High Speed Rail Can be Profitable … with the Proper Routes

The fact that high speed rail should have trouble politically among certain U.S. conservatives is not surprising. High speed rail is big government at work. There really isn’t any way to disguise it. Part of what creates the current criticisms stem from trying to make high speed rail seem something other than big government doing big things.  All transportation infrastructure projects require the government for (i) acquiring land through eminent domain, and (ii) floating low-cost bonds for construction. This applies equally to roads, rails, and airports.

There is public benefit from rails projects. Like all public transportation, rail can provide the following advantages:

  1. It is a more ecologically-friendly method of transportation than airplanes and individual vehicles.
  2. It reduces dependence on foreign oil by using more efficient transportation methods.
  3. In cities, it relieves congestion.
  4. It enables delayed and decreased investment for public roads, airports and other transportation already supported with government expenditures.

Critics state that rail can never be profitable and should not be supported.  They say, “Passenger trains never make money. Just look at Amtrak”.  Respectfully, these critics should look more closely at Amtrak. Amtrak has one route that barely qualifies as High Speed Rail. It is the Acela Express on the Northeast Corridor between Washington and Boston. Of all the Amtrak services, Acela alone operates at a substantial surplus year after year. In fiscal year 2008, Acela had a gross profit of $220.2 million on total revenue of $486.2 million, or a gross profit margin of just over 45% . That’s $64.79 per passenger. Pew Subsidyscope did a more rigorous analysis that included depreciation and a share of system overhead costs, and still came up with $40.50 profit per passenger. If Acela were an airline, it would be credited with a 41 percent share of the market between Boston and New York, and slightly over half of the market between Washington and New York.

The experience in other countries is the same. High speed rail subsidizes slower intercity lines. For example, France’s SNCF makes a surplus on passenger rail because France’s passenger rail has relatively more high speed rail lines. The presumption that the French must be different than us may be true about many things, but decisions about purchasing transportation are mostly based on economics, and economics tend to be universal.

Some (probably most) high speeed projects should not be approved, while other projects have the potential of adding to the quality of travelers’ lives, reducing pollution, and making money. Proper data analysis should instruct us on these questions.  We perform an initial analysis at this article.  Our analysis describes the proper basis for high speed train’scompetition, and the traffice that can be expected.  Based on this analysis, the following projects should have the highest potential for being successful in terms of ridership and profitability:

  1. San Diego to San Francisco
  2. Atlanta to Miami
  3. Los Angeles to Las Vegas

In President Obama’s 2011 State of the Union address he spoke of creating a system where 80 percent of the population would have access to high speed rail by 2036.  That might be the right thing to say to get the support of a majority of people. In practice, the President’s statement may well have a high-speed rail system with several routes that are politically advantageous, but financially draining.

Choosing the wrong routes simply because they are in the right states politically will validate the incorrect notion that high speed rail cannot operate without subsidy in the United States.  A financially responsible approach will recognize the following public transportation realities:

  1. Long-distance routes continue to be most competitively served by air travel.
  2. Moderate-distance routes between large cities are most competitively served by high speed rail.
  3. Small to medium size cities with moderate travel distances are most competitively served by bus service.
  4. Short routes continue to be most competitively served by bus and commuter rail.

Accepting these realities allows us to put resources where high speed rail can (i) compete for and win travelers’ business, and (ii) operate at a surplus. Accepting these realities also leads to the conclusion that we should stop subsidizing Amtrak’s long, slow-speed intercity routes.

Permanent link to this article: http://betweenthenumbers.net/2011/05/high-speed-rail-can-be-profitable-with-the-proper-routes/


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    • Snow on July 5, 2011 at 8:38 PM
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