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August 2014
— by Angela Cotey, senior associate editor
In 2011, Amtrak officials unveiled a strategic plan that called for dividing the organization into six business lines in order to help the railroad better serve customers and manage operating and financial performance. Since then, Amtrak leaders have appointed managers to oversee the business lines.
Now comes the hard part: executing the plan. And in order to meet customer service and financial sustainability objectives, Amtrak's culture needs to shift.
"Historically, Amtrak has been a very strong railroad command-and-control organization," says Chief of Corporate Research and Strategy Jeff Clements. "We need to move from a siloed, functionally driven organization to a more nimble, customer-focused business."
The national intercity passenger railroad is positioned to meet the challenge, Amtrak officials believe. For one, President and Chief Executive Officer Joe Boardman has been with the railroad for nearly six years now, making him the second-longest-serving chief in Amtrak's history. The leadership stability has given the management team time to not only create a long-term plan, but see it through. And they are able to focus more on the long term because of federal funding stability and — perhaps as a prerequisite to that — strong rider demand.
"I think the focus at Amtrak for many years was on survival and self preservation," says Amtrak Chairman Anthony Coscia. "Today, Amtrak is in the business of selling a service that is in great demand."
Now, it's time to capitalize on it. To that end, Boardman & Co. have instituted an "operate like a business" directive that calls for taking a hard line on expenses, continually seeking to grow revenue, becoming more financially transparent and accountable, and providing the best possible customer service.
Of course, Amtrak, which relies on a government subsidy, never will be able to operate the way unsubsidized entities try to.
"Amtrak is required by their main funding source — the U.S. government — to do all sorts of things they wouldn't have to do if they were operating like a business, and that puts them in a very challenging situation," says Joshua Schank, president and CEO of the Eno Center for Transportation, a nonprofit organization that aims to improve transportation policy. "They have long-distance routes that are not profitable, so what's the business reason for providing those services? There's a social service aspect to it."
That said, Amtrak's customer-service and financial-sustainability shift has been a noticeable one, Schank says, and in that respect, it's no longer business as usual. Technology has been implemented and employees have been coached on ways to improve the passenger experience. Spending has been curtailed and revenue increased in order to keep Amtrak's operating subsidy to a minimum. Meanwhile, management is trying to ensure the right people with the right skills are in place to help support the railroad's end goals.
"Every time we spend money in the wrong way, that's a problem. Every time a train is late, that's a problem," says Coscia. "Our job is to create passenger-rail alternatives for a large cross-section of the American public, and do it in a way that is wrapped around a sustainable business model."
Regarding the latter, Amtrak already has made some strides. In fiscal year 2010, the railroad's operating subsidy stood at $565 million. In FY2014, it was $340 million. Chief Financial Officer Gerald Sokol expects that figure to drop further in FY2015.
He attributes the lower subsidy to what he would characterize as "fairly robust revenue growth for an industry that is relatively mature." The past several years, revenue has increased anywhere between 2 percent and 4 percent annually, in large part because of gradually increasing ridership and "modest" ticket price increases, Sokol says.
Amtrak officials are more closely examining expenses, too. Boardman took a harder line on spending when he joined the railroad, says Sokol.
"He has adopted this philosophy of running the railroad like a business, and the definition of that is that every dollar we spend has to create value for Amtrak," he says. "The company has taken a hard look at its costs, making strategic decisions on where we should and shouldn't be spending money."
The railroad is going through the FY2015 budget process now, and finance officers have grown more aggressive about questioning department managers on every budget request as they try to determine why each dollar is being spent, Sokol adds.
"What value is it bringing? Is it increasing revenue? Is it government mandated? It forces people to go back and analyze and question themselves on why they're coming forth with budget requests," he says.
Amtrak officials have worked to reduce debt, as well, which peaked at $3.9 billion in the mid-2000s and today stands at about $1.5 billion, says Sokol, who joined Amtrak in November 2013.
"Amtrak went through a pretty active period of using capital and grant dollars to pay off high-yield debt, refinance and put things into leases," he says.
The railroad also has changed the way it reports its financial information to Congress. Amtrak previously reported numbers for the railroad as a whole. This year, for the first time, the railroad presented financial information for each business line, which shows the profits and/or losses for the Northeast Corridor, state corridors and long-distance routes. Officials also outlined capital requirements for each service.
