The Palm Beach Post: All Aboard to lose $110.7 million a year, anti-rail group’s study finds

Posted on February 18, 2015

By Kimberly Miller and Jennifer Sorentrue – Palm Beach Post Staff Writers


All Aboard Florida would have to charge $273 for a one-way train ticket between Miami and Orlando to make its large debt payments, according to a economic study commissioned by a citizens group fighting the express passenger rail project.

The 15-page analysis by John N. Friedman, an associate professor at Brown University, found that for All Aboard Florida to break even, the private rail company’s fare would be roughly $145 more than the average cost of a one-way plane ticket between Miami and Orlando. The study says the finding is based on “unrealistically optimistic assumptions,” noting that ridership projections would likely plummet if All Aboard Florida set its fare that high, requiring the company to charge even more to turn a profit.


AAF economic study

“Although it is difficult to project exactly how such a negative feedback loop would end, it is likely that there exists no fare structure with which AAF could generate revenue merely to cover its operating and capital expenses,” Friedman wrote in the study commissioned by the anti-All Aboard Florida group Citizens Against Rail Expansion.


All Aboard Florida, a Coral Gables-based subsidiary of Florida East Coast Industries, did not respond Tuesday to a request for comment. The company plans to run 32 trains a day on the FEC tracks.


Friedman, an associate professor of economics, international affairs and public policy, concluded that All Aboard Florida would generate annual loses of more than $100 million and would not be able to meet its debt payments. The analysis estimated All Aboard Florida’s annual revenues would total $95.8 million, but its annual operating expenses and debt payments would reach $206.5 million — resulting in annual losses of $110.7 million, Friedman found.


“Put another way, one could arbitrarily double revenue projections and still not project that AAF would be able to pay off its debt,” Friedman wrote. “This problem would become even worse if AAF were to experience delays in the construction process that would require more years of debt service before generating revenue.”


All Aboard Florida’s trains are expected to begin running between Miami to West Palm Beach in late 2016. Service between West Palm Beach and Orlando is expected to begin in 2017.


The rail company is seeking $1.75 billion in private activity bonds to pay for the West Palm Beach to Orlando leg and is awaiting a review by the Federal Railroad Administration of a draft environmental impact statement released in the fall.


In his study, Friedman found that the tax-exempt bonds and other considerations from state and local governments would result in as much as $73 million in annual taxpayer subsidies for the private rail company.


Robert Poole, the South Florida-based director of Transportation for the Reason Foundation, believes All Aboard Florida can be financially viable. The project has identified a niche market, he said, where it already has an established rail line, and can travel faster than cars and more conveniently than flying.


“It still looks like of all the passenger rail projects around the country that are underway or in serious consideration that this would be the one most likely to work financially,” said Poole, who had not seen the CARE study. “I think it’s plausible that they’ve found a sweet spot.”


In an article last year, Poole called All Aboard Florida a “worthwhile effort” that will capitalize on its real estate investment in and around stations in Miami, Fort Lauderdale and West Palm Beach.


But Poole said Tuesday that All Aboard Florida needs to be wary of opening more stations, which could decrease profits.


“It only services major markets, and that’s key,” Poole said.

Click here to view original article