Passenger Trains > Amtrak farebox recovery ratio

In the discussion on Amtrak room availability,
http://www.trainorders.com/discussion/read.php?4,2178864 , Floridajoe made this assertion:

"Anyway, Amtrak has an 80% fare box recovery rate, so why worry about a National system that requires only a 20% subsidy. Sounds like a good deal for a lot of good service."

I have had some private message exchanges with him trying to determine a source for that. Turns out that in a January 12, 2010 news release Board man said:

"In fact, for FY 2010, we will fund 81 percent of our operating costs from all revenue sources,
excluding federal and state funds. And, in FY 2009, Amtrak had a fare box recovery rate of
71 percent — among the highest among all passenger railroads, including commuters and
transit, in the U.S."

He appears to have misspoke because the 2009 Strategic Guidance document on page 28 shows 75% of Amtrak operating expenses being from Amtrak generated revenues and 6% from state funds. However the 75% comes from a figure Amtrak calls the Core Cost Recovery Ratio. It excludes depreciation and something call non-cash OPEB's (I think it is something like retirement health benefits). I believe for FY 2009 it was 71.3%. Another measure is the total cost recovery ratio, and it is simply the total operating revenue divided by the total operating expenses. Amtrak counts state funds as part of operating revenue. In comparison, for FY2009 the Total Cost Recovery Ratio was 64.4 percent. If you took out the state funds, it would be even less.

Using the Core Cost Recovery Ratio seems to me to ignore the cost of equipment. I would think that the Total Cost Recovery Ratio is a better measure for farebox recovery. However I would like to know what accounting and other experts think.



Edited 2 time(s). Last edit at 05/04/10 05:01 by ts1457.

ts1457 Wrote:
-------------------------------------------------------

> He appears to have misspoke because the 2009
> Strategic Guidance document on page 28 shows 75%
> of Amtrak operating expenses being from Amtrak
> generated revenues and 6% from state funds.
> However the 75% comes from a figure Amtrak calls
> the Core Cost Recovery Ratio. It excludes
> depreciation

Theoretically, depreciation represents cash set aside to replace an asset at the end of its lifetime. Of course, probably nobody ever really does that, but theoretically, that money is actually there somewhere as capital. Therefore, one would think that depreciation is a capital cost, not an operating cost; at least that is how it was treated in rail business plans I worked on, but I'm not an accountant, so my opinion and a handful of cash will buy coffee at Starbucks.


>and something call non-cash OPEB's (I
> think it is something like retirement health
> benefits). I believe for FY 2009 it was 71.3%.
> Another measure is the total cost recovery ratio,
> and it is simply the total operating revenue
> divided by the total operating expenses. Amtrak
> counts state funds as part of operating revenue.
> In comparison, for FY2009 the Total Cost Recovery
> Ratio was 64.4 percent. If you took out the state
> funds, it would be even less.

That would only be reasonable if you also subtracted the cost of the services the states pay for, provided that you are evaluating Amtrak, not rail passenger service in general. Amtrak is in two businesses. It is a rail service provider for the national system. It is a Train Operating Company for state and commuter trains. As a TOC, its expenses are train operation as with their passenger service, but the revenue includes fares and state payments. The states are really the customers for those trains, not the passengers.


>
> Using the Core Cost Recovery Ratio seems to me to
> ignore the cost of equipment.

If you are examining operating cost, you would correctly not include equipment capital cost. Or are you questioning whether vehicle maintenance is included in operating cost?

TAW

I have advised ts1457 in private messages that he is incorrect in his interpretation of this figure. I suggested he wright to Boardman and tell Mr. Boardman he is in error, if he (ts1457) really feels this to be true.

In this instance President Boardman is completely correct. I accept him at his word that Amtrak's fare recovery will be 81% for the year 2010. He has said so in print and before various groups in Washington. Surely Amtrak has an Accounting Dept. capable of correctly defining "farebox recovery". Boardman is very clear that this "farebox recovery" does not include any Government contributions of any kind, but comes strictly from ticket sales of the trains themselves. Go Amtrak!

So, fellow Amtrak supporters, we can take pride in this Amtrak achievement! It is a potent weapon against Amtrak detractors. Until Boardman takes back this figure, which he has not done, we can all accept the 81% recovery figure with confidence.

Joe

TAW Wrote:
-------------------------------------------------------
> Theoretically, depreciation represents cash set
> aside to replace an asset at the end of its
> lifetime. Of course, probably nobody ever really
> does that, but theoretically, that money is
> actually there somewhere as capital. Therefore,
> one would think that depreciation is a capital
> cost, not an operating cost; at least that is how
> it was treated in rail business plans I worked on,
> but I'm not an accountant, so my opinion and a
> handful of cash will buy coffee at Starbucks.

