CASE 4- National Railroad Passenger Corporation (AMTRAK) — 2009

Amtrak’s longtime inspector general, Fred Weiderhold, abruptly resigned on June 18, 2009,
saying “the independence and effectiveness of the inspector general’s office is being
substantially impaired by Amtrak managers.” That month, Amtrak managers were cited for
interfering with the railroad’s $1.3 billion in economic stimulus funding. Senator Chuck Grassley
from Iowa said, “Amtrak managers are interfering with the system of checks and balances.” Vice
President Joe Biden’s son, Hunter Biden, was a member of Amtrak’s board of directors from
July 2006 through February 2009.
On August 19, 2009, Amtrak extended through the end of the year its fare promotion in the
Northeast. For example, you can ride Amtrak from New York to Washington, D.C., for $49 or
New York to Philadelphia for $34 or Boston to New York for $49, etc. There are no additional
fares or fees to these low prices.
In 2009, Amtrak provides services across 21,000 miles of track in 46 states, the District of
Columbia, and three Canadian provinces. Amtrak is the sole nationwide passenger rail carrier in
the United States. The National Railroad Passenger Corporation (Amtrak) was organized under
the Rail Passenger Service Act in 1970 and operations began in May 1971.
Exhibit 1 provides a map of Amtrak service routes. It is a large and complex passenger rail
system, operating corridor and long-distance passenger rail service in and through 46 states of
the contiguous United States. Amtrak’s best known service may be its Northeast Corridor (NEC)
service between Boston and Washington, D.C., but the company operates more than 315 trains
per day over 43 routes, carrying an average of 78,500 passengers per day.
Amtrak has approximately 19,000 employees, and revenue for the 2008 fiscal year was $2.4
billion. This included intercity passenger rail service revenues and revenues from related
businesses and state capital payments. In fiscal 2008, Amtrak carried nearly 29 million
passengers to more than 500 destinations. In addition to Amtrak riders, an average of 850,000
people traveled over Amtrak infrastructure or on commuter trains operated under contract every
weekday.1 Amtrak has contracts to provide passenger rail service to 14 states; this represents
nearly half of Amtrak’s departures. Additionally there are seven state transportation, or
commuter, agencies that contract with Amtrak for the use of various facilities and assets or for
delivery of commuter service. These agencies include Caltrain, Maryland Area Regional
Commuter, Connecticut’s Shore Line East, and Virginia Railway Express. Amtrak also conducts
maintenance for the Sounder Commuter Rail System in Seattle, dispatching and maintenance-of-
way service for Massachusetts Bay Transportation Authority, and dispatching for the South
Florida Regional Transportation Authority Tri-Rail service.
Amtrak owns 363 miles of the 456-mile Northeast Corridor from Washington to Boston, where
Acela Express trains operate at speeds of up to 150 mph; a 62-mile track segment from New
Haven, Connecticut, to Springfield, Massachusetts; 104 miles between Philadelphia and
Harrisburg over which trains travel up to 110 mph; and 97 miles of track in Michigan over which
trains travel at 95 mph. About 70 percent of the miles traveled by Amtrak trains are on tracks
owned by freight and commuter railroads. This has resulted in Amtrak paying host railroads
$101.5 million for reimbursed costs and incentives to travel

26 million train-miles. Amtrak also depends on host railroads for the dispatching and timely
movement of its trains. The seven largest host railroads are BNSF Railway, Union Pacific
Railroad, CSX Transportation, Norfolk Southern Railway, CN Railway, Canadian Pacific
Railway, and Metro-North Railroad.
Internal Information
Organizational Structure
Amtrak is a government-owned corporation that was organized to provide intercity passenger
train service in the United States. All of Amtrak’s preferred stock is owned by the U.S. federal
government. The members of the board of directors are appointed by the president of the United
States and are subject to confirmation by the U.S. Senate. Common stock was issued in 1971 to
railroads that contributed capital and equipment. Even though these shares convey almost no
benefits, the holders declined a 2002 buyout offer by Amtrak.
Leadership
In 2006, Alexander Kummant was named president and CEO of Amtrak, but he was asked to
resign in November 2008 because of a dispute about debt restructuring. According to statements
from Amtrak, both revenue and ridership reached record highs during Kummant’s tenure. “He
also successfully oversaw the completion of labor agreements with all of the unions representing
Amtrak’s employees,” said Donna McLean, Amtrak chairwoman. On November 25, 2008, the
board of directors for Amtrak announced they had appointed Joseph Boardman to a one-year
term as president and CEO of the railway to replace Kummant.
