Alex Kummant -- His Views on Funding & Profitability

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Rover

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This is from a Reuters 2008 Q&A with Amtrak President Alex Kummant

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."
http://www.reuters.com/article/us-usa-gasoline-trains-qa-idUSSIB27628520080612
 
I'm probably most galled about the support for cruise ships. Whereas you can make very solid cases for a transportation function for highways, trains, and airports, with cruise ships? Not so much. Granted, at least some of that is going to be costs which are related to maritime safety in general and which are just getting assigned to cruise ships in some proportion...but it still does strike me as a comparative waste (especially given that airline pax at least in theory pay for a good chunk of their security/safety bill). Don't get me wrong, I don't want to see a mass casualty incident because the Coast Guard couldn't manage a rescue...but I also see very little value in an effective taxpayer subsidy for Caribbean vacations even compared to badly planned highway construction.

You can perhaps make a case for service between the US and Alaska/Hawaii (and possibly Puerto Rico/USVI as well), if only because it's possible to envision someone literally becoming trapped in paradise [1], but I also don't exactly see anyone really offering functional transportation between the Hawaiian Islands and Los Angeles or San Francisco (e.g. a ship starting in Honolulu, making relatively short stops in Maui and the Big Island, and then making direct for the mainland). Yeah, some of that is down to the Jones Act (a bill which, at this point, probably needs to be strongly amended if not dumped entirely) and some silly complications such as "forced stops" in Vancouver and Mexico or some other island country in the Pacific en route.

IMHO accelerated depreciation is a sticky point: You're moving the timing of the related tax expense around on the calendar, but you're not actually changing the amount being expensed, just when the expensing happens. Moreover, if you take a $100,000 plane and depreciate $75,000 on it (so you have a residual value of $25,000) and then sell it for $50,000? You'll be liable for a capital gains tax bill of $25,000.

[1] This actually happened to my grandmother's younger brother the last time he was in Hawaii: He had a heart attack and he and my great-aunt were stuck in the islands for several months until he was healthy enough to fly home, and the time stuck there was an extreme expense which did a number on their finances for the rest of their lives. It is quite possible to envision someone never reaching a point that they could safely fly home.
 
I'm probably most galled about the support for cruise ships.
I would like to know we're Mr. Kummant came up with the figure. General the Coast Guard is always ready. So it's a fixed cost. There required to do certain task ever month. If the rescue swimmer jumps in on a rescue, or jumps in on a training flight. They are required to do it (twice*) a month.

Yeah, some of that is down to the Jones Act (a bill which, at this point, probably needs to be strongly amended if not dumped entirely) and some silly complications such as "forced stops" in Vancouver and Mexico or some other island country in the Pacific enroute.
If your ship meets the Jones Act then you don't need to stop anywhere, and could go straight from US port to US port. Only if your flying a convenience flag, with a foreign crew, do you need to stop at a foreign port, before return to a US port.

The one and only US Flag Large Cruise ship was built here, but outfitted overseas and is allow to operate under a waiver from the Jones Act. The crew is US (75% or more.) and yes they have great difficulty keeping it crewed.

[1] This actually happened to my grandmother's younger brother the last time he was in Hawaii: He had a heart attack and he and my great-aunt were stuck in the islands for several months until he was healthy enough to fly home, and the time stuck there was an extreme expense which did a number on their finances for the rest of their lives. It is quite possible to envision someone never reaching a point that they could safely fly home.
Medical evacuation flight. Transport out on a freighter. Sorry but there little reason to stay. It costly both ways but getting out can be done. You might have to staff a mini hospital with MD and Nurse, but you can transport out on a regularly scheduled freighter.

*Twice a month is what I have heard, and is a example, and should not be taken as a fact.
 
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What's relevant about comments made nine years ago by a guy who was Amtrak's president for about 30 seconds?
A better question 9 years down the road, would be "What's irrelevant about the comments made?"
 
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