I'm not an accountant either, but my understanding is that depreciation is how you convert capital to expense over a period of time. Whether you set up a reserve to replace capital items at them end of their economic life is a separate matter. A business that is not doing well may just consume its capital. Depreciation does appear as an expense on the income statement and Amtrak's Core Cost Recovery Ratio specifically excludes it, so it appears that the Total Cost Recovery Ratio does include depreciation

> That would only be reasonable if you also
> subtracted the cost of the services the states pay
> for, provided that you are evaluating Amtrak, not
> rail passenger service in general. Amtrak is in
> two businesses. It is a rail service provider for
> the national system. It is a Train Operating
> Company for state and commuter trains. As a TOC,
> its expenses are train operation as with their
> passenger service, but the revenue includes fares
> and state payments. The states are really the
> customers for those trains, not the passengers.

My interest in a farebox recovery ratio would be what proportion of the revenue is coming from the passenger. A subsidy is a subsidy, whether it comes from the Federal government or the state.

> If you are examining operating cost, you would
> correctly not include equipment capital cost. Or
> are you questioning whether vehicle maintenance is
> included in operating cost?

Vehicle maintenance I think would definitely have to be included in the "operating cost", but if you exclude equipment capital cost, you are assuming that there will be a Santa Claus standing there with a new bag of stuff, when you have worn out the old. Maybe that does describe Amtrak. Its management seems to have chosen to emphasize the ratio that exactly does that.

I'll throw one more ratio out there that is a bit different than the farebox ones, but something we are familiar with in dealing with the freight railroads. It is the operating ratio - operating expenses divided by operating revenues. From my experience, if a railroad stays above 100% OR for a while, if it is not bankrupt, it soon will be. The range 90-100% would indicate a distressed railroad, while one with a ratio in the eighties is doing OK, but nothing to write home about. In the seventies, especially the lower ones, the railroad is making real progress financially. Once you get below seventy, you have a real money machine on your hands. Amtrak's Operating Ratio last year was 1.55 (155%). Thus far this year, I believe it is running higher.



Edited 1 time(s). Last edit at 05/04/10 04:40 by ts1457.

Amtrak's "farebox recovery rate" would also be affected by the relatively small amount of track to be maintained, compared to its route miles. There's a separate thread on the very low fees Amtrak pays for the use of freight railroad lines. Other than the NEC, and the Michigan lines, almost all its route miles are owned by railroads or authorities.

With a company like Amtrak that's heavily dependent on direct government payments and subsidies (state fuel tax exemptions, sales tax exemptions, real estate tax exemptions), and its operations are largely on other folks' track, it's hard to make a direct comparison.

Does Amtrak certify its public statements under Generally Accepted Accounting Principles (GAAP)?

floridajoe2001 Wrote:
-------------------------------------------------------
> I have advised ts1457 in private messages that he
> is incorrect in his interpretation of this figure.
> I suggested he wright to Boardman and tell Mr.
> Boardman he is in error, if he (ts1457) really
> feels this to be true.
>
> In this instance President Boardman is completely
> correct. I accept him at his word that Amtrak's
> fare recovery will be 81% for the year 2010. He
> has said so in print and before various groups in
> Washington. Surely Amtrak has an Accounting Dept.
> capable of correctly defining "farebox recovery".
> Boardman is very clear that this "farebox
> recovery" does not include any Government
> contributions of any kind, but comes strictly from
> ticket sales of the trains themselves. Go
> Amtrak!
>
> So, fellow Amtrak supporters, we can take pride in
> this Amtrak achievement! It is a potent weapon
> against Amtrak detractors. Until Boardman takes
> back this figure, which he has not done, we can
> all accept the 81% recovery figure with
> confidence.
>
> Joe

Everyone can judge for themselves. The documents are out there on the Amtrak website:

http://www.amtrak.com/servlet/ContentServer/Page/1241245669222/1241245669129

The reports are PDF's so I can't give a direct link. However select "2009 Strategic Guidance" and go to page 15. The goal for the Cost Recovery Ratio is clearly 75% for FY 2010 and 76% for the successive three FY's. this does not include state funds. Then go to page 28, where a breakdown of where Amtrak's funds come from. The states' contributions show as 6%.

