National Railroad Passenger Corporation (Amtrak) - Company Profile, Information, Business Description, History, Background Information on National Railroad Passenger Corporation (Amtrak)

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History of National Railroad Passenger Corporation (Amtrak)

The National Railroad Passenger Corporation, better known as Amtrak, is the United States' national rail passenger service, providing train transportation between major cities as well as commuter service and delivery of mail and express freight. A private corporation, Amtrak is almost wholly owned by the U.S. Department of Transportation.

The Creation

On May 1, 1971, the first passenger trains operated by the National Railroad Passenger Corporation pulled out of stations around the country, beginning what was depicted as a two-year federal undertaking to revive (and save) long-distance, intercity rail passenger service in the United States.

Congress had created the company the previous year with the passage of the Railroad Passenger Service Act. The Act established a private company, incorporated in the District of Columbia. Most of the new company's stock was owned by the Department of Transportation, and it was governed by a board of directors made up of the Secretary of Transportation, the head of the corporation, and 11 other members, the majority appointed by the president. During its first year of existence, the corporation was known as Railpax. After it began operations, the nickname was changed to Amtrak, a contraction of the words America and track.

Amtrak was charged with accomplishing three goals, described in the Amtrak Source Book as: "To operate rail passenger service on a for-profit basis; to use innovative operating and marketing concepts to fully develop the potential of modern railway passenger service to meet intercity transportation needs; and to provide a modern, efficient intercity rail passenger service." Congress authorized grants of $40 million for operations and loan guarantees of $100 million for new equipment. Direct funding was to last only two years, by which time the corporation was to be completely self-supporting.


By the time Congress created Amtrak, intercity rail passenger service in the United States had been in a 20-year decline. Until the 1950s, railroads were the only way to travel long distances. But during that decade, the federal government began financing the interstate highway system, a $41 billion, 16-year project, and, as jet airplanes were introduced, significantly increased its support for the construction and improvement of airports.

Airplanes, personal automobiles, and buses began competing with the country's railroads for long-distance travel. The railroads responded to the competition with new equipment on their prestige long-distance routes, replacing steam locomotives with diesel engines, and introducing lightweight stainless steel passenger cars with air-conditioning and double glazed windows. But as the number of passengers continued to drop, the rail companies had little incentive to make major capital investments to upgrade their tracks, signaling, stations, and maintenance facilities. Why, they thought, should their profitable freight business subsidize a means of intercity transportation that was competing with systems receiving federal and state tax dollars? By 1958, rail service accounted for just 4 percent of intercity travel.

The decline in rail passenger service and the deterioration of passenger facilities continued during the 1960s. By the end of the decade, the number of passenger trains had dropped to 500, down from more than 20,000 some 40 years earlier, and only 12,000 passenger cars remained in service. Losses from passenger service operations in 1970 came to more than $1.8 billion dollars in 1997 dollars. Most of the loss was on long-distance, intercity travel. Commuter and suburban lines obviously were less affected by airlines and, at least during the 1960s, lost little ridership to buses and private cars. Many of the railroad companies filed applications to get out of the intercity service on most or all of their routes. Among the most critical was the proposal by Penn Central (the merged Pennsylvania Railroad and New York Central Railroad) to eliminate all its passenger service in the Northeast and Midwest.

Federal Action

The Railroad Passenger Service Act allowed the railroad companies to transfer their money-losing passenger operations to Amtrak in exchange for either a tax write-off or Amtrak stock. Only three lines, the Denver & Rio Grande Western, the Rock Island, and the Southern, did not join Amtrak, opting to continue their own passenger service.

The basic network of routes for the new corporation was developed by the Transportation Department with assistance from the Interstate Commerce Commission, the railroad unions, 15 railroad companies, 43 states, some 3,000 members of the public, and numerous U.S. Senators and Representatives. Factors considered in selecting the routes included existing routes, cost, ridership potential, size of the terminal cities (had to have a population of at least one million), and the condition of the tracks and facilities (no funds were allocated for improving these).

