The key is where you say, a "properly designed system." Privatization does not guarantee that. Indeed, injecting a profit motive can just add to complications. Witness the British experience with privatized rail. Deutsches Bahn is a poor example if one is looking for trains that run on time. And Japan is a unique situation, with regional passenger rail companies, not all of which are profitable.
Of course, nothing is guaranteed but our status quo is unacceptable. The British opted to privatize the whole thing rather than controlled segments. I agree that would work and why it was purposely left out.
DB has struggled with long haul routes but has a 90% on time rating for regional trips. NEC is operating in the low 70%s. Definitely room for improvement. DB is also citing delays due to wide spread construction upgrades across the system. I think we would agree, we wish we had that short term problem!!
Hi, Aaron. Thanks for this. If you were King of Trains, where and how would you privatize portions of Amtrak’s rail service to introduce competition without adding corporate rent-seeking to our transit problems? Do you privatize Amtrak’s profitable northeast corridor because there’s a business case for it or do you privatize other legs to make them profitable? I’m trying to follow your logic. Thanks again for the thoughtful and timely post!
Hi Andrew—thanks for your question. You’re absolutely right that different approaches would be needed depending on the profitability of existing lines. The NEC would generally be profitable from day one, meaning Amtrak could even charge private operators for the right to run on the line. The private operator would then have full control over operations (within minimum service requirements). Since they bear the financial risk, they would be incentivized to expand service, add concessions, or introduce amenities to generate additional revenue.
I’ll return to the airline model, which isn’t a perfect analogy but provides a useful comparison. Airlines pay airports for gate access, warehouse space, and runway usage. Their goal is to maximize efficiency, turning over gates and moving as many passengers as possible. Applying a similar framework to train operations would encourage private operators to increase service quality and capacity.
Less profitable routes are more challenging. Take, for example, an imaginary line that operates at a $10 million annual deficit. One possible solution would be for Amtrak to pay a private operator $10 million upfront while allowing them to retain all future revenue. This would make the route economically viable for the operator while costing Amtrak the same as before—without the burden of day-to-day operations. With future revenue at stake, the private operator would then have a strong incentive to improve service and attract more passengers.
Thanks, Aaron! I really appreciate your taking the time to provide such a thoughtful reply. I definitely understand the logic applied to profitable and unprofitable lines now What I’m getting hung up on is emphasized by your airline analogy, which you acknowledge is imperfect. As I understand it, air travel is extremely competitive, whereas rail approaches a natural monopoly along its route (though of course it competes with other transit options). If Amtrak adopted this model of private concessions, do you imagine that the deal it struck with operators would also include limits on what the operators could charge? I’m thinking less about day to day rates (which the operators would have an incentive to optimize) and more about rules regulating sudden increases in the event of emergencies or the like when a normal private operator would seek rents. Thanks again!
Yes, there absolutely would have to be price controls. The only way for the private operators to make more money would be to increase ridership meaning more frequent and reliable service. All about properly aligning everyones incentives.
The key is where you say, a "properly designed system." Privatization does not guarantee that. Indeed, injecting a profit motive can just add to complications. Witness the British experience with privatized rail. Deutsches Bahn is a poor example if one is looking for trains that run on time. And Japan is a unique situation, with regional passenger rail companies, not all of which are profitable.
Of course, nothing is guaranteed but our status quo is unacceptable. The British opted to privatize the whole thing rather than controlled segments. I agree that would work and why it was purposely left out.
DB has struggled with long haul routes but has a 90% on time rating for regional trips. NEC is operating in the low 70%s. Definitely room for improvement. DB is also citing delays due to wide spread construction upgrades across the system. I think we would agree, we wish we had that short term problem!!
Hi, Aaron. Thanks for this. If you were King of Trains, where and how would you privatize portions of Amtrak’s rail service to introduce competition without adding corporate rent-seeking to our transit problems? Do you privatize Amtrak’s profitable northeast corridor because there’s a business case for it or do you privatize other legs to make them profitable? I’m trying to follow your logic. Thanks again for the thoughtful and timely post!
Hi Andrew—thanks for your question. You’re absolutely right that different approaches would be needed depending on the profitability of existing lines. The NEC would generally be profitable from day one, meaning Amtrak could even charge private operators for the right to run on the line. The private operator would then have full control over operations (within minimum service requirements). Since they bear the financial risk, they would be incentivized to expand service, add concessions, or introduce amenities to generate additional revenue.
I’ll return to the airline model, which isn’t a perfect analogy but provides a useful comparison. Airlines pay airports for gate access, warehouse space, and runway usage. Their goal is to maximize efficiency, turning over gates and moving as many passengers as possible. Applying a similar framework to train operations would encourage private operators to increase service quality and capacity.
Less profitable routes are more challenging. Take, for example, an imaginary line that operates at a $10 million annual deficit. One possible solution would be for Amtrak to pay a private operator $10 million upfront while allowing them to retain all future revenue. This would make the route economically viable for the operator while costing Amtrak the same as before—without the burden of day-to-day operations. With future revenue at stake, the private operator would then have a strong incentive to improve service and attract more passengers.
Thanks, Aaron! I really appreciate your taking the time to provide such a thoughtful reply. I definitely understand the logic applied to profitable and unprofitable lines now What I’m getting hung up on is emphasized by your airline analogy, which you acknowledge is imperfect. As I understand it, air travel is extremely competitive, whereas rail approaches a natural monopoly along its route (though of course it competes with other transit options). If Amtrak adopted this model of private concessions, do you imagine that the deal it struck with operators would also include limits on what the operators could charge? I’m thinking less about day to day rates (which the operators would have an incentive to optimize) and more about rules regulating sudden increases in the event of emergencies or the like when a normal private operator would seek rents. Thanks again!
Yes, there absolutely would have to be price controls. The only way for the private operators to make more money would be to increase ridership meaning more frequent and reliable service. All about properly aligning everyones incentives.