"That way, they can see much more clearly where the revenue is coming from, what the expense base is, how much money we're making, where we're breaking even, where we're losing money," says Sokol.
Amtrak officials hope the new reporting method will give Congress a clearer picture of the financial progress Amtrak has made, as well as where capital infusions are needed. Continuing to lower the operating subsidy could make political leaders more willing to invest capital money in the railroad, too.
"The operating subsidy can continue to come down, no question, if we simply hold expenses flat and continue to grow revenue — it's simple math," he says.
A new revenue management system could help on the revenue-growth front. Officials in the sales and marketing department are in the midst of implementing a system that can automate pricing based on ridership and demand.
"We can make pricing much more dynamic and fluid, sort of like the airlines have now," says Sokol. "For example, if we know the five o'clock Acela is booked, we can automatically adjust pricing to try and push people to the four o'clock or six o'clock train, which might have some seats left."
In many respects, the focus on customer satisfaction and financial sustainability go hand-in-hand. One of the best ways to increase revenue is to grow ridership, and Amtrak's sales and marketing team has launched a series of initiatives during the past several years to improve the passenger experience.
Chief among them is an electronic ticketing system implemented two years ago that enables passengers to download tickets on their mobile device.
"Say you wanted to switch to an earlier departure time. Before, you'd have to go to the ticket counter and hope you could get through early enough to get a ticket issued," says Chief Marketing and Sales Officer Matt Hardison. "Now, you can do it right on your phone, get confirmation, and get right on the train."
Amtrak since has been working to update the "nuts and bolts" of the e-ticketing system, which enabled the railroad to begin issuing electronic vouchers last year. Riders previously had to visit a station to obtain a printed voucher if they wanted to exchange or refund tickets.
The railroad also is continually updating apps for iPhone, Android and Windows phones, and updating the mobile website. The efforts have given riders more options, such as the ability to view multiple fare classes or check schedules while on the go.
"Incrementally, we have been able to remove impediments to travel for our customers, and improve the entire reservation and ticketing experience," says Hardison.
A locomotive telemetry system implemented in 2011 is helping to keep passengers informed, too. Railroad workers now can track in real time where trains are across the entire system, and Amtrak has developed algorithms that enable the railroad to more accurately predict train arrival and departure times, says Hardison. Now, officials are working to create a new national standard for displaying the information in stations and on platforms.
Going forward, one of the biggest passenger demands — and Amtrak technology challenges — will be upgrading WiFi on trains. The railroad first launched WiFi on Acela trains in 2010, and since has expanded it to trains throughout the Northeast, California and the Midwest. But demand for bandwidth shot up and slowed the system.
So in 2013, Amtrak implemented a fourth-generation wireless backhaul that supports communications from the train to trackside in an effort to speed the WiFi service. To develop a longer-term solution, Amtrak earlier this year issued a request for proposals to build a trackside dedicated radio network that would support broadband and WiFi on trains. The railroad plans to conduct a pilot along 10 miles of track in the Northeast Corridor to determine if it provides the level of service Amtrak officials want. If so, they hope to expand the network throughout the Northeast Corridor.
"Our goal is to deliver true broadband to customers that allows them to use the Internet on the train much like they would at home — if they want to stream Netflix or send or receive very large files, they can do that," says Hardison.
Improving the passenger experience always is top of mind for those in the sales and marketing department, regardless of what the latest company directive might be. Arguably, the technologies that have been and will be implemented are not so much about increasing customer focus as they are about ensuring passengers are provided with the modern-day amenities they have come to expect. But in Amtrak's case, with limited resources, technology investment has become a choice.
"The strategic plan has given us more clarity on what our priorities are. As a result, when we get around the table to talk about capital improvements — knowing that customer service and financial performance are critical — we're making trade-offs, with the goal of meeting those priorities," says Hardison. "That has significantly accelerated the investments we're making."
On the operations side, those priorities have led to an increased focus on keeping passengers happy, from the conductor addressing riders to department managers ensuring the right equipment is in place at the right time.
