Coston Statement to Michigan Transportation Subcommittee

July 16, 2014

Statement by James E. Coston
Chairman, Corridor Capital LLC

Prepared for presentation to the

State Senate Appropriations Committee
Transportation Subcommittee

Michigan State Capitol
Lansing, Michigan

July 16, 2014

Honorable members of the Subcommittee, thank you very much for the chance to appear before you today.

My company, Corridor Capital LLC, was founded ten years ago in Chicago for the precise purpose of helping state departments of transportation develop the full potential of the passenger rail services they were purchasing from Amtrak.

Our initial concern was to provide some of these states with additional rolling stock so their trains could carry more passengers. Ridership on the state-sponsored trains had been growing steadily, and some routes had begun to report sellouts on the most popular departures. But, Amtrak was struggling with a very small fleet of aging equipment, so only one Midwestern state, Illinois, was able to increase its number of daily frequencies. This it did in 2006. There have been no further ramp-ups in service since then.

To help the states fill the rolling-stock gap, our company bought or acquired the rights to over 50 double-deck stainless-steel “Hi-Level” coaches, rated for speeds of up to 110 mph, built for the Santa Fe Railway’s long-distance trains in the 1950s and ‘60s. We offered to rebuild these cars for a number of state DOTs, including Michigan.

As we became more experienced in addressing the states’ needs for more and better rolling stock, our company began to realize lack of rolling stock was only one of the problems states were experiencing in developing their passenger-train services.

  • Maintenance needed to be improved. Too many trains were leaving late or being delayed en route because of a locomotive failure, frozen toilets or faulty air conditioning. Reclining seats weren’t reclining. Tray tables did not deploy in a straight-and-level position. In at least three documented cases — fortunately none in Michigan — trains ran out of fuel because someone in Amtrak’s Chicago maintenance base had neglected to check the fuel level.
  • Food-and-beverage service was inadequate. Product quality was poor, prices were high and trains frequently ran out of popular menu items en route. Even when business was good and supply was ample, crews would close the café cars an hour out of Chicago or Detroit so they could take inventory before, rather than after, arrival at the end point.
  • Advertising and promotion were weak. The trains were listed in the Amtrak timetable, but, had almost no presence in local or national media. Timetables and fares were shown only on the Amtrak website. Awareness of trains among the general public was low. Train consciousness in Michigan was relatively high largely because of the large number of college students using the trains serving Ann Arbor, Kalamazoo, East Lansing and Grand Rapids.

As we came to understand more about the needs of the different states which were purchasing Amtrak services, we broadened our company’s competence. Instead of just supplying new and better rolling stock, we offered to help states “unbundle the Amtrak service package.” This means retaining Amtrak as the operator of the trains while replacing Amtrak’s rolling stock, maintenance, food-and-beverage service and mostly non-existing marketing with superior products and services available from the private sector by outsourcing as much as possible to Michigan businesses, which will boost Michigan’s economy. We believe in spending as much money as possible in the state paying for the service; in most instances, there is no reason to send Michigan’s money to other states.

Earlier this month we learned we had been named the winner of a train management and operations procurement in the state of Indiana. We won the Indiana award not only by offering to provide locomotives and rolling stock superior to what Amtrak had been supplying, but by offering to maintain the train, promote the train, and manage its onboard services in a way designed to develop higher ridership and revenues as well as operationally reduce costs per passenger.

In our discussions with MDOT we proposed similar initiatives for the Wolverine, Pere Marquette and Blue Water services.

We particularly stressed to MDOT Michigan needed to enhance its passenger-train fleet and improve its train maintenance and onboard service package because Michigan is about to experience a transformation never before carried out on any U.S. railroad line west of the Northeast Corridor — 110-mile-per-hour service over a continuous stretch of main line measuring 229 miles from the Indiana state line to Dearborn.

This dramatic increase in speed, which is expected to reduce the Chicago-Detroit running time from 5½ to 4½ hours, promises to revolutionize travel in Michigan by providing an inviting, economical, and practical all-weather form of passenger train transportation which will give an alternative to an unprecedented volume of auto and air travelers while recruiting new travelers – people who currently do not travel at all. Michigan will need new seats, and plenty of them.

