpayers $16, the charts showed. Labor adds nearly 60 percent to food and beverage costs.

Only a government subsidized operation could sell hamburgers for $10 each and lose money. People who use Amtrak know that the food is overpriced and not very good. But, hey, it’s a captive dining audience, right? The dining car should be a way for Amtrak to recoup some of its losses from running its expensive trains. Instead, the food system is so badly managed that somehow it also loses a lot of money, apparently because of theft, bad management, high labor costs, and other problems.

Meanwhile, Amtrak wants another $150 billion to speed on faster trains on the Boston-Washington line. There’s actually a way to speed those trains without spending a dime: cutting out the unnecessary stops that rent-seeking politicians impose on Acela trains. Newark, Metro Park, Wilmington, Baltimore, BWI airport? For shame. And the same on the Boston-New York route.

This is no way to run a railroad, though one somehow suspects that a lot of union officials and politicians disagree.

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  • Kevin

    How do you lose money selling food? Just put it all out for competitive bidding and get concessionaires to run it while Amtrack sits back collects the fee.

  • Eurydice

    I’m confused. It’s not like they’ve got a glamorous bar and are serving signature cocktails, or a world-famous barista is whipping up specialty coffees. A $2 drink is basically a can of soda – the food service guy reaches down into the fridge and puts the unopened can on the counter. How much labor is involved in that? So, maybe they add the cost of the guy who puts the soda in the fridge, and the guy who orders the soda, but they’re not paying $2 a can wholesale, either. Plus, $1.40 in labor costs is much more than 60% of the wholesale cost of a beverage.

    I would say that theft and waste are not confined to just the actual food – with such bad management, there’s probably a lot of employment fraud going on, as well.

  • Snorri Godhi

    “Only a government subsidized operation could sell hamburgers for $10 each and lose money.”

    I am struggling hard in trying to express just how true this sounds to me.
    I can only compare it to Reagan:

    Government is not the solution to your problems: government is the problem.

  • http://fmpait.blogspot.com/ Felipe Pait

    Cutting a few stops would not speed the trains nearly as much as necessary. If the goal is to have service comparable to other rich countries in Europe and Asia, significant investment is needed.

  • Eurydice

    The more I look at the wording of this article, the more it doesn’t make sense. I don’t know what the wholesale cost of a can of Coke is, but let’s say it’s 40 cents. Add to that the labor cost and you get $1.80 – selling it for $2 would give Amtrak a profit. Even if they paid $2 a can, they still would only lose $1.40 because they’re receiving $2 from the customer. So, how is the taxpayer being charged $3.40?

  • EP

    Anybody who’s more than just a casual rail observer knows Amtrak is very much beholden to its unions. I’m not anti-union, but I am pro-common sense re: wages and benefits. This country needs passenger rail (both regional corridors and the long-distance trains) in my opinion, and the “truth” about rail that’s often ignored here is that NO COUNTRY IN THE WORLD has self-sustaining passenger rail. But sadly Amtrak’s isn’t the business model that’s ever going to even come close to working.

  • http://fat-city-usa.blogspot.com/ Walter Sobchak

    Felipe: They loose boat loads of money in Europe too.

  • http://fmpait.blogspot.com/ Felipe Pait

    Walter Sobchak #7, is that still true? I knew it used to be, but I have read that rail finances have changed in the last decade in many countries. I unfortunately don’t have the real data, would appreciate a pointer.

    In any case, countries without efficient rail transportation lose a lot more money to congestion, lost work hours, loss of opportunity to exchange goods and ideas, increased pollution, and direct and indirect fuel costs. In the US, those include the military and geopolitical cost of having to secure a large supply of fuel for the less efficient alternatives, cars and airplanes.

    A large investment is still necessary, way beyond skipping a couple of stops or the price of hamburgers.

  • Tracy

    Are all Amtrak employees part of a union? If so, that would explain a great deal.