Between January and May 1971, as the new corporation got itself organized, a major argument developed regarding the company's objective: was it to reintroduce the traditional, and well-known, long-distance routes of the past, such as the "Empire Builder," "San Francisco Zephyr," and "Super Chief," or should it concentrate on introducing high speed (150 mph) rail corridors? Those two visions of passenger service in the United States would haunt Amtrak for decades.

The 1970s: Amtrak's First Decade

Although it operated in 43 states over 24,000 miles of track, the enterprise Amtrak began managing on May 1, 1971 was hardly a national transportation system. Essentially, Amtrak was a travel broker. It operated 119 passenger trains, a multicolored assortment of some 1,200 cars--coaches, diners, sleepers, and observation cars--with an average age of 20 years. The individual railroads donated some cars to Amtrak but continued to own the stations, terminals, yards, locomotives, and maintenance facilities, and employed all the people who worked on the passenger trains and in the stations and yards. In its first year, Amtrak leased the crews and equipment, along with the seat reservation, booking, communication, and dispatching systems from the various freight lines. In 1972, Amtrak began buying the diesel locomotives from the railroads and initiated a program of rebuilding and refurbishing the engines to improve on-time performance.

The tracks Amtrak's "rainbow" trains ran on also were owned by the freight companies. For access to the rights of way, which was guaranteed by the legislation, Amtrak paid the freight companies a rental charge. That charge was determined by a formula established in the federal statute. The legislation also gave Amtrak trains priority dispatching over freight trains, but did not address the issue of liability in cases of injuries. Despite the logistical problems and uncomfortable rolling stock, Amtrak was able to keep the passengers it inherited in 1971, and during its first two years even increased ridership.

The creation of Amtrak seemed to generate three conclusions. Some people believed the new entity was really expected to revive intercity rail traffic. The more skeptical seemed to think that this was a last gasp effort and that once the equipment finally gave out, that would be the end of it. Others within the industry and among the passengers saw it as a ruse to eliminate routes in sparsely populated areas while keeping rail service along corridors between major cities in the Northeast and on the West Coast.

None of these occurred after Amtrak's first two years because OPEC, the cartel of oil-producing countries, cut back the production of oil. The resulting energy crunch in 1973 and 1974 caused the price of gasoline (and airline tickets) to increase and lines at gas stations to grow long. Many Americans (and politicians) increased their support of alternative means of transportation, including rail passenger service. Congress approved funding for fiscal years 1972 and 1973 totaling $179.1 million in grants and $100 million in guaranteed loans. In 1973, Amtrak began ordering new equipment.

The new silver trains with the red and blue Amtrak logo attracted more riders and marketing became easier. A centralized and computerized reservations system also helped improve service. During the decade, the company purchased 600 Amfleet and Amfleet II cars and 284 Superliners, including locomotives, coaches, lounges, sleepers, and dining facilities.

Amtrak also began to take control of yard and station facilities, reservation offices, and all personnel except for train and engine crews. In 1972, Amtrak employed about 1,500 administrative and clerical workers. Within two years, as the company assumed responsibility for more of the passenger service operations, employment climbed to 8,500.

The Northeast Corridor (NEC)

As Amtrak was placing its equipment orders, the major freight lines in the Northeast were going bankrupt. As creditors, shareholders, railroad unions, and other railroads (who shipped to and from the East) cried for some action, the federal government took a step that would have a huge impact on Amtrak. The Regional Rail Reorganization Act of 1973 created Conrail (Consolidated Rail Corporation), a federally supported freight company made up of seven bankrupt railroads operating in the Northeast. The legislation also supported funding for preliminary engineering work to improve the Northeast Corridor to cut passenger travel times between Boston, New York, and Washington, D.C.