Company Mission and Ethics Statement
The mission of Amtrak is to “provide efficient and effective intercity passenger rail mobility
consisting of high quality service that is trip-time competitive with other intercity travel options,
and provide additional or complementary intercity transportation service to ensure mobility in
times of national disaster or other instances where other travel options are not adequately
available.”3 As Amtrak works to implement this vision, it has adopted the following goals and
objectives:
• Increase ridership
• Increase revenue through increased ridership and improved revenue management
• Contain cost growth through productivity and efficiency improvements
• Improve financial transparency
• Provide a safe and secure environment for passengers and employees
• Improve management of human capital
• Improve environmental stewardship
Amtrak is committed to pursuing these goals and objectives in a highly ethical manner. To
ensure that all employees conduct themselves in a highly ethical manner, the following code of
ethics have been adopted:
• You are personally responsible for your own conduct in complying with all provisions of the
Code of Ethics and for promptly reporting known or suspected violations of this Code of Ethics
or Amtrak policies to your supervisor, manager or the Amtrak Ethics and Compliance Hotline
(1-866-908-7231);
• If you are a supervisor or manager, you are responsible and accountable for ensuring that your
employees understand and comply with this Ethics Policy;
• No one in this Company has the authority or right to order, request or even influence you to
violate this Code of Ethics or the law;
• You will not be excused for violating the Code of Ethics for any reason, even at the request of
another person, including your supervisors, managers or Company officers;
• Any attempt by any person to have another violate the Code of Ethics, whether successful or
not, is itself a violation and may be a violation of the law;
• Any retaliation or threat of retaliation against any person for refusing to violate the Code of
Ethics or for reporting in good faith a violation or suspected violation of the Code of Ethics is
itself a violation and may be a violation of the law;
• Every reported violation of the Code of Ethics will be investigated, and every actual violation
will constitute a basis for disciplinary action involving the person violating the Code of Ethics
and may result in civil or criminal action against that person; and
• Any employee who acts contrary to the Code of Ethics, or who knowingly gives a false report
regarding a violation of the Code of Ethics, may be subject to disciplinary action, up to and
including termination of employment.
Operations
Amtrak earns revenues from the following business activities:
Ticket and Food & Beverage Revenue—Amtrak’s FY2009 ridership (29.9 million trips),
ticket, and food and beverage revenue targets were projected to continue to benefit from the
trends that propelled the ridership and revenue growth of FY2008. This budget, first reviewed by
Amtrak’s board of directors in July 2008, did not predict the uncertainty of the near-term outlook
for travel due to the country’s current economic crisis or the extreme volatility of gasoline prices.
State-Supported Revenue—The State-Supported Train business segment includes funding by
the states to Amtrak for providing rail passenger services through contractual agreements. It
includes intrastate and interstate train services with service origination in the contracted state.
Amtrak is planning to partner with several states for launching train services in high-density state
corridors to ease congestion.
Commuter—The Commuter business segment includes the results from the operating activities
Amtrak provides to commuter agencies through contractual arrangements. Additional
opportunities exist for Amtrak to perform work above the level specified in the existing
commuter contracts. A number of commuter agencies also make operating and capital payments
to Amtrak for the use of Amtrak-owned assets. These payments are accounted for under the
Reimbursable Activity and Engineering Infrastructure section.
Reimbursable Activity—The Reimbursable business segment reports financial results from
various activities Amtrak performs for other entities. These include maintenance of- way
services for the benefit of other railroads or agencies that do not fall under the Commuter
umbrella and limited maintenance of equipment activities. As the title implies, this revenue is
projected to offset the costs of activities that are budgeted in operating expenses in equal
amounts.
Commercial Business—The Commercial business segment includes real estate/real property
leases/easements/sales, parking, advertising, telecommunications, pipe and wire occupancy
rights, retail leases at Amtrak stations, filming, and other commercial development.
Other Transportation Revenue—Items in this revenue area include items that are not
consistent in nature and would include things like the sale of capital equipment.
Marketing
Advertising for Amtrak is regional. Amtrak primarily uses its Web site, www.amtrak.com, for
booking reservations, and tickets can also be purchased at the station. Amtrak is also using the
Web site www.orbitz.com as a partner. Amtrak has launched a new area on their Web site called
the Whistle Stop, in which passengers can log in and share stories of the experience of riding an
Amtrak train.
Financials
Exhibits 2 and 3 show the financial statements for Amtrak. Note in Exhibit 2 that Amtrak’s
revenues increased annually from 2005 through 2008. However, the organization experienced a
net loss every year of more than $1.1 billion. Note in Exhibit 3 that Amtrak has more than $3.0
billion in long term debt.
Strategy
A review of the Amtrak Strategic Reform Proposal, dated 2006, highlighted that intercity
passenger rail can make a valuable contribution in the meeting of several key transportation
policy objectives, including the following:
• An alternative consumer travel choice to the automobile, bus, and air
• Additional capacity with opportunity for growth and intermodal connection
• An important link in rural areas where transportation alternatives are limited
• A stimulus to economic development and commercial activity
• An environmentally sound, energy-efficient, and disability-friendly alternative to other
transportation modes
Although there is evidence to support these claims, the reality is that Amtrak will need to make
substantial changes in operations prior to seeing these results. In the Independent Auditor’s
Report, KPMG stated, “The company has a history of substantial operating losses and is highly
dependent upon substantial Federal government subsidies to sustain its operations. Without such
subsidies, Amtrak will not be able to continue to operate in its current form and significant
operating changes, restructuring or bankruptcy may occur. Such changes or restructuring would
likely result in asset impairments.