  • http://fmpait.blogspot.com/ Felipe Pait

    Just for fun I checked on the state-owned Danish Rail (DSB). It looks like a generally healthy company, though it lost money during the past couple of recession years like so many private companies did. Of course the fact that non-nonsense Danes can run a railroad reasonably well on passenger fees just shows that it is possible, and doesn’t mean much about other countries, or about Amtrak.

  • DrMaturin

    Luckily, this sort of thing can’t possibly happen with government run health care!

  • Shell

    The Amtrak Wolverine route in MI runs from Grand Rapids/Detroit/Chicago and doesn’t have a dining car. It has a “cafe car” where the worker pulls a frozen pizza out of the ‘fridge, a brand and size you’d buy in the grocery store, throws it in the microwave, and charges you $5. Cans of soda are $2.00.

    This line is so badly mismanaged — I won’t even begin to discuss it’s the WORST when it comes to trains being late, delayed and cancelled — Greyhound and Megabus are making a KILLING. And they, unlike Amtrak, have wifi.

  • IllinoisCynic

    Employee theft you say? Kinda like the Chicago Skyway, a toll road leading into the Windy City and owned by city government. There were toll collectors who day after day would come up short on their cash collections, until a new manager fired 19 people and installed computerized equipment.

  • Mrs. Davis

    What happens when the government tries to run a monopoly?

    Thibaud…Thibaud….Thibaud….Anyone?

  • http://wwrtc.blogspot.com Art Deco

    The former president of the National Association of Railroad Passengers (who had previously been an AmTrak official) offered two solutions about ten years ago: sale to private investors or liquidation.

    Among other forces, railroads suffered grievously from a myriad of state and federal regulations hampering their operations. Then you had effectively subsidized automotive travel and truck transport.

    Inter-city rail transportation is not an urban amenity like mass transit (which provides a facility for the impecunious to commute to work without going into debt for a rust bucket). One cannot justify permanent subsidy.

    Try this as a program:

    1. End to the degree you can effective subsidies to inter-city automotive transportation.

    a. Put toll booths on all of the 40-odd long haul Interstates. Set toll rates to cover the full maintenance costs. Distribute the revenues to state governments according to acres of mcadam.

    b. Replace the current federal excises on gasoline with a proforma federal excise on motor fuels high enough (given the subsequent adjustments in fuel consumption) to cover maintenance costs on at least the sum of U.S. Routes and state highways. However, write it so that a vendor’s federal liability is equal to the excise charges per gallon less any taxes collected by state governments. The states would have an incentive to raise their excises to capture the revenue, and finance their inter-city public road network with excises on fuel. The only place the federal government would collect would be Indian reservations. It could then kick back that revenue to reservation governments.

    2. Offer the same deal to the unions that Alvaro Uribe offered to Colombian rebels: ‘surrender or die’. Decertify them all by statute.

    3. Divorce the extant AmTrak pension funds from the corporation. Determine the injection of public funds necessary to render it actuarially sound and determine the reduction in payouts necessary to render it actuarially sound. Split the difference and pony up the consequent funds.

    4. Create a defined contribution program which will serve as the pension fund going forward. It will be financed solely by clips from workers stated salary and wage.

    5. Create a new medical plan for employees. Finance it with proportionate clips from stated wages and salaries. Make the services covered fairly comprehensive (excluding cosmetic surgery, experimental procedures, contraceptives, and psychotherapy) but with a high per household deductible. Hold auctions every three years among competing insurers. He who bids the lowest deductible gets the contract.

    6. Do the same with medigap plans offered to Amtrack retirees.

    7. Put the railroad on the auction block.

    8. Have the Federal Railroad Administration retreat to acting as a health and safety inspectorate. Assign the Federal Trade Commission jurisdiction for consumer protection regulation.

    9. If it remains insolvent, allow the Federal Bankruptcy court to sort matters out without fear or favor.

  • ertdfg

    The problem with rail costs overall is a problem of population density and size.

