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Amtrak’s Acela to Make Comeback, Riders or Not

As reported by Ted Mann in the Wall Street Journal

 

WASHINGTON—Amtrak plans to restart its Acela express service between Washington and Boston on June 1, a first step in the national railroad’s return from a near-shutdown after the coronavirus crushed rider demand nationwide.

But how soon riders might return is an open question, Amtrak officials have told employees, according to internal memos and company calls over the past month. The restoration of the Acela, for instance, is as much about preserving the service’s premium image as it is a bet that its business-class riders will soon return in force.

“We think that having had the Acela brand out of the market for an extended period of time is a risk for not only Acela but for Amtrak too, considering how much revenue Acela produces,” Amtrak Chief Marketing Officer Roger Harris said on one company update call in late April, a recording of which was reviewed by The Wall Street Journal.

On the call, Mr. Harris said the railroad would also restore two regional round trips on the Northeast Corridor on June 1, saying the date reflects “a little bit of a gamble on when we thought demand would begin to come back.”

“And our best estimate, based on the shutdown rules in local communities, is that beginning of June will be the most likely time when people would start to travel again, at least for business,” he said.

On a new employee call Wednesday, Mr. Harris noted that Amtrak was also trying to prevent Acela riders from moving to airline shuttles along the East Coast, the sector the Acela has successfully competed with over the last two decades.

Amtrak faces profound uncertainty in the wake of the pandemic.

Months removed from a projection that it could show an adjusted operating profit this year, Amtrak is forecasting steep deficits that could require additional congressional bailout, and straining to reassure workers that it is safe to run trains.

Its busiest stations, like Union Station in Washington and Penn Station in New York City, are ghostly shells, with few passengers, few trains running, and most businesses closed. What remains of its intercity train service is heavily disrupted by the twin blows of disease and economic recession.

Amtrak is selling tickets for only half the seats on its trains, trying to leave space for customers to remain distant and avoid infection, Mr. Harris said.

Engineers in the sparsely inhabited crew bases are keeping social distancing, calling in for train orders they once signed for by hand, one veteran engineer said. Remittance offices that once collected conductors’ ticket proceeds are idle, because Amtrak has banned cash.

And entire routes that are supported by state government payments—like the Downeaster from Boston to Maine, and the Keystone from Philadelphia to Harrisburg—are shut down completely, in deference to both state stay-at-home orders and huge state budget deficits on the horizon.

“Their ability to continue offering the service levels with us that they had beforehand could be very significantly impacted by the budget situations faced in each of these states,” said Stephen Gardner, Amtrak’s chief operating and commercial officer, on the call.

In recent years, Amtrak executives have focused on improving its financial performance as part of a broader attempt to improve the company’s record. Before the coronavirus, the company said it was poised to turn a profit on its operations—adjusted to exclude huge overhead expenses like upkeep of the Northeast Corridor—for the first time in its history.

“We were having a great year in 2020” until the pandemic hit, Chief Financial Officer Tracie Winbigler told employees on the same conference call in April. But as the pandemic surged in March, demand plunged more than 90% across the railroad, including the 99% drop in Acela bookings that prompted the railroad to take its flagship train out of service that month.

Even with an infusion of $1 billion in congressional aid, much of which is going to pay employees, Amtrak is continuing to enact cost cuts, Ms. Winbigler said. Those include pay cuts for managers and suspension of 401(k) matching payments. Another Amtrak executive said the company was in talks with labor unions to postpone a scheduled July 1 pay increase for many union workers, but didn’t yet have an agreement.

The company cut its capital expenditures by $215 million in the first half of its fiscal year, and is targeting $600 million in further reductions like delaying station improvements and property acquisition.

Ms. Winbigler said the railroad was relying on $2.7 billion in available cash —a sign of what Amtrak leaders say is the relatively strong balance sheet it has built over the past several years. Still, much of that is earmarked for the railroad’s enormous future capital needs, including the replacement of its passenger cars and state of good repair work along the Northeast Corridor, by far the railroad’s largest and costliest asset.

“We need to be prepared for the fact that it could be tough as we come out of this crisis on the other side as well,” she said.

Keeping Amtrak workers safe as they restart is a key concern, management and labor unions say.

“We’ve had lots of people exposed on public transit,” said Larry Willis, president of the Transportation Trades Department, AFL-CIO, a coalition of unions that includes Amtrak workers. “The numbers are better on Amtrak but they’ve just seen fewer passengers, quite frankly.”

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