Pre-Amtrak: Fully Allocated vs. Avoidable Cost "Red Ink."

[Bob-Fryml]

Here's a couple of I.C.C.-formula accounting questions.

Prior to Amtrak when did U.S. passenger train service become a deficit proposition according to the I.C.C. "fully allocated costs" formula?  Generally this formula includes all costs for running passenger trains including associated wages, fringe benefits, payroll taxes, train dispatching,  track maintenance, associated fixed facilities costs (such as stations upkeep, the costs of manning each open station, and dedicated passenger equipment maintenance facilities), running repairs, locomotive fuel and maintenance costs, and equipment acquisition/depreciation charges.  I seem to recall that year was 1956.

Prior to Amtrak when did U.S. passenger train service become a deficit proposition according to the I.C.C. "avoidable costs" formula?  Generally this formula is the "fully allocated costs" formula less equipment acquisition/depreciation charges.  It's based on the notion that the locomotives and passenger cars are already bought and paid for, so what will the carrier save by not running the trains?  I seem to recall that year was 1965.

For many eastern carriers burdened with heavy commuter operations, the two years may have been earlier than what their western bretheren experienced.  But still, what were those dates?     

[daveklepper]

Because odf extensive commuter operations, the New Haven lost  money on pqassenger service even though individual semi-long distance trains made money.    This was probably true even during WWII. 

[PBenham]

The passenger "problem" began in the commuter zones of major northeastern cities and put New Haven in bankruptcy court TWICE, 1938 and 1961. The Lackawanna was unable to effect a merger with the Nickel Plate while DL&W owned its stock, and gave Nickel Plate through car access to Metro New York. The DL&W and Erie commuter losses scared D&H out of the merger with the eventual Erie Lackawanna. There's proof that NYC and PRR,( and many others, like B&M, B&O, CNJ, Reading) were not exaggerating their respective passenger expense/loss situations. Years into the post WWI era, short distance passenger services were not cost effective per ICC regulations covering profits/losses prior to the onset of the depression. It should be noted that once the losses began, based upon ICC regulations that covered equipment replacement, taxes, employee wages, servicing facility expenses, terminal (Stations) expenses and on and on. No one operating passenger trains after 1929 could make a "profit" under the ICC formula. Amtrak certainly won't now, or ever. The same rule means that Amtrak cannot replace its aging passenger cars like the original Amfleet cars, which are crying for replacement. They are older now than the "heritage" cars they acquired from the member lines at inception back in 1971 that they replaced!

[daveklepper]

How about a  campaign to get David Gunn back on the job?

[CSSHEGEWISCH]

I read somewhere that the last year in which passenger service as a whole covered its avoidable costs was 1952 or 1953.  That's a lot of red ink prior to 1971.

Keep in mind that the ICC formula for allocating costs was developed prior to the development and widespread use of cost accounting by business.  Since the formula was a legal requirement, it was later at variance with some accounting standards regarding cost allocation.

[PBenham]

How about a  campaign to get David Gunn back on the job?

In numerous interviews Mr. Gunn emphatically stated he had no desire to return to Amtrak. We'd do better cloning Pat Mginnis, some one NH and B&M fans despise! Then there's Robert R. Young...

[daveklepper]

1.   The New Haven Railroad in the McGinnis Years is an excellent book.

 

2.    Possibly David Gunn would take a seat on the Amtrak Board, where he could do enormous good!

[PBenham]

Dave, On point 1, I agree! On point 2, Amtrak can beg, plea, and so on for all eternity, and he won't go back there. He was wrongly dismissed and that's that. They shot themselves in the (censored) and there's no taking that back!

[Anonymous]

It's my understanding that the railroads couldn't just discontinue a passenger run whenever they wanted to, but needed some form of Government regulatory permission, is that correct?

Also, from what I've read and heard, I get the impression that the railroads (Southern Pacific comes to mind.) didn't want anything to do with passenger trains towards the end. Is that correct?

Some of the stories I've heard makes it sound like the railroads actually took unofficial measures to discourage people from riding the trains. Was there any truth to that?

[PBenham]

Where to begin..Well, first Railroad passenger service was, by 1955 an albatross around most line's necks. Some states understood there was a problem (Indiana) and others (New Jersey) killed the Central of New Jersey, broke the Susquehanna,and badly hurt Erie Lackawanna. New Haven had lengthy feuds with the states of Connecticut and Massachusetts (OK, Mass. is a commonwealth, not a state!)
The transportation act of 1958 helped somewhat, but Southern Ry. had to operate a remnant of the "Augusta Special" in South Carolina, after that state refused to let the Southern kill that train.
Southern, Southern Pacific, Louisville & Nashville and New York Central all wanted to get out of the passenger business so badly that they'd stop a train mid run when the discontinuance order became effective. In the meantime, they ran coach only trains without food service, on schedules that were great for vampires, and the post office! They were serious about killing their passenger service. Southern changed its attitude under W. Graham Clator, NYC went broke, SP and L&N joined Amtrak, L&N had to put up with a Chicago-Miami train until 1979, SP and now, UP are still trying to kill the Sunset!

