Future Looks Grim for Alaska Railroad

[CHamilton]

Future Looks Grim for Alaska Railroad

In the Alaska Railroad Corporation’s newly released “2013 Report to the State,” ARRC predicts a bleak financial outlook for 2013 and the next five years. In its long-range capital improvement plan for 2013-2017, railroad President & CEO Christopher Aadnesen lists a number of factors causing the outlook for the railroad, whose net income is expected to drop from an estimated $11.6 million by the end of this year to just $2.9 million in 2013.
It had been at $13.4 million just two years ago.

One of the main factors is a reduction in freight caused by poor global markets for coal exports. The railroad estimates a drop of at least 30 percent from its 2012 export coal shipping levels.

 

[railiner]

That seems to be very little for a railroad to earn....

I wonder what impact that will have for their passenger trains, who's business seems fairly robust with all the cruise ship business?

I am not familiar with ARR freight traffic. Didn't even know they mined coal in Alaska.....

 

[Anderson]

The ARR is odd in that its passenger services are a mix of "essential service" runs and tourist-oriented runs. Neither is likely a good candidate for cutting: The tourist runs, if they lose money, bring in tax revenues, while essential services are just that. I don't see an impact...the amount of traffic on the Fairbanks-Anchorage run in-season is quite respectable (188.5/train in-season and about 58.4/day out of season), and considering that they don't have to shell out for slot rentals, I'm guessing that the passenger operations are likely doing well enough in-season and politically hard to touch out-of-season.

Not only that, but it's not like they're taking up slots that the ARR desperately needs for freight.

The other thing in favor of the passenger operations is that they generate about 20% of the road's (non-grant) revenue. That means that the passenger operations are likely carrying a decent portion of the ARR's overhead. Looking at the 2011 Annual Report, direct passenger expense was about $9.8 million while revenue was $22.4 million, meaning that running those trains offered the ARR $12.6 million towards overhead, track maintenance, etc. If anything, there is a case to be made that the ARR would want to find a way to increase passenger operations (I know there's been talk about the state paying for a commuter operation in the Anchorage area...even with the low population, lousy weather might make that salable).

 

[railiner]

Okay, so the passenger operations contribute about 20 % of revenue.....the only problem is if freight revenue is so severely reduced, that passenger revenue would have to pay a much larger percentage of overall expenses. That could have an impact on maintenance of way, although less heavy freight trains might balance that out.....

 

[jackal]

That seems to be very little for a railroad to earn....

Net income is what you might think of as "profit." Despite its status as a state-owned corporation, the railroad actually does turn a profit.

What you were thinking of as "earnings," i.e., operating revenue, is pretty respectable: in 2011, it was $161.5 million. That puts it well into the middle of the pack of the "class II" or "regional" railroads.

I am not familiar with ARR freight traffic. Didn't even know they mined coal in Alaska.....

ARR freight traffic consists of four major parts:

-Petroleum, which primarily consists of shipping fuel from the Flint Hills North Pole Refinery southeast of Fairbanks to Anchorage,

-General freight, which the ARR breaks out into TOFC and "interline," which are whole railcars barged up to Whittier on the Alaska Rail Marine or CN Aqua Train rail barges

-Gravel, which consist of usually three or more trains that bring crushed rock from quarries in the Mat-Su valley about 45 miles north of Anchorage into Anchorage itself, largely to be used in road construction, and

-Coal, which consists of two parts: "local coal," which brings coal a few times a week from the Usibelli coal mine near Healy north to Fairbanks, whose power is largely supplied by coal, and "export coal," which brings coal a few times a month from the Usibelli mine to the port at Seward to be shipped out of state (mostly to South Korea, leading to the other colloquial name for the coal run, "Korean coal").

The ARR typically runs two freights a day in each direction between ANC and FAI in the summer. They are referred to as the "OX" (the Oil Express) and the "FOX" (the Fairbanks Overnight Express). They typically depart each terminal in the evening (one around 6pm and the other around 8pm), taking just under 12 hours to reach the other terminal. The OX is made up of mostly tank cars, and the FOX is typically a mix of mostly freight (TOFC/COFC) with whatever leftover oil wouldn't fit on the OX. The tanks run full south and empty north, and the trailers and flatcars typically run full north and empty south. The wintertime often sees that slimmed down to one train per day, as freight traffic drops substantially (it's too cold to build anything) and the airport demand is lessened with fewer flights.

A large portion of the daily shipment (IIRC, about 2/3 of the tanks heading south each day) is Jet-A destined for the Anchorage airport, a major trans-Pacific cargo hub. It takes two tank cars to fill a single 747-400, and I counted 72 747s arriving at ANC in the last 24 hours out of about 220 flights; a good chunk of the rest were 777s, 767s, and MD-11 cargo planes, with the remainder being passenger flights (Alaska Airlines operated 34 flights into ANC in the last 24 hours and does close to double that in the summer) and some GA.