Next go to:

http://www.amtrak.com/servlet/ContentServer/Page/1237608337144/1237608345018?passedYear=2010

Select the document dated January 12, 2010 and go to page 6. Boardman says:

"In fact, for FY 2010, we will fund 81 percent of our operating costs from all revenue sources,
excluding federal and state funds. And, in FY 2009, Amtrak had a farebox recovery rate of
71 percent — among the highest among all passenger railroads, including commuters and
transit, in the U.S."

Clearly he has included the 6% state funding in his 81% figure. But I think of more concern is Amtrak's choice of using the cost recovery ratio as the "farebox recovery ratio" that ignores the depreciation of equipment and facilities, expecting some entity to be there with a bag of money when everything is worn out.

Lackawanna484 Wrote:
-------------------------------------------------------
> Amtrak's "farebox recovery rate" would also be
> affected by the relatively small amount of track
> to be maintained, compared to its route miles.
> There's a separate thread on the very low fees
> Amtrak pays for the use of freight railroad lines.
> Other than the NEC, and the Michigan lines,
> almost all its route miles are owned by railroads
> or authorities.

Good point. Amtrak gets quite a bit of indirect subsidies from the host railroads, which of course are not part of any performance metrics that we judge the company by.

> With a company like Amtrak that's heavily
> dependent on direct government payments and
> subsidies (state fuel tax exemptions, sales tax
> exemptions, real estate tax exemptions), and its
> operations are largely on other folks' track, it's
> hard to make a direct comparison.
>
> Does Amtrak certify its public statements under
> Generally Accepted Accounting Principles (GAAP)?

That would be done by outside auditors for the financial statements. I wouldn't expect an accountant to ride herd on Public Relations, and while the company accountants might understand all of the measures, I wouldn't expect that PR people to have the same depth of understanding.

ts1457 Wrote:

>
> I'll throw one more ratio out there that is a bit
> different than the farebox ones, but something we
> are familiar with in dealing with the freight
> railroads. It is the operating ratio - operating
> expenses divided by operating revenues. From my
> experience, if a railroad stays above 100% OR for
> a while, if it is not bankrupt, it soon will be.
> The range 90-100% would indicate a distressed
> railroad, while one with a ratio in the eighties
> is doing OK, but nothing to write home about. In
> the seventies, especially the lower ones, the
> railroad is making real progress financially. Once
> you get below seventy, you have a real money
> machine on your hands. Amtrak's Operating Ratio
> last year was 1.55 (155%). Thus far this year, I
> believe it is running higher.

Another way to look at operating ratio is revenue minus expenses, so an operating ratio of .75 means that for every dollar taken in 75 cents is spent on expenses and the remaining 25 cents can go to other purposes (e.g., profit). Last time I looked, both NS and BNSF had operating ratios below 0.80.

If the operating ratio is 1.55, that presumably means that for every dollar of revenue one dollar and 55 cents is spent on expenses.....

Boy, this nit-picking is really boring. 81% is the figure I will fly on my banner until Boardman tells me to take it down.

I'm not a fan of Mr. Boardman, but when he tells me the recovery is 81%--he is my hero!

I'm signing off this discussion. I'm satisfied to let Boardman defend his number.

Joe

floridajoe2001 Wrote:
-------------------------------------------------------
> Boy, this nit-picking is really boring. 81% is
> the figure I will fly on my banner until Boardman
> tells me to take it down.
>
> I'm not a fan of Mr. Boardman, but when he tells
> me the recovery is 81%--he is my hero!
>
> I'm signing off this discussion. I'm satisfied to
> let Boardman defend his number.
>
> Joe

The lesson of this thread is not to take any number at face value until you know what went into it, and what was left out. Accounting 101.

Warrington told us we were on a "glide path to self sufficiency" right before the collapse. He had numbers, too. They were wrong, but they were numbers.

Well the way I see it, it's great to see it come back up, but when are they gonna quit draggin' their feet on the new equipment deal and the other stuff they got! I for one want them to get the national system back to how it was before the cuts that began back in the 90s!

floridajoe2001 Wrote:
-------------------------------------------------------
> Boy, this nit-picking is really boring. 81% is
> the figure I will fly on my banner until Boardman
> tells me to take it down.
>
> I'm not a fan of Mr. Boardman, but when he tells
> me the recovery is 81%--he is my hero!
>
> I'm signing off this discussion. I'm satisfied to
> let Boardman defend his number.
>
> Joe


From the 2009 Annual Report just out:

"Amtrak covers 80 percent of its annual operating costs from
revenue, which is expected to increase as costs shift to state
partners, in compliance with federal law.

