CARE (the other "anti" AAF organization) hired an economist to evaluate AAF's business model. I am surprised how many flaws there are in the analysis and it completely ignores the affiliated real estate impacts.
"Put differently, one could invest in real estate development completely independent of a train line; thus, we must be careful to not
build the case for the profitability of a rail line based on such a side project"
Perhaps this economist was not familiar with Henry Flagler?
Per the Orlando Business Journal:
All Aboard Florida to lose millions annually, economist says
A group fighting the $2.5 billion All Aboard Florida intercity passenger rail said a new economic analysis of the project shows it could lose more than $110 million a year.
Citizens Against Rail Expansion in Florida (CARE FL), which has been against the project for the last several months, on Feb. 18 announced it commissioned former White House economist John Friedman to conduct an analysis of the planned 235-mile project.
The train is set to connect downtown Miami to Orlando International Airport with stops in Fort Lauderdale and West Palm Beach.
Friedman, associate professor of economics, international affairs and public policy at Brown University, in the report concluded:
- All Aboard Florida will charge an average ticket price of $34 one way and attract between 1.5 million-2 million riders.
- The train system will generate annual losses of $110.7 million and will be unable to service the company's large debt burden. \
- Projected annual revenue is $95.8 million with operating costs of $81.5 million and debt-service costs of $125 million.
- Tickets would have to be priced at $273 one way, "even under unrealistically optimistic assumptions," to service All Aboard's debt. The only other option for additional revenue would be from All Aboard's related real estate.
- All Aboard is expected to get $50 million-$73 million in taxpayer subsidies per year, since it plans to issue $1.75 billion worth of private activity bonds — tax-exempt bonds similar to municipal bonds.
- The company will benefit from $13 million subsidies per year from the state of Florida as well as local governments in the form of a state-funded station in Orlando and safety upgrades and maintenance along the rail line.
See the full Friedman report here.
http://media.bizj.us/view/img/5093291/aaf-friedman-report.pdf (http://media.bizj.us/view/img/5093291/aaf-friedman-report.pdf)
"For months now, homeowners and residents in the communities CARE FL represents have repeatedly expressed their concerns about the proposed rail project and the adverse impact it will have on the communities along the way," said Bill Ward, CARE FL chairman, in a prepared statement. "We cannot have 32 trains rumbling through our communities on a daily basis, causing gridlock on our roadways and waterways as well as creating barriers for first responders. The project not only impacts the character of our downtowns, but it will also erode the quality of life that we all enjoy."
Representatives from All Aboard declined to comment. However, the company in the past has said the private activity bonds will not require taxpayer dollars.
This study simply shows that the big winner in all of this is John Friedman. It also indicates that CARE FL is a money losing venture. As for as AAF goes, only the future will tell.
Nevertheless,what's the point in paying Friedman? This is a private enterprise. If the company and its shareholders believe the project is profitable enough to move forward with, there's not much CARE FL can do.
I'm ready for the Jax to WPB AAF Train! A friend just took the Amtrak train from WPB to Orlando and said it was a horrible trip and had he known how bad his experience would have been he would have just driven to Orlando.
Because this analyst is an economist, his world view of the flow of expenses and revenue are strictly macroeconomic.
If he had taken anytime to examine what is known of the business plan thus far, he would have seen that AAF has other revenue sources besides ticket purchases. Even excluding the real estate.
For example the ROW over the Beachline will be leased by AAF Orlando Segment LLC. Which means any use of that segment by AAF get its revenue from the fare box, OK sounds great. However, something else happens when FEC pays for rights to haul freight over said line. Yes, in our minds its the same company, in the accounting its not.
Also it listed the train station in Orlando as a tax subsidy. That would be true if AAF paid nothing to use it. They are leasing the space from MCO as well as the ROW to get on MCO property at fair market terms. MCO is using it for other modes of transport to facilitate connectivity with other public transport forms. All of those forms do get subsidies. AAF thinks of MCO access just like any airline that has to pay gate fees and lease airport space.
So what if AAF Jacksonville Segment LLC is charged a .01 per car/mile ROW fee to FEC to have their trains ply the route from Cocoa to Jacksonville? In turn AAF Orlando Segment LLC charges FEC $2 per car/mile to allow it to pull freight back and forth during the night. By the books, this is revenue in AAF's pocket.
Another example would be if AAF Orlando Segment LLC lays fiber along the the tracks. They can lease capacity on said fiber back to the other Fortress entity Parallel Infrastructure, who in turn can resell it to commercial carriers or they can set up cell towers that carriers can lease antenna space.
This is why I think any external high level business analysis in the venture will have troubles seeing how it will work. There are cash flows inside the Fortress entities that we aren't privy too.
As I noted in another thread, but didn't mention here is the revenue opportunity for express mail/packages.
With 16 trains a day going and 16 coming, a revenue source in express packages is definitely in scope.
Think of all the trucks they would take off of the tollroad or even any other road supporting the Orlando/Miami trucking routes.