    Want a Europe style rail system with Europe style costs? Ok.

    But we’ll have to move every US citizen to Texas and not have anyone living anywhere else. THAT level of population density can support a rail system; having us spread over 50 states means it will never work on a financial level.

    YOU find out a way to get everyone in the US to move to Texas, then I’ll support Government funding aid for railways.

  • Bart Hall (Kansas, USA)

    Amtrak’s Southwest Chief runs past our home. It is on-time no more than 40 percent of the time in either direction. Needing to travel to New Mexico (with a baby) for a funeral we looked hard at Amtrak.

    The fare for our family is $748 round trip. The westbound train stops in the next town at 00h30, or maybe 02h15, and sometimes 05h45. How can you get to be six hours late from Chicago to eastern Kansas? And it can only go 30 mph across southern Kansas because the track is in such bad condition.

    Airfare for the family would be $370 (total, including all taxes and fees) and takes about five hours, compared to four times that, assuming the train can stay on time. And it is subsidised.

  • Marc Johnson

    Go to Union Station in Chicago and watch them load and unload the trains. It is the height of inefficiency. No wonder they make no money.

  • Rich K

    Thanks Mrs Davis, you saved me the words.BTW, how much will a high speed hamburger cost on the LA to San Fran run,$150.00 plus tip?

  • http://jocon307.wordpress.com jocon307

    Maybe a little off the major point of the topic, but the best crab cakes I ever had was on the Amtrak between NY and New Orleans. Served with fried green tomatoes. It was a really delicious meal. The rest of the food was no bid deal, but that one dish I’ll always remember.

  • http://islandturtle.blogspot.com Corky Boyd

    “[C]utting out the unnecessary stops that rent-seeking politicians impose on Acela trains. Newark, Metro Park, Wilmington, Baltimore, BWI airport?”

    You hit the nail on the head.

    I lived in the Washington DC area when the Pennsy first started the Metroliner. It was designed to compete with the highly successful 1 hour Eastern Airlines Shuttle. Planned enroute time was 2:30 between NYC and Washington. It was two stop service, Phila and Newark, for crew changes I believe.

    But the state of Maryland insisted it make a stop in Baltimore or face make work “full crew” laws. That added about 7 minutes to the trip. Interestingly, the higher speed Acela with its excess stops, takes 2:42 or more to make the trip.

    Acela should have a couple of non-stop runs each day. It could probably do the trip in 2:15 with ease.

  • Kirk Parker

    Felipe,

    The US most definitely does have an efficient rail transport system. It’s just that we use it for bulk freight, not passengers.

  • Larry Sellers

    Someone needs to tell Amtrack that the Milo Minderbinder theory of economics is not meant to be tried in real life.
    Plus, since we’re talking about Amtrack, everyone really DOES have a share!

  • Saint Louis

    #16 ertdfg hit the nail on the head. The biggest problem is lack of population density. Notice that the one successful line is Boston to DC, which also happens to be the most densely populated part of the country.

  • http://wwrtc.blogspot.com Art Deco

    What happens when the government tries to run a monopoly?

    It depends on the sociological and social psychological factors that are local to a given situation. Per F. Fukuyama, France has a knack for building capable public institutions. Just not our deal. In any case, it is a commercial service with close substitutes already competing with it. There is simply no good reason to have a public agency doing this. With some reservations and qualifications, that is true of postal delivery as well.

  • Foo

    Keep in mind that Amtrak is, above all else, a transfer of wealth from poor to rich. When poor people travel from Boston to DC they drive, take the bus or fly Southwest. You won’t find many modest incomes aboard Acela (and that includes the unionized federal employee serving you a $10 subsidized burger).

