The market and the math to make pasenger rail work

Photo of an Amtrak train passing a farmhouse in Michigan (CC-BY Russell Sekeet)

The Twin Cities region sits at the edge of the populous eastern third of the United States. There aren't big million-plus metropolitan areas for long distances to the west, so when looking at plans for passenger rail expansion, there aren't many obvious destinations. However, the lone intercity train to pass through Minnesota, the Empire Builder, is popular enough to suggest that lightly-populated areas can still provide enough ridership to be viable.

That's something positive to consider as our state looks to improve the transportation system for people who can't or don't want to drive everywhere. Development has been proceeding for routes in MnDOT's passenger rail plan, but the pace has been hampered by weak political backing and limited budgets. But what if there's a real business case for these routes? Could that accelerate development?

Airlines as a guide

People have a number of different ways of getting from city to city, but today, if they don't drive, they usually fly. Chicago is one of the first places people think about when contemplating rail projects for Minnesota, but we have fairly frequent and inexpensive flights from Minneapolis–Saint Paul International Airport to both O'Hare and Midway. It's easy to dismiss the idea of improving rail travel when a flight is only $30 more expensive than today's Amtrak service, yet gets you there several hours faster.

But if you look beyond Chicago to the other routes being contemplated, there's a price gap that certainly looks big enough to run a train through. Here's a table of direct, one-way airfares I found for April 2nd, 2015 (including a $20 to $25 fee for one checked bag):

City/Airport	Median price	Flight distance	Price/mi	Annual passengers to/from MSP	Daily round-trips	Average per flight*
Chicago O'Hare	$130	334	$0.39	1,644,000	25	90
Chicago Midway	$108	349	$0.31	902,000	8	154
Des Moines	$391	232	$1.69	194,000	5	53
Duluth	$331	155	$2.14	152,000	5	42
Fargo	$480	223	$2.15	332,000	7	65
Madison	$408	228	$1.79	296,000	5	81
Milwaukee	$102	296	$0.34	570,000	6	130
Rochester	$250	76	$3.29	104,000	2	71
Sioux Falls	$441	195	$2.26	252,000	6	58

(* Average per flight based on number of flights for April 2nd.)

Passengers can get a discount on the expensive legs if they connect to other flights, though that also effectively raises the fare to the cheaper destinations on the list (digging into the relevant data for Q1 2014, the median MSP–O'Hare airfare worked out to be $0.51 per mile because of that). There are a lot of people paying hundreds of dollars to make hops that would have been far less expensive by ground, and maybe just as fast.

Trains are cheaper and more effective

By contrast, a typical Amtrak fare is about 10 to 20 times cheaper than what the airlines charge for the smaller cities listed, and often half that of the larger destinations. For each passenger, the Empire Builder averages ticket revenue of about $0.17 per mile on its long route. Even at that low fare, it covered about half of its operating cost, and it's a big, expensive train to run. The Empire Builder has sleeping cars and lounge/dining cars that aren't necessary for short routes that only take a few hours to cover.

Across the Amtrak system, the full cost to operate a train tends to land in the range of $0.30 to $0.70 per passenger-mile, though that number is dependent on a lot of things, perhaps the most important being the number of passengers onboard. Nonetheless, all of Amtrak's routes are less expensive per passenger-mile than any of the small-market airline routes listed above. (Amtrak's worst performer by far in 2014 was the Chicago–Indianapolis Hoosier State at $1.14 per passenger-mile).

This shows how much economic benefit there could be from rebuilding proper passenger rail service across the state and country—existing travelers could save money, and new passengers who previously couldn't afford to fly would now have a cheaper option.

Corridors up to about 150 miles in length are the easiest ones to make competitive with air travel, since regular trains traveling up to the normal limit of 80 mph can cover the distance as fast or faster than flying. Airline passengers get bogged down by TSA security lines, more time spent boarding (airliners have just one door while trains can have many), dealing with luggage (trains allow much larger carry-on bags than airlines do), and getting to the departure point.

Railroad stations are often downtown versus airports that are ten to twenty miles away. Trains can also make stops along the route to serve towns that are too small or too close to larger airports to justify air service of their own. Combine that with fares that can be many times cheaper than flying, and ridership could climb several times higher than what the airlines can do, even on routes that extend significantly further than 150 miles.

Finding the magic combination

Unfortunately, Amtrak has failed to properly tap into the short-haul travel market, partly because they've never had great funding. A number of ingredients need to be properly mixed in order to build a train service that can carry people profitably: The train needs to be fast enough and frequent enough to attract passengers—with a price to match—while having low operating and maintenance costs.

I'll start with the last item first:

No matter how much money you initially put into a train service, operating costs are what can really make or break the rail line. If your fares aren't enough to cover the cost of the onboard crew or the day-to-day maintenance of a train, then there isn't really a way to pay off the fixed infrastructure or rolling stock.