The key to Amtrak’s future, in the words from the 2006 Strategic Initiative document, “hinges
first on a defined mission, including adequate and predictable capital funding, and over the
longer term on the emergence of competition and private sector alternatives to Amtrak.”
Specifically, the vision of management is to develop an intercity passenger rail system. To do
this, the following objectives will need to be accomplished:
• Development of passenger rail corridors based on a federal-state capital matching program,
with states serving as the developers and purchasers of competitively bid corridor services
• Return of the Northeast Corridor infrastructure to a state of good repair and operational
reliability, with all users gradually assuming financial responsibility for their proportionate share
of operating and capital needs
• Continuation and possible addition/elimination of certain national long-distance routes based
on established performance thresholds, with a phase-in period to allow for performance
improvements and state participation where needed to meet thresholds
• Emergence of markets for competition and private commercial participation in all passenger
rail functions and services, including outsourcing of selected functions and competition among
operators for corridor routes
Amtrak’s vision for the coming years is to:
• Deliver superior service—including continued excellence in operational safety and security and
infrastructure/asset management—while becoming more market and customer oriented
• Serve as a catalyst for change—helping the nation’s intercity passenger rail system achieve the
long-term objectives from above
• Evolve into one of a number of competitors for passenger rail services and routes, all
positioned on equal competitive footing
Competitors
Amtrak has many competitors because they are in the business of transportation. A primary
competition that Amtrak faces is the automobile. Automobiles provide consumers with more
flexibility and generally are a faster form of transportation. The main difference is that
consumers must own a car and provide their own transportation. Beyond the automobile, the
main competition comes from Greyhound Bus Lines and airlines.
GREYHOUND Although the time required to travel using Greyhound is very similar to that of
Amtrak, passengers are likely to spend less when traveling by bus. The difference is that the
accommodations on the train tend to be more comfortable than those on the bus. Founded in
1914, Greyhound Lines, Inc. is the largest provider of intercity bus transportation, serving more
than 2,300 destinations with 13,000 daily departures across North America. It has become an
American icon, providing safe, enjoyable, and affordable travel to nearly 25 million passengers
each year. The Greyhound running dog is one of the most recognized brands in the world.
Although Greyhound is well known for its regularly scheduled passenger service, the company
also provides a number of other services for its customers. Greyhound Package Xpress service
offers value-priced same-day and early-next-day package delivery to thousands of destinations.
And the company’s Greyhound Travel Services unit offers charter packages for businesses,
conventions, schools, and other groups at competitive rates.
It is also important to note that Greyhound is not only a competitor to Amtrak; it is also a partner.
Amtrak passengers use Greyhound to make connections to cities not served by rail on Amtrak
Thruway service, by purchasing a ticket for the bus connection from Amtrak in conjunction with
the purchase of their rail ticket. Passengers can also purchase tickets directly from Greyhound.
AIRLINES In mid-to-late 2009, airline ticket prices have dropped dramatically, eroding
substantially Amtrak’s business. The major drawback to traveling by train of course is the
amount of time that it takes to go from the origination point to the destination. Because time
tends to be a major consideration for travelers, airlines provide an alternative to travel by car,
bus, and train; the drawback, of course, is that they are more expensive. Airlines provide
passengers with a faster travel alternative.
Southwest Airlines, for example, flies over 100 million passengers a year to 65 great cities all
across the country. Southwest consistently leads the entire airline industry with the lowest ratio
of complaints per passengers boarded. Many airlines have tried to copy Southwest’s business
model, and the culture of Southwest is admired and emulated by corporations and organizations
in all walks of life. Always the innovator, Southwest pioneered Senior Fares, a same-day air
freight delivery service, and Ticketless Travel.
Southwest led the way with the first airline Web page, southwest.com; DING! the first ever
direct link to customers’ computer desktops that delivers live updates on the hottest deals; and
the first airline corporate blog, Nuts About Southwest.
Conclusion
Amtrak today faces obstacles that include uncertainty of government funding, competition, fuel
prices, the regulatory environment in which they operate, and creating a leadership development
program. Only time will tell if Amtrak’s CEO, Joseph Boardman, will be able to deliver on his
promise to help the company “work through its challenges and capitalize on the opportunities we
have to build a safer, greener, healthier Amtrak that connects America coast-to-coast and border-
to-border.” Amtrak needs a clear strategic plan for the future. Develop a three years strategic
plan for Amtrack.