Three years later, following the passage of the Railroad Revitalization and Regulatory Reform Act in 1976, Amtrak acquired 621 miles of right-of way from Conrail. Most of the routes, about 450 miles, were in the Northeast Corridor, from Washington, D.C. to Boston. The acquisition also included lines from Philadelphia to Harrisburg, Pennsylvania; from New Haven, Connecticut, to Springfield, Massachusetts; and from Porter, Indiana, to Kalamazoo, Michigan. For a switch, now freight trains would have to pay Amtrak to use these rails. As part of the legislation, Congress authorized $1.9 billion over five years to rebuild and improve the tracks and facilities in the NEC.

Along with the tracks, Amtrak also came into possession of rail yards, maintenance facilities, and all the stations along their new routes. The real estate included Pennsylvania Station in New York City and 30th Street Station in Philadelphia, along with some 100 smaller station properties, and half interests in Chicago's Union Station and in Washington, D.C.'s Union Station. With these acquisitions, Amtrak employment nearly doubled, to 16,500, as the company assumed new operations and maintenance responsibilities.

The capital investments made to reduce travel time in the Northeast Corridor by rebuilding tracks and introducing new equipment received most of the attention during the late 1970s. But development was begun on another high-speed corridor, between Los Angeles and San Diego, and other corridors were being studied for high-speed potential.

During the last half of the 1970s, Congress changed the way it financed Amtrak's capital improvements. Instead of loan guarantees, which had mounted to $900 million between 1971 and 1975, or a designated source of income as was provided for highways and airports, Amtrak began receiving direct capital grants, which had to be requested and approved annually, making it difficult to plan and finance capital investments. Amtrak continued to receive separate annual operating grants.

The company's annual revenue during the decade averaged $252 million, and represented less than 40 percent of its operating expenditures. The growing deficits led the Carter Administration to push for more efficient operations and cuts in costs. Proposals to eliminate routes as a means of reducing costs generally went nowhere as Senators and Representatives fought to keep trains running in their states, whether the routes were profitable or not. In fact, by 1977, the number of miles in the Amtrak system had grown to 27,000. Finally, under restructuring in 1979, several routes were dropped as the basic network was cut to 24,000 miles.

1980s: Amtrak's Second Decade

During the 1980s, Amtrak continued to move from supervising to operating the nation's passenger rail system. Early in the decade, Amtrak installed its new Arrow reservation system, with faster computers, and acquired the last non-Amtrak intercity passenger train, the Rio Grande Zephyr, from the Denver and Rio Grande Western.

In 1983, Amtrak, for the first time, directly employed engineers, conductors, and their assistants, beginning on Northeast Corridor trains. The takeover of the operating crews continued for the next several years, until, by 1987, Amtrak employed most of the crews operating passenger trains around the country. After 1982, under Amtrak's bargaining agreements, crews were paid based on a 40-hour work week, not on mileage and other factors as had been the case with the freight lines.

The company also expanded its position in the commuter train business, taking over the commuter trains in the northeast previously operated by Conrail. The company set up a wholly-owned subsidiary, Amtrak Commuter Services Corporation, to oversee its commuter operations.

Amtrak's partnerships with various states improved passenger service in their jurisdictions. Under Section 403(b) of the legislation that established it, Amtrak could operate intercity trains or routes funded by states. California, for example, paid for more trains between Los Angeles and San Diego, in the San Joaquin Valley, and, eventually, between San Jose and Sacramento. New York was one of the first to take advantage of Section 403(b), improving passenger service for the New York-Albany-Buffalo corridor.

But the core route and services faced financial cuts as the Reagan Administration convinced Congress to significantly reduce both the operating and capital grants each year. As President Reagan told an audience, "On the New York to Chicago train, it would cost the taxpayer less for the government to pass out free plane tickets."

Most historians agree that things would have been even worse for Amtrak except for Graham Claytor, a lawyer and railroad executive and the new president and CEO of Amtrak. According to Stephen Goddard, "The grandfatherly attorney left his comfortable office ... to give Amtrak what it needed--credibility before Congress, in whose hands the troubled railroad would rise or fall." Yet even as the cuts were being made, when Reagan fired the striking federal air traffic controllers, people turned to intercity trains.