We found, however, while MDOT and Amtrak had a very competent and well thought-out engineering plan to build up the publicly owned tracks the state had acquired, neither had a serious plan for parlaying the new track into higher ridership, higher revenues, greater customer satisfaction, lower costs per passenger, higher operating efficiencies and exciting marketing initiatives. There was a sort of implicit trust the new track would do a lot of good for the state’s rail service, but, no actual plan for making that good happen. There was lots of thinking about — and lots of investment in – the new, high-quality track but no realization higher-quality trains would be needed to make sure the state enjoyed the full benefits of the better track and higher speeds.

This vacuum in follow-up planning and execution is what our company came to Michigan to address. As the opening date for the 132 miles of track looms in late 2015, the state needs to begin immediately to stock up on modern, high-capacity corridor coaches and dependable locomotives so everyone who wants to ride to, from, or in Michigan will be able to get a ticket.

There is a false belief Michigan’s participation in the multi-state Next Generation of bi-level passenger train equipment will solve this problem. Let me state clearly: Relying on the federal funded Next Generation cars to carry these new loads of passengers will not be sufficient to meet all of the travel demand and capture all of the travel revenues this new track is likely to create.

  • The Next Generation fleet is not yet even under construction, and the committee in charge of its design is still making changes in the blueprints.
  • Even if/when delivered, the Next Generation fleet represents roughly the same number of coaches as Amtrak is currently leasing to Michigan, with somewhat higher seating capacities. No new frequencies can be added, and few additional passengers can be carried.
  • Design and construction of the Next Generation locomotives has not begun either, so that no one associated with the project expects any of the new trains to be ready when Michigan’s new 110-mph track is finished next year.
  • The current Amtrak fleet assigned to the Wolverine service is too small to carry the large volumes of new passengers likely to be attracted by the higher speeds. Again, Amtrak has no reserve equipment.
  • The current Amtrak equipment is poorly designed for daily service at 110 mph. It failed repeatedly throughout last winter. Many trains had to be cancelled, some in the middle of their trips, with passengers bused to their destinations after many hours of delay in sub-zero temperatures. This level of service cannot be tolerated under the new 110-mph regime. High-quality track will not attract and hold new ridership unless it is matched by trains of equal or superior quality and capability.

There are other circumstances threatening the development of Michigan’s passenger-train service if the current rolling-stock shortage is not addressed promptly:

  • Success on the newer and faster Wolverine track will drive up demand for seats on the Pere Marquette – which is already overwhelmed with business and requires a second frequency. Why would Pere Marquette ridership grow even though that train does not use any of the new track? Because successful trains exert a “halo effect” that raises the attractiveness of all other trains. The new tracks also bless the Blue Water, which will have 118 miles of fast track on its route when the improvements are finished. Both the Pere Marquette and Blue Water services each already need an additional train set to provide a second daily frequency, which itself will drive up ridership and reduce costs. Without a prompt acquisition of modern, comfortable, high-capacity rolling stock, these frequency increases cannot be implemented. Even if the Next Generation cars could be delivered next year, Michigan is not scheduled to receive enough of them to do anything more than re-equip the five existing Wolverine, Pere Marquette and Blue Water frequencies.
  • Without a fleet buildup, there will be no way to implement service on planned and contemplated new routes, including the so-called “Coast-to-Coast” route creating a new Holland-Grand Rapids-East Lansing-Detroit passenger rail corridor. While some have questioned the ridership potential of this line, its importance would seem obvious: It connects the three largest cities and the two largest university communities in the state of Michigan, as well as many other mid-sized cities and numerous additional colleges and universities – and the state capital. If the Coast-to-Coast corridor lacks travel demand, why did the state and federal governments build an Interstate highway to connect its principal cities?

In conclusion, new high-speed track is about to force Michigan’s passenger-train program into growth mode. But growth will be nipped in the bud unless the state’s meager and failing Amtrak fleet is replaced promptly with a more modern and much bigger fleet. The new business is coming. Michigan proudly and rightfully has re-asserted its national leadership in many areas. Let’s prepare Michigan for reliable, revenue-producing trains with a superior fleet and enlightened train management focused on high-quality passenger service, strict attention to the bottom line, and a constant eye on innovation and improvement for the good of Michigan and its taxpayers, citizens and travelers.

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