I have a recommendation: Run trains with high-capacity passenger cars—as few as you need to carry your passengers.

Long trains don't help

My reasoning is pretty simple—just look at this plot of commuter train operating cost versus length for different providers around the country (data from the 2013 edition of the National Transit Database):



This really surprised me when I plotted it out. I would have expected operating cost to taper off as trains grow in length (some economy of scale), but the linear trend line on this graph shows that each extra car on a commuter train adds an operating cost of almost $600 per hour. Many costs are included in these values, including overhead like management, insurance, and payments to the railroads, so it's remarkable that it fits so well.

This makes it easier to think about what it takes to operate a train at a profit—rather than worrying about the train as a whole, we can just think about whether each individual passenger car can cover its costs or not. It doesn't matter very much whether a train is long or short.

Still, even though the trend is very linear, there's still a big range across the systems in the database. The lowest outlier turns out to be an Amtrak train, the Boston to Maine Downeaster, which is overseen by a regional rail authority that submits their cost data to the NTD. It costs $1,004 per train hour, or about $219 for each car per hour.

The country's most expensive commuter train in terms of cost per car hour is our own Northstar commuter service, which clocks in at a massive $4,590 per train hour, or $1,179 per car hour. (This is bad and should be fixed.)

It's hard to say why these are so different, but it's safe to assume almost any new train would be less expensive per hour than Northstar. And, with the Downeaster's low cost, there's good reason to believe that new intercity trains would fall somewhere below that graph's trend line.

Use bigger cars instead

Commuter trains around the country often use bilevel passenger cars with two floors of seating, and Amtrak also runs bilevel trains on many corridors using their Superliner equipment or some of the related spinoff designs. While they don't double capacity, they do increase the number of seats on a car by 50% or more.

This can help a lot when trying to get enough fare revenue from passengers to cover costs. For instance, a long-distance Amfleet car has 60 seats, compared to 90 or a bit more on Superliner cars. At the Empire Builder fare of $0.17 per mile, an Amfleet car averaging 60 miles per hour would max out at $612 per hour, while the comparable Superliner would bring in $918 if it was fully loaded.

Northstar's commuter coaches pack riders much more tightly, averaging 145 seats per car. A full car could bring in $1,479 per hour at 60 mph, exceeding even its outlandish costs.

However, it's impossible to always run fully-occupied trains, and intermediate stops to let passengers on and off can drag down the load factor. Passenger loads in the 50% to 70% range are much more common. A train with Northstar-level costs would need to raise fares to keep ahead, so it's extremely important to drive down operating expenses as much as possible—if it had Downeaster-level costs, it would manage some major surpluses on the operating budget.

Bilevel trains are probably a bit more expensive than their single-level counterparts, but it's hard to say how much more. Commuter rail services with single-level passenger cars seem to have lower costs than the ones that run bilevel trains, but they are often used in areas that have electrified trains which need to fit underneath the catenary wires that power them. Electric locomotives are less expensive to operate and maintain than their diesel counterparts, which skews the numbers a bit.

Hopefully the cost per car of a bilevel intercity train could land in the range of about $250 to $500 per revenue hour.

Get them at the right price

Trains do have one great advantage over the airlines—they're ten times cheaper to buy than an equivalent aircraft.

A Boeing 767 with 350 seats runs about $180 million, more than $500,000 per seat. In contrast, a fairly standard train with four 90-seat Superliner-style bilevel cars (360 seats total) and a new locomotive would probably run $12 to $18 million, up to about $50,000 per seat.

A Northstar train with 145 seats per coach could bring the cost down to a bit over $20,000 per seat—a whopping 25 times cheaper than a jetliner. That's not quite the right equipment for trips lasting a few hours, though. Some seats would need to be taken out to add space for luggage and a little extra legroom.

Let's say you have something middle-of-the-road with 120 seats per car at a price of $30,000 per seat. If you want to pay off that piece of train equipment within its first million miles (a point when rail vehicles often go in for a mid-life overhaul), you'll need to dedicate about $0.06 per passenger-mile to the cause of paying off the train.

Jumping back a second to operating costs, if that 120-seat car cost $375 per hour to operate (halfway between $250 and $500), about $0.09 would be needed per passenger mile to cover expenses. Add that to the $0.06 to pay for the equipment, and you've got a narrow surplus of $0.02 per passenger mile.

Run them often enough and fast enough

One thing that helps keep flying popular is the ability to choose from multiple flights each day. Frequency of service is a huge failing of Amtrak's current system, perhaps only matched by the extremely skeletal nature of their network. It's rare to find a regularly-scheduled air service that has fewer than four round-trips daily, so it's remarkable that most of Amtrak's stations only see one train per direction per day.