[Anonymous]

Very sad, what Amtrak has evolved into. Maybe things'll get better.

[CSSHEGEWISCH]

It's my understanding that the railroads couldn't just discontinue a passenger run whenever they wanted to, but needed some form of Government regulatory permission, is that correct?

You are quite correct, prior to 1958, state Public Utility Commissions had to approve passenger train discontinuances.  The Transportation Act of 1958 provided for ICC jurisdiction of interstate passenger train discontinuances and appellate jurisdiction on intrastate passenger train discontinuances.  At any rate, the whole discontinuance procedure had a lot of political overtones, especially at the state level, and there seemed to be little consistency in determining which runs would be allowed to be discontinued and which would have to continue operating for another year.

[Bob-Fryml]

Also, from what I've read and heard, I get the impression that the railroads (Southern Pacific comes to mind.) didn't want anything to do with passenger trains towards the end. Is that correct?

Oddly enough, Espee was slightly sychzo about passenger trains.  I remember reading that they were willing to live with nos. 98 and 99 (The Coast Daylight) and maybe The Del Monte (running between downtown San Francisco and somewhere around Monterey/Carmel), but they wanted to drop all other passenger services.  Espee even offered to buy its San Francisco Penninsula patrons 12-passenger vans, and have them drive themselves to-and-from work, just to be relieved of their commuter operations.

Yes, those were the glory years when the mighty and supremely arrogant Southern Pacific was the railroad that many railfans just loved to hate!   

[CSSHEGEWISCH]

Before we get too nasty about SP and its passenger services, consider that SP seriously proposed a 111% fare increase for the Peninsula commute service to the California PUC.  SP documented that an increase this large was required to cover the costs of the operation plus a 6% return on investment.  Needless to say, they didn't get anything near the full increase.

[al-in-chgo]

 

For all kinds of reasons we don't need to go into now, let's not forget that most of the U.S. mail  -- and the RPO's  --  were very quickly yanked from the trains by the Post Office in about 1966-68. 

Hitherto, what the gov't paid the RR's to sort and deliver mail from their trains counted as a not insignificant, albeit indirect, subsidy to the operation of passenger trains. 

 

 

[J. Edgar]

many branchlines held on to their passenger trains until the end of WW2 because of the RPO's...........but again thats another thread................

[steinmike]

Bob:

The answer unfortunately, is that you're probably looking at a range of years in the post-war era.  Given the large numbers of orders for new cars (and the size of those orders) from 1945 through 1950, it's likely that the downturn began after 1950 and that different roads got into the red on passenger operations from then onwards.  Many years ago a gentlemen who an external auditor for the Pennsylvania Railroad in the post-war era told me that commuter operations were in the red (financially, no pun intended) before WW II and that long haul trains had a brief resurgence during the Korean War but then fell off very quickly.  I saw a quote to the effect that the New York Central reported its first loss on passenger operations, around $50 million, for 1953.

1956 is a real threshold year for rail passenger service in general since that's when the Interstate Highway Act was passed, but I think that a lot of the damage to passenger revenues was done by postwar government investments in airports and air traffic control.   

The point about the ending of the US Mail contract was very good, and a similar point could be made about the fall-off in revenue from railway express operations - with the eventual loss of the mail contract being the breaking point for many roads.

Some of the rail historical associations probably have old financial reports available that would provide a better picture of what was going on.

Mike 

[greyhounds]

If you want to read a great book on the subject, I'd suggest Fred Frailey's "Twilight of the Great Trains."

Frailey is: 1) a railfan and, 2) editor of "Kiplinger's Personal Finace".  He understands trains and money, and he can write about both of 'em.   He writes for TRAINS frequently.

He's sad that the passenger trains went away, but he understands why the did.  On page 9 he explains that the railroads kept two sets of financial books.  One complied with government regs and accounted for cost in the prescribed manner.  The other books only burdened a railroad's passenger service with its direct, avoidable, expenses. 

Overall, the railroads were at about break even on passengers in their private books around 1960; loosing $10 million in 1960 and making $17 million in 1961.  The government calculated deficit was $458 million.  The railroad companies knew that number was bogus and ignored it,

That all changed starting in 1967 when the government took the mail away.   That made the losses very real and the railroads had to get rid of the Super Chief,  Empire Builder, Peoria Rocket, etc.

[CSSHEGEWISCH]

Interesting statistic that I noticed while going through Moody's Transportation Manual quite a few years ago:  The operating ratio for Santa Fe's passenger operation was about 125-150% in the early to mid 1960's but soared to about 200% just before Amtrak after the loss of the various mail contracts and the discontinuance of most of their passenger trains.  The astronomical operating ratio came when Santa Fe was down to the Super Chief/El Capitan, Grand Canyon, San Francisco Chief, Texas Chief, Kansas Cityan/Tulsan and the San Diegans.