Lessons from Indiana’s experiment with intercity passenger train competition

Corrected on October 7, 2014

Thanks to the power granted to the states to oversee the provision of short-distance (750 total route miles or fewer) intercity passenger train service by the Passenger Rail Investment and Improvement Act of 2008, several states are investigating the possibility of contracting with companies other than Amtrak to operate these services. And a host of companies is competing with Amtrak for this business. Most of them are established operators of commuter rail and transit systems in the US, and of all types of passenger trains in other countries, and a couple are US freight and tourist/excursion passenger train operators. 

The main hurdles these firms face in competing with Amtrak are access and liability. Amtrak enjoys a right to access host railroads’ tracks while paying the host only enough to cover the avoidable cost of accommodating passenger trains, rather than these trains’ fully-allocated portion of all the host’s costs. This right extends from the freight railroads’ prior obligation to provide passenger service as common carriers, an obligation they agreed in 1970 to turn over to Amtrak. The national passenger carrier also benefits from having a single national insurance policy covering damages resulting from accidents involving its trains on host railroads’ tracks. Other operators, including commuter rail operators, must negotiate separate policies for each service they operate subject to state law. However, a federal statutory liability cap of $200 million per accident or incident applies to all operators, intercity and commuter, including Amtrak.

The process by which state and local authorities select contract operators for commuter rail and transit systems has been in practice since the 1980s, and most every bidding process follows the same rules. But this is the first year that states are accepting proposals and bids for intercity passenger service, so both the states and the prospective operators are entering uncharted territory. The states of Washington (for the Cascades) and Texas (for the Heartland Flyer) have issued Requests for Information, asking potential bidders to submit details about their companies’ backgrounds and qualifications. And North Carolina has contracted out the maintenance of the state-owned equipment used for the Piedmont service since it started in 1993.

But the first state to select a non-Amtrak operator after receiving proposals from four firms in addition to Amtrak was Indiana, for the Chicago-Indianapolis Hoosier State. There are several reasons why other states should not emulate the way the Indiana Department of Transportation (INDOT) managed its bidding process. INDOT’s Request for Proposals was not specific enough about how the agency wanted the service operated, but invited any ideas that bidders may have.

The eventual winning bidder, Corridor Capital LLC (CC), is a firm that owns a pool of passenger cars and does railcar leasing, but has never operated a train service, passenger or freight. It calls itself a “passenger train developer,” rather than a railroad or railroad operating firm. The firm’s proposal stated that it would use Amtrak as a subcontractor to provide the train & engine crews that would operate CC’s locomotives and cars, as a way to take advantage of Amtrak’s access rights and liability protection. But CC and Amtrak had not reached agreement on any such terms, and it seems clear, based on Wednesday’s news, that Amtrak would have rejected this approach. 

It will be interesting to watch how the Hoosier State’s future takes shape in the coming months. But hopefully it will serve as a cautionary lesson to other states so that they will undertake more thorough competitive bidding processes that also involve the host railroads and Amtrak, to the extent that its equipment, personnel, facilities and access and liability benefits are required. 

But something positive has come from this learning experience: Amtrak announced Wednesday that it would immediately be adding on-board WiFi, Business Class seating, and food & beverage service (via a snack cart) to the Hoosier State, amenities the train has been lacking for years and which Amtrak seemed resistant to adding (perhaps because the Cardinal, the long-distance train that serves the same route in place of the Hoosier State three days a week, is a full-service train). While these are the same amenities found on most other short-distance trains, one would have expected Amtrak to undertake a lengthy study of the costs, benefits and feasibility of making these changes, and perhaps to introduce them one at a time on a trial basis. But it took the threat of Amtrak losing Indiana’s contract to another company to prod the carrier into improving the customer experience in ways the state had sought. 

Even if competition for states’ business doesn’t result in non-Amtrak companies actually entering the American intercity passenger rail market (which would not be a bad outcome as long as the national network remains interconnected and through ticketing is preserved), if it prods Amtrak into making more expeditious improvements to customer service and amenities and thereby helps its bottom line, then it’s a good thing.