Amtrak's operation department recently launched a praise-to-complaint program, under which conductors hand out cards to passengers asking about their onboard experience. The responses are tracked by employee and by train, and operations officials now are issuing scorecards that show which lines have the best praise-to-complaint rate, says Vice President of Operations DJ Stadtler.
"It's created a competitive environment where everyone wants to be the best," he says. "We didn't always have that here."
Keeping customers happy has proven to be more difficult of late, particularly on long-distance routes. On-time performance has suffered because host freight railroads are dealing with traffic surges they didn't necessarily expect, says Stadtler. As a result, it's become more difficult for the freight railroads to get passenger trains through the network in a timely fashion.
"In those cases, we can't control on-time performance, but we can control the customer experience," says Stadtler. "When we have late trains, we're becoming more vocal with announcements, telling riders why we're delayed, what we're doing to fix it and the estimated schedule from here on out."
If a train is going to be too far off schedule, operating officials now will consider canceling it.
"We were frequently celebrating the fact that we got a train through, even if it was 12 hours late or even if we had a lot of issues associated with it," says Stadtler. "But what was the customer experience? Would we have been better off canceling the train, apologizing to passengers, and then booking them on another train?"
Optimizing train consists will go a long way toward limiting the frequency of such occurrences, Stadtler believes. Planning for the Thanksgiving holiday, for example, now begins in March so the railroad can ensure it has enough cars on routes that have had sold-out trains in recent years. Staffing and train-consist planning will be a top priority heading into this winter, too, after Amtrak was caught off guard in some areas during the particularly nasty winter of 2013-14. Again, it traces back to making sure customers are provided with the type of transportation service they expect, says Stadtler.
"It's not the trains that create revenue — it's the customers. The goal should be that every passenger that gets off the train says they had a great trip and can't wait to ride again," he says.
All employees play a role in helping Amtrak achieve its financial and customer satisfaction goals. It's crucial, then, for workers to understand and support the mission. To that end, officials in the human capital department are working to create more of a performance-oriented culture within Amtrak.
"We're looking at developing a competitive advantage for the business by ensuring we have the right workforce aligned to the strategy," says Chief Human Capital Officer Barry Melnkovic. "We have to enroll the hearts and minds of all employees."
One way to do it is by showing them the money. After the strategic plan was introduced, Amtrak created a short-term incentive program for non-agreement employees based on reducing losses, becoming more efficient and improving customer satisfaction.
The railroad also has implemented a pay-for-performance plan that rewards workers who meet their assigned goals. At the beginning of each fiscal year, Amtrak managers set three to five goals for non-agreement employees that align with strategic plan goals.
"Goals were set before, but a lot of them weren't really goals — they were just part of that person's job description," says Melnkovic. "A goal typically goes beyond that, and it needs to be something that will move the performance needle for Amtrak."
Non-agreement employees meet with their manager several times each year to get a feel for how they're stacking up against the goals. Employees are reviewed at the end of each fiscal year; those who meet or exceed their goals receive a merit increase; those who don't won't get an extra dime, says Melnkovic.
The human capital department also is moving toward behavior-based interview training, using profile and assessment software that help hiring managers ensure they find candidates that are the best fit for Amtrak. The program analyzes a candidate's integrity, as well as his or her ability to deliver customer satisfaction, be collaborative and operate with a safety focus.
For existing employees, Amtrak is implementing a Total Rewards and Integrated Talent Management Strategy. The initiative will better link benefits — such as compensation, wellness programs and educational assistance programs — with professional-advancement initiatives such as career and executive development, training, succession planning and talent management protocols.
"An employee here once told me that Amtrak is a great place to come to obsolete your career," says Melnkovic. "We're out to change that dynamic, to show Amtrak is a great place to grow your career."
To that end, Amtrak is looking to ink deals with "some major universities" for executive leadership development, and is piloting a professional development program, Melnkovic adds.
FY2014 served as a transitional year of sorts for Amtrak, with the business lines officially set up and functioning. In FY2015, railroad managers will be better able to gauge how their efforts are making a difference by measuring changes in operating performance, operating ratio, safety and customer satisfaction, says chief strategy officer Clements.
"Making our strategy operational is the heart of what we're working on," he says. "Our mission is to move America where it wants to go, and we're getting clear about what we're about."
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