Note that the ARR is simply predicting a drop to basically $3 million in profit this year, not a drop to $3 million in revenue. They are still going to make a profit and will be around for a long time to come--the state is far too dependent on rail transport to see levels drop to where the railroad itself is in jeopardy of continued existence.

 

[the_traveler]

...wintertime...it's too cold to build anything

To cold? In Alaska? In the winter? :blush: Who would have thunk it! :giggle:

 

[railiner]

That seems to be very little for a railroad to earn....

Net income is what you might think of as "profit." Despite its status as a state-owned corporation, the railroad actually does turn a profit.

What you were thinking of as "earnings," i.e., operating revenue, is pretty respectable: in 2011, it was $161.5 million. That puts it well into the middle of the pack of the "class II" or "regional" railroads.

I am not familiar with ARR freight traffic. Didn't even know they mined coal in Alaska.....

ARR freight traffic consists of four major parts:

-Petroleum, which primarily consists of shipping fuel from the Flint Hills North Pole Refinery southeast of Fairbanks to Anchorage,

-General freight, which the ARR breaks out into TOFC and "interline," which are whole railcars barged up to Whittier on the Alaska Rail Marine or CN Aqua Train rail barges

-Gravel, which consist of usually three or more trains that bring crushed rock from quarries in the Mat-Su valley about 45 miles north of Anchorage into Anchorage itself, largely to be used in road construction, and

-Coal, which consists of two parts: "local coal," which brings coal a few times a week from the Usibelli coal mine near Healy north to Fairbanks, whose power is largely supplied by coal, and "export coal," which brings coal a few times a month from the Usibelli mine to the port at Seward to be shipped out of state (mostly to South Korea, leading to the other colloquial name for the coal run, "Korean coal").

The ARR typically runs two freights a day in each direction between ANC and FAI in the summer. They are referred to as the "OX" (the Oil Express) and the "FOX" (the Fairbanks Overnight Express). They typically depart each terminal in the evening (one around 6pm and the other around 8pm), taking just under 12 hours to reach the other terminal. The OX is made up of mostly tank cars, and the FOX is typically a mix of mostly freight (TOFC/COFC) with whatever leftover oil wouldn't fit on the OX. The tanks run full south and empty north, and the trailers and flatcars typically run full north and empty south. The wintertime often sees that slimmed down to one train per day, as freight traffic drops substantially (it's too cold to build anything) and the airport demand is lessened with fewer flights.

A large portion of the daily shipment (IIRC, about 2/3 of the tanks heading south each day) is Jet-A destined for the Anchorage airport, a major trans-Pacific cargo hub. It takes two tank cars to fill a single 747-400, and I counted 72 747s arriving at ANC in the last 24 hours out of about 220 flights; a good chunk of the rest were 777s, 767s, and MD-11 cargo planes, with the remainder being passenger flights (Alaska Airlines operated 34 flights into ANC in the last 24 hours and does close to double that in the summer) and some GA.

Note that the ARR is simply predicting a drop to basically $3 million in profit this year, not a drop to $3 million in revenue. They are still going to make a profit and will be around for a long time to come--the state is far too dependent on rail transport to see levels drop to where the railroad itself is in jeopardy of continued existence.

Fascinating info, thanks! I now know a great deal more about the ARR. Too bad there isn't sufficient traffic to warrant expansion to reach the Canadian network.....

 

[rrdude]

That seems to be very little for a railroad to earn....

Net income is what you might think of as "profit." Despite its status as a state-owned corporation, the railroad actually does turn a profit.

What you were thinking of as "earnings," i.e., operating revenue, is pretty respectable: in 2011, it was $161.5 million. That puts it well into the middle of the pack of the "class II" or "regional" railroads.

I am not familiar with ARR freight traffic. Didn't even know they mined coal in Alaska.....

ARR freight traffic consists of four major parts:

-Petroleum, which primarily consists of shipping fuel from the Flint Hills North Pole Refinery southeast of Fairbanks to Anchorage,

-General freight, which the ARR breaks out into TOFC and "interline," which are whole railcars barged up to Whittier on the Alaska Rail Marine or CN Aqua Train rail barges

-Gravel, which consist of usually three or more trains that bring crushed rock from quarries in the Mat-Su valley about 45 miles north of Anchorage into Anchorage itself, largely to be used in road construction, and

-Coal, which consists of two parts: "local coal," which brings coal a few times a week from the Usibelli coal mine near Healy north to Fairbanks, whose power is largely supplied by coal, and "export coal," which brings coal a few times a month from the Usibelli mine to the port at Seward to be shipped out of state (mostly to South Korea, leading to the other colloquial name for the coal run, "Korean coal").

