Can Competition Save American Passenger Rail?

If the U.S. really wants to look to Europe for transit advice, it should explore the continent’s various privatization experiments.

Ethan Finlan | October 29, 2018 | |
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Ever since the creation of Amtrak, intercity rail service in the U.S. has required federal subsidies and involvement. Air travel and the private auto made several routes obsolete, and called into question the long-term viability of passenger rail as a mode of travel. Today, nearly all of Amtrak’s routes operate at losses. Outside of a few high-demand corridors, ridership struggles. Passenger rail advocates tend to argue that these subsidies are essential to preserve – and grow – a national rail network. They point to high ridership on certain trains and argue that more investment is needed to provide more service, and that the U.S. should look to Europe as an example of how to provide a well-funded intercity transit system, with its fast, generally punctual trains and frequent service. But the aspect of European transit that’s truly worth imitating is its embrace of private competition.

Yes, let’s look at Europe, where a revolution has been taking place in who runs train service. E.U. regulations, intended to enable more international service, have mandated that state-run railroads allow private operators to use their tracks. From the Czech Republic to Italy, a variety of companies provide a service long assumed to be a government monopoly. Some are established operators, others upstarts. It’s not a perfect “free market” that the term privatization often (misleadingly) indicates. Yet much like the dynamism seen in the intercity bus industry, where public roads are used, the passenger rail market is becoming increasingly competitive. In fact, one of the new services, in Germany, is a partnership between a train operating company and Flixbus, Europe’s largest discount bus service.

The privatization of rail service in the U.K. is also well-known, and considered a failure. Labour Party politicians have made bringing rail service back under full nationalization a campaign plank. Giving operating rights to private enterprise has come to be associated with crowded trains, high fares, and poor service. Yet the British scheme is very different from the sort of dynamic competition seen in these “open access” arrangements, rooted in an inflexible “franchising” model that limits market forces.

And of course, railroad operation by the private sector isn’t limited to continental Europe. Brightline, the Florida East Coast-operated service covered extensively by MUR, is expanding. In Texas, a consortium of investors and rail operators plans to bring true high-speed rail service to the U.S., anticipating a launch ahead of California’s increasingly-troubled public HSR project. The Texas project is using the technology and expertise employed in Japan, which privatized its iconic intercity ground transport network three decades ago. In these cases, rather than the European scenario of multiple operators potentially competing on the same infrastructure, railroads are vertically integrated – meaning track owners run all or most of the trains running on their tracks.

Could similar approaches work in the U.S.? That’s a question I’ll explore in the next two articles. A good place to start would be the market where intercity rail performs best: the Northeast Corridor. Rail captures higher mode share – more travelers – than airlines in the megalopolis between Boston and Washington, DC, but far fewer than private car or bus trips. Fares are often high – one cannot travel between Boston and New York City on Amtrak for less than $49 one way, while competitors like Megabus regularly offer roundtrip fares in the $2-20 range. So if rail is to compete here, it needs to get creative. Let’s explore what the possibilities are.

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