Ways to Decrease Costs

Decreasing costs is never easy – it can be controversial and disruptive. But in the business world it’s either cut costs or go out of business. Amtrak’s biggest expense by far is labor and it’s nearly equal to the ticket revenues – in FY16 Amtrak ticket revenues were $2.14 billion and the salaries/wages/benefits were $2.06 billion. This is not a sustainable business model and if Amtrak is ever to break even it will need to bring down its labor costs.

Amtrak’s mission is not to employ people or to strengthen trade unions – the mission is to run passenger trains throughout the country on a for-profit basis. Amtrak is a heavily unionized operation that goes back many generations in the railroad industry and continues to this day. Union labor is expensive from a business standpoint, usually about 50% higher than non-union labor. The latest statistics have the average total compensation for all unionized employees at about $47/hour and non-union at $32/hour. It’s possible that if Amtrak were to go non-union they could conceivably cut their labor costs by about 1/3 to $1.4 billion, saving about $600 million per year. The reality is that politically and (perhaps from a railroad point of view) operationally it may not be possible to operate non-union trains over union-employed railroads. But Amtrak should look seriously at reducing union employment as far as possible, particularly in the back shop areas. Amtrak could contract out maintenance and other non-train employment and achieve significant savings, perhaps in the $200 million per year range. The call-in reservation centers are another area where they can be contracted out – the airlines and major resorts years ago moved their call centers overseas with reduced costs at pennies on the dollar.

Amtrak should also watch its capital spending to make sure that it’s getting a good return on investment. Like any business, they should spend scarce capital dollars only on those projects that will either significantly increase revenues or reduce costs (set a benchmark of 10%-20%). For instance, the capital cost of replacing the station track at NOUPT with all (used) welded rail and concrete ties where train operations will never exceed 10 mph is questionable from a business standpoint. If Amtrak has a Superliner sitting in the weeds at Beech Grove for lack of capital funds that could be earning revenue, should they instead use that money to put in high-speed track in a train station that sees at most five movements a day?