(The Alaska Journal of Commerce posted the following story by Tim Bradner on its website on February 10.)
ANCHORAGE, Alaska — Thanks to an infusion of $200 million in federal funds since 1996, the state-owned Alaska Railroad is in better physical shape.
But a flat outlook for freight revenues means the railroad faces slimmer profits in the future. That’s unless costs can be trimmed.
Profits were $8.4 million last year. This year they are estimated at $5.4 million.
Patrick Gamble, Alaska Railroad Corp. president, told a panel of state legislators in Juneau on Jan. 29 that he will propose a plan to the railroad’s board this summer aimed at trimming operating costs by 2005.”We can’t just sit back. We’ve got to take the initiative to shape our future,” he told members of the House Finance Committee.
If the plan is adopted, the railroad’s profits could exceed $10 million next year and climb to $15 million by 2007, he said. The railroad reinvests its profits in track improvements and other upgrades, and must use some to match federal capital project funds.
Last year and this haven’t been so good for the railroad, Gamble said. “We shared in the country’s economic roller coaster ride in 2002,” he told the committee in an overview on railroad operations.
“We experienced a reduction in operating revenues and a steep rise in certain costs,” he said. Most significant was the unexpected cancellation of coal shipments to Seward when Usibelli Mines Inc. lost its South Korean export contract.
Higher benefits costs for the railroad’s union employees were one cause of higher operating costs in 2002, he said.
The outlook for passenger growth is good, Gamble said. Despite worries over the Sept. 11, 2001 terrorist attacks, passenger traffic increased 4 percent last year and will grow again this year, Gamble said, mainly due to increased tourism-related service to Whittier and Seward during the summer.
But it is freight and real estate that earn the most money. Freight provides 75 percent of the railroad’s revenues with an additional 10 percent earned from leasing railroad-owned land to businesses. Passengers contribute the remainder.
The state has never had to pump operating money into the railroad since it paid $22.3 million to buy it from the federal government in 1985 and appropriated another $11.9 million as start-up operating capital.
“Our operating ratios are about one-to-one, which means we have to spend a dollar to earn a dollar,” Gamble told the committee. “Most railroads in the lower 48 states have operating ratios of .75 to .80,” meaning they spend only 75 or 80 cents to earn a dollar, he said.
Railroads in the Lower 48, however, are either all-freight or all-passenger. The Alaska Railroad is the only combination passenger and freight railroad left in the nation, Gamble said. It pays a price for this because the operations can’t be optimized for either freight or passengers, he told the Finance Committee. That is the price the railroad pays for providing a public transportation service, he said.
“Sometimes our ratios can be .98, sometimes they are 1.1. Our long-term goal is to improve our operations to get it down to .95 by 2006,” Gamble said.
Safety is one area where important progress has been made. In 2002, the railroad reduced its frequency of injuries by 63 percent compared with 1997. “Last year our mechanical and transportation departments had injury rates that rank them among the safest (railroads) in the country,” Gamble said.
The railroad’s derailment record is now better than the national average, too. There used to be a dozen or more derailments a year due to track being in poor condition after the state assumed ownership in 1985, Gamble said.
The infusion of federal money in recent years has enabled railbed and track to be rebuilt. As a result, derailments are now down to about one per year over the last three years, he said.
Work on track improvements is being concentrated on the Girdwood-Anchorage-Wasilla corridor where light commuter trains may operate someday. The priority is on Anchorage-Wasilla because commuter service may begin first on that route.
“We’ve knocked 45 minutes off the Wasilla to Anchorage trip already,” Gamble said. “If we can get the trip down to an hour in total and be able to offer service for $5 each way, a commuter service might be feasible.”
Gamble also wants the railroad to be ready for many major resource projects, such as supporting construction of a natural gas pipeline.
“No major resource development project in this part of Alaska can take place without the railroad’s involvement. This means the line has to be in sturdy, robust and safe condition,” he said.
There has been considerable talk about extensions of the railroad, the most recent being a 70-mile expansion from its present northern terminus at Eielson Air Force Base east of Fairbanks to Delta, where the missile interceptor launch facilities are under construction at Fort Greely.
That extension would be the first step in a railroad someday being built to Canada and a future link with the Canadian rail system.
Gamble said railroad routes to Canada have been surveyed several times, the earliest by the U.S. Army during World War II. If an extension were to be done, considerably more work will have to be done before a realistic cost can be determined.
As a rule-of-thumb, the railroad estimates it will cost $3 million to $8 million for each mile of new track, depending on the terrain.
“Eight million per mile is for the most severe terrain. We can probably build a line to Delta for $3 million to $5 million,” Gamble said. That would put the cost at roughly $21 million to $35 million.