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Plane Train Competition

Aug 16, 2012 • Demand, Supply, and Markets, Economic Debates, Economic History, Government, Innovation, Labor, Macroeconomic Measurement, Regulation, Thinking Economically, Uncategorized, US Presidential Election • 196 Views    No Comments

Should government subsidize a railroad?

Our story starts during the 1970s when you could fly from New York to Washington, D.C. on the Eastern shuttle. Eastern left hourly (!) and guaranteed a seat to everyone who showed up for the flight. Imagine, coffee cup in hand, business people rushing to the gate at the last minute knowing they would be in Washington D.C. soon. A full plane meant that Eastern had to use its back-up, even for just one seat.

The Eastern shuttle couldn’t exist after airline deregulation in 1978. Not only had the government given Eastern a monopoly but also it ensured its profits by coordinating fare hikes and cost increases. Labor was well-paid, passengers were coddled, and interstate routes were mandated by the federal government. Frequently almost empty, the direct nonstop flight between Peoria, Illinois and LaGuardia in NYC was ideal for me to visit my husband’s family. The downside? Passengers paid a lot more and land, labor and capital were inefficiently used.

Fast forward to 2012.

Moving along the Northeast Corridor between NY and Washington, D.C., travelers look for value and speed. Before 2001, Delta and US Air were favored. Afterwards though, with minimal security delays, Amtrak’s trains became preferable. As one person said, “It’s easier. I don’t have to take my shoes off…” and travel time equalizes between the train and the plane after airport security, wait times and delays.  Finally, we shouldn’t forget the bargain buses with fares ranging from $1 to $40 a ticket that are making the market even more interesting.

So yes, Amtrak is a formidable competitor in the Northeast Corridor. However, even with a $1.3 billion subsidy from government, Amtrak loses money. With the airlines and bus companies privately owned, should Amtrak get this boost from government? As an Economist blogger suggests, shouldn’t we be debating “the right balance of public- and private-sector involvement in these sorts of enterprises?”

Thanks to the NY Times for many of my facts in its article on the competition among planes, trains and buses.For anyone who want to engage in a funding Amtrak debate, this lengthy Freakonomics post is ideal for facts and ideas. And additional facts about Amtrak are here.

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