In 1981, Congress told Amtrak to make better use of all its resources to minimize federal support. In addition to revenues from the commuter and 403(b) trains, by 1981, Amtrak's real estate revenues were generating about $9 million a year. In 1984 the company acquired the remaining one-half interest in Chicago Union Station.

To help increase its assets, the company established a corporate development department. One of its ventures was to lease the NEC right-of-way to telecommunication companies for installing fiber optics communications systems. MCI Communications was the first company to enter into such a lease, with MCI providing Amtrak with specific fibers and communication circuits as well as with cash. Amtrak used those high capacity circuits for their own network and marketed and leased them to large telecommunication users. Amtrak also turned to mail and express freight service for additional income.

In 1985, Amtrak's supporters argued that shutting down Amtrak completely would result in costly drops in productivity due to traffic jams and crowded airports in the major corridors, especially in the northeast. The prospect of more cars and planes (and the resulting pollution) effectively dampened enthusiasm for eliminating all support for Amtrak, at least for a while.

In 1986, Amtrak became the dominant carrier between New York and Washington, with 38 percent of the total air-rail market. In 1989, the company began another period of capital investment, as Amtrak purchased 104 short-distance passenger cars to alleviate crowding on routes in the Midwest and in California's San Joaquin Valley.

By the end of the decade, Amtrak operations were bringing in more than $1.2 billion in revenues. But with operating expenses in fiscal 1989 of nearly $2 billion, it continued to have an operating loss larger than the $554 million operating grant it received from the federal government. The general capital grant fell from $221 million in fiscal year 1981 to $2 million in fiscal 1986 then averaged $34 million for the rest of the decade.

1990s: Moving Toward Self-Sufficiency

In 1994, Congress and the Clinton Administration demanded that Amtrak operations become self-sufficient by 2002. To accomplish this, the company, under new CEO Thomas Downs, adopted a strategic and business plan for the period 1995 to 2000. As part of the plan, Amtrak decentralized itself into three business units to increase accountability and responsiveness: Northeast Corridor, covering services from Virginia to New England; Amtrak West, which operated state-supported corridor trains and the long-distance Coast Starlight on the West Coast; and Amtrak Intercity, responsible for most of the long-distance routes as well as corridor trains in the Midwest. The company also began raising fares, cutting routes and service, and implementing cost reduction programs for its operations.

However, Amtrak needed new rolling stock to replace old equipment, to achieve better travel times, and to meet the requests from states for new intrastate rail services. Through 1990, Amtrak had spent $1.6 billion for cars and locomotives and the capital investment continued during the decade with the delivery of new diesel locomotives, 195 bi-level Superliners, and, in 1996, 50 Viewliners, the first single-level sleeping cars made in the United States in 40 years. In California, 14 new dual-level dining cars were introduced on the state-supported routes, and in Washington, three pendular "tilt" Talgo trains were ordered by Amtrak and the Washington Department of Transportation for delivery in 1998. Trains able to travel 150 miles an hour were added to service the Northeast Corridor beginning in 1999.

Although revenues increased to $1.6 billion in fiscal year 1996, debt and capital lease obligations were almost $1 billion. By 1997, Amtrak was in danger of going bankrupt (in December of that year Downs resigned as CEO and a search was underway for his successor). Congress debated the company's request to designate one-half cent of the Interstate Highway Trust for capital expenditures, but instead passed a tax rebate package of $2.3 billion for Amtrak capital spending over two years and adopted a package of reforms changing various labor requirements, allowing Amtrak to alter the basic system of routes inherited in 1971, setting a cap on liability costs, and establishing a new Reform Board. Funding for the Department of Transportation for fiscal year 1998 included $344 million for Amtrak operations and $250 million for Northeast Corridor capital. It also included $23 billion for highways, $9 billion for aviation, and $4 billion for transit.