  • ALRUI

    The waste at Amtrak is due to bloated salaries in management, the workers work hard and do a damn good job as far as I have seen. The food in the dining car has always been excellent for the price paid (granted last time I went cross country was 10 years ago so things may have turned for the worse). Theres no way theyre losing $ on a $10 burger or a $2 soda, no way at all & their beer prices in the bar car are outrageous but again your a captive on the train unless you do like I do and get off at major stops and RUN to the nearest liquor store and bring your beer back to the train:-)

  • Bill Dalasio

    “If the goal is to have service comparable to other rich countries in Europe and Asia, significant investment is needed.”

    Except we’ve tried that. It’s called Acela. We spent billions of taxpayer dollars on it. It runs about 50% more than the non-high-speed train and saves you all of 15 minutes.

  • Bill Dalasio

    Art Deco,

    I can pretty much guarantee to you that item 1a is going to be an incentive for the states to build millions of acres of unused road with little practical value.

  • http://wwrtc.blogspot.com Art Deco

    I can pretty much guarantee to you that item 1a is going to be an incentive for the states to build millions of acres of unused road with little practical value.

    There are about 40 long haul Interstates and the last of them was completed around about 1994. Unless you are positing that state governments will widen their extant routes to cover 12 lanes of traffic (increasing their maintenance costs and getting them into interminable litigation) in order to get a higher share of toll revenue the sum total of which they do not control, I cannot figure what sequence of events you fancy such a formula ‘guarantees’. (If I am reading the U.S. Department of Transporation’s budget correctly, maintenance charges on Interstates are surprisingly modest – about $6 bn).

    Current federal subventions to state highway construction are (I believe) in the neighborhood of $60 bn. Eliminating these transfers and relying on gas taxes and tolls has the effect of allocating the cost of highway maintenance to motorists and freight haulers. Right now we socialize part of the costs of transportation and shipping by road, which is not the case for other modes of transportation and shipping. This should stop.

  • http://fmpait.blogspot.com/ Felipe Pait

    Kirk Parker #22, thanks for the correction. I was thinking about passenger trains but failed to clarify that.

    For those who claim that no government rail system can function well, I suggested reading about the Danish state rail monopoly as I did. Unless of course you are certain that no fact or number will change your preconceived ideas.

    Art Deco #30, I believe that the subsidy to fossil-fuel powered individual transportation is one or two orders of magnitude higher if you consider the geopolitical cost of securing oil supplies and defense against oil-producing enemies of the US.

    Bill Dalasio #28, you have a much lower regard for American competence than I do if you think that Acela is the best the US can do.

  • chip

    Many years ago, I used to ride Amtrak from Washington, DC, to Hartford, CT. One thing I remember fondly, was Amtrak’s signature tuna salad sandwich. It was the best tuna sandwich I’ve ever had in my life. They discontinued it. Why? During the 6.5 hour trip I used to eat at least three of them. The cost was about $3.50 per sandwich. Bring it back.

  • http://wwrtc.blogspot.com Art Deco

    if you consider the geopolitical cost of securing oil supplies and defense against oil-producing enemies of the US.

    There is no discernable ‘geopolitical cost’. The locus of production is of interest only against the contingency that there would be a loss of physical access during wartime or that a cartel of producers would manipulate prices to achieve political goals. Commodity cartels are difficult to maintain for any length of time. OPEC was the most durable.

  • http://fmpait.blogspot.com/ Felipe Pait

    Art Deco #33, google “aircraft carrier Persian gulf”, then come back and write again that securing oil supplies has no cost. You may also want to investigate how Saddam Hussein, Qaddafi, or bin Laden accumulated the funds to do their deeds.

  • http://wwrtc.blogspot.com Art Deco

    Felipe Petit:

    The ‘cost’ to which you refer would be the difference between military expenditures in the absence of reliance on oil imports and the military expenditures we have. You have not a clue as to what that would be.

