(Knight Ridder News circulated the following article on September 25.)
FORT WORTH, Texas — Quick quiz: Which company was more profitable in 2004, airline leader Southwest Airlines or Burlington Northern Santa Fe Railway?
The answer is BNSF, whose profit margin of 8.7 percent topped the 5.9 percent turned in by Southwest, long considered the poster child for the low-cost, profitable sector of the airline industry.
Even more significantly, Fort Worth-based BNSF bested the profit margins of two major nationwide trucking companies whose stocks are part of the Dow Jones Transportation Index. BNSF’s 8.7 percent margin topped the 5.7 percent margin of J.B. Hunt and the 3.4 percent of Yellow Roadway.
Impressive numbers
Ten years after the Burlington Northern and Santa Fe rail companies merged, intermodal technologies, fuel prices and growing importance of imports are helping the company put up impressive numbers and making it immune to the troubles of its industry competitors: airlines and trucking companies.
Profit margins aren’t everything, of course.
BNSF’s return on equity of 11.1 percent, while excellent by railroad standards, still is barely half that of powerhouses such as Microsoft, Wal-Mart, Exxon Mobil and Lockheed Martin.
BNSF’s financial performance might surprise baby boomers who remember the bankruptcies of the Penn Central and Rock Island lines in the 1970s or the dot-com generation raised to believe that the railroad industry was nearing the end of track.
Railroads are profitable today because they are attracting more business. Last year, American railroads hauled 2 million more car loadings than the year before. BNSF contributed 960,000.
Perhaps mindful of the villainous role popular American history has assigned to them, railroaders have been reluctant to blow the industry’s horn. Matt Rose, BNSF’s 45-year-old chairman, is fairly muted in his assessment of what many consider to be a new golden age of American railroads.
Rose pinpoints the rail industry’s singular achievement: After decades of declining business volumes and excess track and car capacity, railroads now operate a slimmed-down system about 30 percent smaller than a quarter-century ago as imports and fuel-efficiency demands make rail a hot item among shippers.
Higher rates
So strong is demand for rail service now that BNSF and other carriers now can do something the airlines can only dream of: impose higher rates.
The average increases of 3 percent to 4 percent in rates aren’t huge, but they represent a sea change in an industry that saw its real, inflation-adjusted rates decline by 50 percent after railroads were deregulated in 1980. The ability to recover higher costs is particularly important at a time when diesel fuel costs have doubled in the last three years.
Rose, a director on the board of AMR Corp., the parent of American Airlines, reflects on the differences between the railroad and airline industries.
“We don’t have excess capacity now, and we certainly don’t have to worry about low-cost startups coming in,” he says.