Growing Budgets and High Speed Service in the 2000s

Despite the shakeup at the top and numerous skeptics, Amtrak survived. The company continued its efforts to improve service, spending $26.6 million to overhaul 212 passenger cars. Buttressed by the Taxpayer Relief Act of 1997 Amtrak launched a $360 million capital improvement program. They spent $100 million for eight new five-car train sets for San Diego service, purchased eight locomotives, 64 carriers, 43 coaches, several improved refrigerator cars, and numerous expensive equipment updates. New lines and improved travel times resulted in several cities. In December 1998 Amtrak agreed to purchase 44 RoadRailer Mailvans. Acting President and CEO George D. Warrington cited increasing rail revenues--which had been rising 10 percent each year--as reason for the investment, which he stated could only bolster their bottom line.

In January 1999 the Department of Transportation released a report accusing Amtrak of underreporting its losses, stating specifically that the 1998 year's loss was not the reported $95 million, but $854 million. A brief flap followed, but some in Congress pointed out that it was difficult for Amtrak to succeed when expectations for them constantly changed. Warrington continued to assemble a new management team, envisioning an Amtrak that featured high speed rail corridors across the country and high-quality service. Statistics backed up Warrington's assertions that Amtrak continued to improve--between 1998 and 1999 the percent of riders was the highest it had been in a decade, on-time arrival was the highest it had been in 13 years, and passenger revenues had topped $1 billion for the first time.

In March 2000 Amtrak introduced the Acela Regional passenger service, creating the long-awaited electrification of the Northeast Corridor linking Boston, New York, and Washington, D.C. The result was a reduction in travel time from Boston and New York by up to 90 minutes. Further improvements were unveiled in November 2000, after months of delay. The Acela Express, the nation's first high-speed rail system began travelling the Northwest Corridor's tracks at up to 150 miles per hour, reducing a Boston to New York trip to 3 hours and 15 minutes, a New York to Washington, D.C. trip to 2 hours and 28 minutes. The Acela beat its projected profits by 12 percent in the first quarter of 2001 and launched Amtrak into its most profitable year yet. The success prompted Congress to reconsider a controversial bill to allow Amtrak to issue bonds to raise $12 million dollars for the high-speed rail system.

Rail use rose significantly due to security concerns in the wake of the terrorist attacks of September 11, 2001, and Congress allocated over a billion dollars to improve Amtrak's security. Yet Congress had legislated a time bomb for Amtrak in 1997 that was set to go off by December 2002. Amtrak was to attain self-sufficiency by that December or prepare for liquidation. By December 2001, CEO Warrington was told by the federally appointed Amtrak Reform Council that he would have to prepare a liquidation plan. Amtrak was absolved of the responsibility to prepare its own liquidation plan by a defense act signed into law by President Bush in early 2002, but was told they still needed to attain self-sufficiency. Numerous ideas were floated by congressional agencies, including breaking Amtrak up into separate privatized industries.

In July 2003 two competing funding plans warred for prominence. The Bush administration announced that it would allocate $90 million, while a house committee approved a bill that would fund the company for $6 billion over the next three years. Congressional debate continued, with Senator John McCain and the Bush administration arguing for breaking Amtrak up and selling it. They faced stiff opposition from both Democrats and other Republican congressional leaders. By February 2004 the Amtrak supporters had won, and Amtrak was approved for $2 billion a year for six years.

Amtrak had won at least a reprieve. By the fall of 2004 it looked as though the company would remain intact, though it still faced significant hurdles. Throughout its history it was funded at a rate tens of times lower than the rate at which Congress has funded highways and aviation, and continued to own little of its own track. Still, with the new high-speed trains, rising passenger rates, and improved funding, the future looked, if not rosy, then far more promising than it had in many years.

Principal Competitors: Greyhound Lines Inc.


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