    What you said was that including this ‘cost’ would raise the subvention to motor vehicle transport by ‘one or two orders of magnitude’, or 10 to 20 fold. Where I grew up, the sum total of state, county, and municipal expenditures on road maintenance amount to about $610 per capita, or 1.4% of the state’s personal income. There are tolls on one Interstate and state excises on gasoline cover about 19% of the sum of charges; ~ 80% of the cost of road maintenance is socialized. Cannot say what the business is in other states, but I will wager Upstate New York is pretty average.

    Personal income amounts as a rule to about 82% of domestic product 1.4 x 0.82 x 0.8 = 0.92% of gross domestic product. Ten times that would be 9.2% of domestic product and twenty times that would be around 18.4% of gross domestic product. Total military expenditure has not exceeded 9.2% of gross domestic product since around about 1967. It has not exceeded 18.4% of domestic product since 1946. I am not sure there was much in the way of public anxiety about oil imports in either year.

  • http://fmpait.blogspot.com/ Felipe Pait

    Art Deco #35, as I understand you correctly point out my gross rhetoric exaggeration in saying “orders of magnitude”. I am not sure I understand the final phrase in your argument but your numbers mean that the subsidy to “tire-on-asphalt” transportation is so large that it could not possibly increase as much as I cavalierly mentioned. I stand corrected.

    Also, you correctly say that I could not possibly know what the US military expenses would be in the absence of oil-fueled enemies. Nor would anyone else, in fact. Neither can we know if 9/11 would have happened without the support of Saudi oil fortunes. And should Iran achieve a nuclear bomb, it will be paid by oil revenues; can we even think of quantifying this cost? The uncertainty is or course a large part of the burden.

    And we have not started talking about the highly uncertain, though potentially enormous, environmental costs of adapting to climate change caused by burning fossil fuels – they really could range from easily bearable to enormous.

    Taking all the costs of fuel together, discussing Amtrak subsidies is rather petty and narrow minded, don’t you agree?

  • http://wwrtc.blogspot.com Art Deco

    Taking all the costs of fuel together, discussing Amtrak subsidies is rather petty and narrow minded, don’t you agree?

    The original discussion concerned Amtrak, not the market for motor fuels. I brought up the effective subsidy to motor transportation in connection with positing optimal circumstances for selling Amtrak to the public.

    Inter-city passenger rail service is not a public good in the manner of roads or the military. Nor is it a useful social service or urban amenity in the manner of city buses or public libraries. It commercial service which competes with other commercial services. It is properly provided by private companies and 40 years worth of attempts to provide it via public agency have resulted in deficient service. The public freight rail service was sold to the private sector in 1988 and continues as a pair of profitable private companies. There is no reason to maintain a public passenger service. I like trains, but my consumer preferences are not a matter of public interest unless they are vicious.

  • http://fmpait.blogspot.com/ Felipe Pait

    Art Deco #37, you made clear that the subsidy to Amtrak is not very large in comparison when you brought up the subsidy to motor fuels. Other points of your argument, such as the statement that “Inter-city passenger rail service is not a public good”, are questionable.

    I do not doubt that Amtrak could be run more efficiently – either privately or as a public entity, see my comments above – but it will not compete with cars on an equal footing if the latter continue to receive the current subsidies.

  • http://wwrtc.blogspot.com Art Deco

    No, it will not compete with cars and Greyhound on an equal footing unless the cost of road maintenance and construction is financed by people in their capacity as motorists and not people in their capacity as residents. Toll booths on limited access highways, excises on gasoline, and auto registration fees are a way to do that. Railroads build and maintain their own infrastructure. If I am not mistaken, airlines are charged fees for take-off and landing slots and such. If we make the cost of infrastructure ‘internal’ to each provider, we are being fair.

  • http://fmpait.blogspot.com/ Felipe Pait

    Art Deco #39, agreed. I doubt that airlines pay the full cost of the externalities, as economists call them, but in any case unless the US addresses such issues the transportation infrastructure will be problematic.

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