Running multiple daily round-trips is key to attracting passengers to the rails. The Northern Lights Express to Duluth is planned with eight daily round-trips, and the Zip Rail service to Rochester may have even more. Only small parts of the country in the Northeast and California have intercity trains running that often today, which has severely limited the attraction of train travel up to now.

Operating expenses found in Amtrak's statistics and the National Transit Database typically include some payment to the railroad to cover track maintenance and access charges, but that may not be enough to pay for more track capacity. Money is needed upfront to add room for passenger trains, and it often adds up quickly.

The big problem is that it can take tens of millions to hundreds of millions of dollars to build capacity and/or buy the access to run that many trains, with costs climbing to the billions for longer and faster routes. A basic upgrade would include things like signaling upgrades and a few added or expanded sidings for trains to pass each other. That's something that could be done for $1 to $2 million per mile. Adding extensive amounts of double-tracking would probably raise the cost into the $4 to $5 million per mile range, and entirely new track could run upwards of $10 million.

People shouldn't immediately be scared off by the cost, though. If we take the hypothetical train car I described in the last section and charge a fare of $0.30 per mile, the first fifteen cents would go to operating costs and paying off the rail vehicle, while the other fifteen could go to paying off track and do it at a decent rate. Relatively modest travel markets with 500,000 to one million annual passengers over the entire distance—probably within shooting distance of several of the cities I listed at the start of the article—could pay off simpler track improvements within about 15 years.

Annual passengers needed to pay capital cost @ $0.15/mi:

price/mi	$1 million	$2 million	$5 million
5 years	1,333,333	2,666,667	6,666,667
15 years	444,444	888,888	2,222,222
30 years	222,222	444,444	1,111,111
70 years	95,238	190,476	476,190

Even when the price climbs beyond what can be paid off in a reasonable timeframe just by passenger fares, it's important to remember that existing freight operators also benefit from track upgrades. They might split the cost with a passenger operator if it helps them move trains more effectively. Faster trains can pay down their hourly costs more quickly since they cover more distance in that time, but that's just a slice of a slice of the overall budget—higher speeds attract more riders, though.

Some upgrades can't really be justified by a profit motive, though—catenary for electrified trains, for example. Unless you're pushing a huge number of trains down the track and grabbing tons of passengers, it would be a net negative for investment since you just don't save enough on fuel and maintenance costs. But, electric trains do have great environmental benefits, so government grants should be considered to cover that cost for relatively busy lines.

A case for doing something rather than nothing

Rebuilding the passenger rail network for cities around Minnesota and across the country is important for building a stable platform for the future. Our transportation is out of balance, and far too dependent on automobiles which have completely altered the face of our towns cities over the last century. As our region continues to gain population, new growth should be focused in ways that are better for the environment and the people who live there.

To reconstruct our cities on the scale of the pedestrian and cyclist, we have to turn the dial back against car-dependent development patterns. Transit systems and bikeways work for the city and metro scale, but intercity lines have to be resurrected or built up from scratch to handle travel over longer distances. Trains help restore walkability to the towns and cities they serve, which will help us turn the tide on climate change.

There is a significant slice of the travel market that isn't well-served by existing options, and I believe the window is large enough for new operators to come in and make money. I've focused on what can be done for conventional-speed trains at short distances, but states with larger populations and different distributions have a wider variety of options. Who might take the plunge, though?

Finding the right pocketbook

Whoever funds the next passenger rail line in the region will need to have a lot of funding available, since the initial costs are pretty high no matter how you look at it.

It would be great if Amtrak itself was pushing for new routes, but they've usually been hamstrung with just enough funding to pay for their operations and their maintenance backlog. Not much has been available for upgrade or expansion. They're almost certainly out of the picture unless a state or other partner organization comes along with the money.

The major freight rail companies were collapsing under their own weight at Amtrak's formation in 1971, but have made remarkable turnarounds. The largest companies now make billions of dollars annually and could easily run passenger service again while barely denting their budgets. They know their lines the best and control the flow of traffic, so they would be in prime position to implement the services as inexpensively as possible.

Unfortunately, they have many employees who only see passenger rail as a drag on their freight business, and would be opposed to any expansion. There are a couple of freight companies bucking that notion, particularly one in Florida. It isn't clear if any others will change their positions, though.

Foreign passenger rail companies from Europe and Japan have also poked around at a number of markets in the U.S., so there might be a push from outside our borders at some point. But they would need to have strong partnerships with American companies and investors to pull it off.

Airlines would be interesting candidates for entering the passenger rail market. It's difficult for them to make money at short distances, so it would make sense to build ground-based feeder networks to airports that specialize in long-haul travel. Many corridors would only cost as much as one or two jumbo jets.

In the end, I don't particularly care who funds and builds any future passenger trains that will be available to me—it's just clear that our current efforts at expansion are moving way too slow to affect things like climate change or handle our aging population. Any new entrant who has the right formula and the right funding has a pretty wide open field to build something successful.