The ARR typically runs two freights a day in each direction between ANC and FAI in the summer. They are referred to as the "OX" (the Oil Express) and the "FOX" (the Fairbanks Overnight Express). They typically depart each terminal in the evening (one around 6pm and the other around 8pm), taking just under 12 hours to reach the other terminal. The OX is made up of mostly tank cars, and the FOX is typically a mix of mostly freight (TOFC/COFC) with whatever leftover oil wouldn't fit on the OX. The tanks run full south and empty north, and the trailers and flatcars typically run full north and empty south. The wintertime often sees that slimmed down to one train per day, as freight traffic drops substantially (it's too cold to build anything) and the airport demand is lessened with fewer flights.

A large portion of the daily shipment (IIRC, about 2/3 of the tanks heading south each day) is Jet-A destined for the Anchorage airport, a major trans-Pacific cargo hub. It takes two tank cars to fill a single 747-400, and I counted 72 747s arriving at ANC in the last 24 hours out of about 220 flights; a good chunk of the rest were 777s, 767s, and MD-11 cargo planes, with the remainder being passenger flights (Alaska Airlines operated 34 flights into ANC in the last 24 hours and does close to double that in the summer) and some GA.

Note that the ARR is simply predicting a drop to basically $3 million in profit this year, not a drop to $3 million in revenue. They are still going to make a profit and will be around for a long time to come--the state is far too dependent on rail transport to see levels drop to where the railroad itself is in jeopardy of continued existence.

GREAT summation, thanx!

 

[the_traveler]

FYI - jackal used to work for the Alaska Railroad! :excl: Thus, I for one believe what he has stated as the truth!

 

[Anderson]

Another point to be had: I suspect that the reason the ARR's numbers look so thin has a lot more to do with the fact that it's up in Alaska. IIRC, the ARR has a comparable amount of trackage to the FEC, but the FEC has managed to do about double the volume in freight traffic because Florida is more built up (not to mention the FEC having a more or less direct interchange with NS and CSX at Jacksonville).

Also, with respect to the passenger operations:

http://www.alaskarailroad.com/travel/Transit/Fares/tabid/93/Default.aspx

Anchorage-Fairbanks, the fare yield in-season is $.6017/mile for coach (Adventure class) and $.9081/mile for FC (GoldStar Service). Moving to the shoulder season, it's $.4791/mile and $.7855/mile. Off-season, it's $.4429/mile (only coach is available). These numbers are comparable to the Acela (or at least, the Acela of 2-3 years ago...I did a fare check and the Acela fares are marching along pretty steadily) in terms of revenue per passenger mile.

I see no reason that the ARR would want to cut back their service; really, the better question is whether there's ever going to be some pressure on them to bump off-season service to 2-3x weekly (the once-weekly operation is likely killing any ridership they could generate; I'll also concede that there's probably not that much ridership to be had, but the fact that the ARR can't even offer round-trip rail options in their winter tour packages says something), add incidental service around college breaks (it wouldn't be a stretch for the railroad and the state colleges to coordinate schedules) and/or to stretch their operating season further back into May/later into September if tourism picks up more. Considering that the equipment is sitting around and the net cost in terms of staffing to run some additional services shouldn't be a killer (benefits are likely fixed, so you're only looking at wages), I'd expect a money crunch to cause at least some sort of look at this. Even accounting for the in-state discounts and whatnot, they're really not doing too badly.

 

[railiner]

The example above, I believe doesnt't take into account the revenue the ARR takes in for carrying the cruiseline owned cars. They make up a much larger share of the summertime train than does ARR's own cars. And the cruise lines even have their own chartered trains in some cases....

I am not concerned so much about reduction in frequency, but more about what will pay to maintain the road if freight revenue goes down so far......Possible lowering of speed limits if maintenance is cut back.....that sort of thing......

 

[Anderson]

The example above, I believe doesnt't take into account the revenue the ARR takes in for carrying the cruiseline owned cars. They make up a much larger share of the summertime train than does ARR's own cars. And the cruise lines even have their own chartered trains in some cases....

I am not concerned so much about reduction in frequency, but more about what will pay to maintain the road if freight revenue goes down so far......Possible lowering of speed limits if maintenance is cut back.....that sort of thing......

The Denali Star numbers don't seem to be affected by that. Here's what their report said:

Prior to the 2008 economic downturn, annual ridership peaked at more than a half-million passengers. During 2011, ARRC carried 412,200 passengers. Cruise ship customers accounted for about two-thirds (265,335) of those travelers. Among the remaining Alaska Railroad train customers, travel aboard the Denali Star was most popular (56,549), followed by Coastal Classic passengers (43,788), and Glacier Discovery (27,911). The Hurricane Turn continued to draw a loyal and adventurous clientele (4,841), and 3,902 passengers rode the Aurora during the winter months (October - April).