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4/29/2021
By Julie Sneider, Senior Associate Editor
After surviving an unprecedented 2020, Alaska Railroad is ‘guardedly optimistic’ about 2021
To say that 2020 was a brutal year for the 118-year-old Alaska Railroad Corp. (ARRC) is an understatement, says President and Chief Executive Officer William “Bill” O’Leary. Although the short line had faced significant economic adversity over the years, it never faced such a precipitous drop in business over such a short period of time.
“It was unprecedented for us,” says O’Leary. “It’s really a credit to the employees — whether that’s the back-office folks [or] the people running the trains and maintaining the infrastructure — the terrific job they did was key to keeping us going forward.”
O’Leary has been in charge of the railroad since 2013, when he was promoted from chief operations officer to succeed then-CEO Christopher Aadnesen, who retired. When O’Leary took the top job, he had already been with the railroad since 2001, when he joined as vice president and chief financial officer.
Earlier this month, the ARRC reported a net loss of $7.8 million on total revenue of $150.7 million in 2020, as the railroad — which operates freight and passenger service, and has significant real estate holdings — confronted tremendous challenges brought on by the COVID-19 pandemic.
Ridership plummeted 94% from 522,101 passengers in 2019 to just 32,059 in 2020, as cruise ships halted service and other groups canceled Alaskan tours. Up until 2020, the railroad’s passenger business had been growing 3% to 7% per year over the past decade or so. The railroad runs passenger service year-round — local residents also use the trains — and normally adds trains during the height of the summer tourism season. Although passenger trains did run last year, they ran on a significantly modified schedule.
Early safety concerns prompted railroad officials to suspend weekly winter service April through May 10, while the monthly Hurricane Turn flag stop service continued through June. That service allows Alaskan residents living in the remote backcountry to get on or off the train at any point with the wave of a flag. The railroad’s daily summer schedule was delayed until July 1 and ended a week early.
“The loss of passenger business was very disappointing, and that’s the one that had a huge impact on the [local] communities,” says O’Leary, noting that rail service is a boon for the hotels, bed-and-breakfasts, rafting companies, restaurants, shops and many other smaller establishments that rely on tourists and travelers.
But ARRC’s largest line of business is hauling cargo. In 2019, $85 million, or 42% of revenue, came from freight activities; in 2020, the dollar value fell to $74 million but made up 49% of revenue due to the loss in ridership. Freight revenue last year was impacted by a number of factors, including a dramatic slump in oil demand that squelched oilfield activity in the Alaska North Slope. In the end, ARRC moved 3.5 million tons in 2020 — about 26% less tonnage than in 2019.
The loss in freight revenue was particularly disappointing since the railroad worked hard to recover from the loss of a major customer five to six years ago when a refinery that moved oil by rail from the Trans-Alaska Pipeline closed.
“We worked through that and were particularly excited about the 2019-2020 time frame, heading all the way into 2022-23 or 2024,” O’Leary says. “Per the amount of planned activities on the North Slope, we were looking for a significant recovery of our freight activities. We move a lot of pipe, drilling and oilfield support materials.”
The railroad’s 2020 freight business didn’t begin to decline until the second or third quarter due to work already in play when the pandemic hit.
As for the railroad’s real estate business, leasing activity has been relatively consistent. But the railroad’s dock-related revenue was hit hard when the cruise ships stopped coming during the pandemic.
“The magnitude of all this is that we had budgeted earnings of $22 million for 2020, and ended up with the $8 million loss,” O’Leary says.
Once it became clear in April 2020 that the pandemic would be sticking around for a while, O’Leary and his team had little time to develop a Plan B.
“In Alaska, there’s this giant hump of activity that occurs in the months of May through September, so that by the time you figure out what’s going on or something isn’t working, it’s almost too late to change it,” he says. “We were trying to gauge what the impact of the pandemic would be and when it became clear this was not going away, we revised our hiring outlook for the year regarding seasonal positions.”
About 600 people work for the railroad year round, with another 150 coming on board during the busy season.
“We made the decision that we felt the pandemic was going to be a short- to medium-term issue, and therefore we wanted to shy away from making draconian changes to the organization,” O’Leary says. “So we held some year-round positions open longer than we normally would, but tried to manage the seasonals to the greatest extent that we could. We changed the train schedules, pushed the starting season later and then reduced the schedule to better respond to demand.”
The year 2020 was not without a few bright spots for ARRC, according to its 2020 annual report. Among them:
Additionally, the unusually tough times spurred ARRC to come up with new ideas and accelerate changes in how the railroad interacts with customers as well as employees, which helped improve the speed in which O’Leary and his team gained and shared critical information. For example:
• ARRC passenger services department processed an unprecedented amount of trip refunds and rescheduling requests, while the facilities and passenger operations teams devised and communicated enhanced safety and sanitation measures to protect riders and employees.
• ARRConnect, a self-service portal was launched to allow shippers the ability to track the location of their rail cars and trailers, and to access and print waybills.
• Electronic access was expanded so that employees could communicate with each other and their customers. The railroad’s safety experts re-tooled many courses so that employees had online options for completing mandatory safety training.
Moreover, ARRC obtained an increase in federal funding. In 2020, grants were 35% of overall revenue, up from 27% in 2019. Because ARRC is a public transportation provider, it received funding under the federal Coronavirus Aid, Relief and Economic Security Act, which can be used for Federal Transit Administration-funded projects. The $94 million in funding means the railroad can plan for multiyear capital investments in equipment and infrastructure, with some of those projects slated to begin this year, according to the 2020 annual report.
Looking ahead, O’Leary says he and his colleagues are “guardedly optimistic” about the year ahead.
“Our plan for 2021 is to be relatively cautious about expectations,” he says. “We did have a tougher first quarter, but the outlook for the remaining three quarters is more positive — certainly a steady recovery.”
Activity in the oilfields is increasing, consumer products also are gaining strength and, hopefully, the road construction season will be busy this year.
“We move a lot of aggregate products — gravel — so we think there’s definitely going to be an improvement there, though not taking us back to where things were in 2019, for sure,” says O’Leary.
As for passenger trips, the cruise ships haven’t yet returned to Alaska’s southcentral shores. Still, ARRC ticket sales are picking up among independent travelers looking to visit the state this year.
“We are seeing a significant uptick in folks booking a ticket on air and heading up here, then asking, ‘What’s there to do?’” says O’Leary. “And as we like to say: ‘Your trip to Alaska is not complete unless you’ve booked a ticket on Alaska Railroad.’”