Amtrak’s farebox recovery — 71 percent in FY 2009 — is the
highest reported among all passenger railroads, including
commuters and transit, in the U.S. Amtrak."

There you have it from those in the know at Amtrak. Recall 71 percent was the Core Cost Recovery Ratio for FY 2009. That is being called "farebox recovery" by the people whose job is to get things right. Amtrak counts state funds (non-capital) as operating revenue, so that is part of the 80 percent of annual operating costs that Amtrak gets from revenue. That claim is possible only by ignoring depreciation, as is also done with the Core Cost Recovery Factor. I wonder if Amtrak achieves its claim of highest farebox recovery by ignoring depreciation, while the other carriers don't?

The budget CCRR for FY 2010 is 75 percent, so Boardman clearly misspoke with his statement on January 12th.

I regard the Total Cost Recovery Ratio as a more realistic measure of farebox recovery, except it still has the state funding in it. For FY 2090 it was 64.4%. I now have backed out the state funding, and if I did my math right, the ratio is reduced to 58.8%.

I was hoping that someone with real accounting knowledge and experience would jump in on this discussion. Depreciation is an expense that you don't have to immediately cover with cash. I'm wondering how a transit company with a big bus fleet calculates farebox recovery? Buses, like rail cars and locomotives, wear out and have to be replaced, but probably at a more frequent interval than for rail. I don't think a transit company with a big bus fleet could get away with ignoring depreciation. In my opinion, Amtrak is being very deceptive when it pretends that depreciation is not there. In effect, it is counting on periodic infusions of capital from government, above and beyond the annual operating subsidy.



Edited 4 time(s). Last edit at 05/05/10 05:22 by ts1457.

ProAmtrak Wrote:
-------------------------------------------------------
> Well the way I see it, it's great to see it come
> back up, but when are they gonna quit draggin'
> their feet on the new equipment deal and the other
> stuff they got!

As soon as the Congresscritters appropriate funds for
acquiring equipment. So far there has been much talk
but little else out of the Capitol Hill on that front.

ts1457: no, there we don't have it. For 2009 it was 71%, So far in 2010, it's 81%

I love it when this 81% is such a problem for Amtrak detractors. It proves we're starting to win.

By the way, I'm on the NEC this week, and just got off Aceal 1st. Class from Boston to New York. The 1st class car was sold out, and the entire train was packed. The food was delicious and the drinks I had hit the spot. So, you might say I did my part today to contribute to that 81%.

Joe

floridajoe2001 Wrote:
-------------------------------------------------------
> ts1457: no, there we don't have it. For 2009 it
> was 71%, So far in 2010, it's 81%
>
> I love it when this 81% is such a problem for
> Amtrak detractors. It proves we're starting to
> win.
>
> By the way, I'm on the NEC this week, and just got
> off Aceal 1st. Class from Boston to New York. The
> 1st class car was sold out, and the entire train
> was packed. The food was delicious and the drinks
> I had hit the spot. So, you might say I did my
> part today to contribute to that 81%.
>
> Joe


Acela pricing is an excellent example of the yield management in action, and the Amtrak people running it do a great job.

Depending on the time of day, and tickets already sold, there may be a $60 difference in price between New York and Philadelphia. New buckets open regularly. I'm contemplating a joyride next week, and the price for the train combo I'm watching has already changed three times.

For markets where Amtrak has earned a place at the table, it can get premium fares. For markets where the service is wretched, it can't get premium fares.

Probably time to let this thread die, but I got curious about how other companies defined farebox recovery. The first one I happened to look at was Metro North. MN was thoughtful enough to include a link to an explanation of farebox recovery. Here is what it says:

"Farebox Recovery Ratio has a long-term focus. It approximates the percentage of operating and long-term expenses paid for by passenger fare revenue and fare reimbursements. Long-term expenses include costs not funded in the current year such as depreciation for equipment and facilities funded through the capital program and interest expense on bonds. It also includes each agency’s estimated share of certain MTA expenses such as the Inspector General and MTA Headquarters.

Farebox Operating Ratio focuses on the agency’s operating performance. It approximates the percentage of agency operating expenses paid for by passenger fare revenue and fare reimbursements."

Here are MN's latest results:

http://www.mta.info/mta/ind-finance/month/mnr-ratios.htm

Interestingly, MN includes depreciation in the farebox recovery ratio. The farebox operating ratio appears to exclude depreciation and would be more like Amtrak's core cost recovery ratio.

We need some honesty from Amtrak. At the least they are using the core cost recovery ratio in a deceptive fashion.