The federal government established state-owned Amtrak to preserve the American rail industry from collapse in 1971, which had been driven into near-death by a slew of macroeconomic factors.
Competition in the civil transportation industry reached unsustainable levels for train companies by the 1960s due to the expansion of air travel and motorways.
Pullman Company and Penn Central, the two largest rail firms in the United States, went bankrupt in 1970 due to growing labor costs and outmoded regulations that stifled private expansion. Amtrak was created as a result of the Nixon administration's intervention.
Amtrak receives substantial state and federal subsidies, yet it is run as a for-profit business. This isn't out of the ordinary. All countries that have a passenger train system require public funding to keep it running.
However, Amtrak's "for-profit" character is paradoxical in and of itself. Since its inception nearly fifty years ago, the train company has never been profitable. Despite receiving nearly $45 billion in subsidies, the provider has only been able to stay in business because of these payments.
The Business Model
Amtrak customers are expected to travel 16,8 million miles in 2020, an average of roughly 46,200 miles per day, with the company employing over 17,500 workers. According to the company's annual report, the bulk of Amtrak's earnings comes from short-distance corridor ticket sales. Additionally, Amtrak profits from its infrastructure.
Ticket sales
60% of Amtrak's customer revenues in 2020 were generated by ticket sales, while short-distance journeys generated 75% of gross ticket sales.
As a result, Amtrak's business relies heavily on selling tickets for short-distance routes.
The Northeast Corridor (NEC) line stretches from Washington, DC, to Boston and is critical for Amtrak's long-term financial viability. In 2020, 36 percent of Amtrak's passengers will travel on this route.
Almost half of the company's ticket sales will come from this line in 2020. Regarding Amtrak's "Principle Business" section in 2020, the first section is devoted only to the National Express Corridor (NEC). The Northeast Corridor, only 457 miles long, accounts for 52 percent of Amtrak's gross ticket earnings (starting in 2020). All of Amtrak's other lines pale in comparison to the NEC.
An Amtrak long-distance line made up only 25 percent of the company's gross ticket income in the fiscal year 2020 forecast. In 2020, ridership for short and long distances fell by 50% and 39%, respectively. According to the route, the price of an Amtrak train ticket can range from as little as $6 to as much as $1,000.
Leveraging Infrastructural Assets
An additional $575 million comes from various business activities tied to Amtrak's infrastructure. Some of the 526 stations served by Amtrak are served by 623 miles of NEC track owned by Amtrak and station structures, platforms, and parking facilities nearby.
For freight and commuter train companies, Amtrak charges for utilizing its track and for access to and development of its stations, platforms, and parking lots. In 2020, Amtrak's revenue from this category increased by 1 percent year-over-year.
Future Plans
Despite its severe reliance on state subsidies and inability to make a profit, Amtrak has a bright future ahead of it. It has become increasingly common for Americans to give up their automobiles and flights in favor of more environmentally-friendly ways of transportation.
Amtrak, for example, stands to benefit from this trend. To take advantage of this trend, Amtrak needs to progress rapidly on its core goal: replacing its aging fleet of locomotives.
The New Acela Express Trains Have Arrived!
Only a few trains in Amtrak's fleet are as essential as the Acela, the company's flagship model. In 2013, Amtrak's high-speed trains made $306 million in revenue by traveling up to 150 mph, making them the fastest trains in the western hemisphere. Despite this, Amtrak's Atlas is aging, like the rest of the company's fleet. Since 2000, the company has had a fleet of 20 Atlas.
It was stated in 2016 that Amtrak would build a new fleet of 28 Atlas by the decade's end. Most of these trains will be used on the NEC line, which is expected to be Amtrak's busiest route for many years.
Siemens Contract
To build 75 new passenger diesel "Tier 4" locomotives, Amtrak awarded an $850 million contract to the Siemens Mobility unit of the German corporation that provides traffic management and railway technology.
To replace old regional trains, these trains can reach up to 125 mph speeds. Several trains that will soon be replaced are over 25 years old.
Improving Safety
The company's dismal safety record has recently severely tarnished Amtrak's public image, and aging trains are a major problem. In the last five years, eight significant accidents or derailments have occurred.
Amtrak has implemented a system it calls Positive Train Control to address these issues (PTC). GPS, radio signals, data centers, and dispatchers all work together in the PTC to keep track of every Amtrak train at all times.
