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Business/Economy

Alaska Railroad netted solid profit in 2019 but uncertainty lies ahead

Alaska Railroad locomotives travel south on the main line along Turnagain Arm near Beluga Point on Monday, Jan. 13, 2020. (Bill Roth / ADN)

The Alaska Railroad Corp. turned a solid profit of $21.6 million last year on improved freight business, but along with countless businesses and industries the railroad’s prospects for 2020 are uncertain at best given the global economic disruption brought on by the COVID-19 pandemic.

The $21.6 million net income in 2019 was a 17 percent increase over $18 million in 2018 and marked the third consecutive year of annual profits for the state-owned railroad following an unexpected $4 million loss in 2016, which leaders attributed to a dispute with Municipality of Anchorage officials over splitting federal transit funds.

The net return was generated on the back of $203.9 million in total revenue, amounting to 7.5 percent revenue growth over 2018, according to the annual report published April 1. Alaska Railroad operating revenue increased 8 percent to nearly $177.6 million and led to operating income of $4.7 million last year, compared to $1.5 million in 2018.

The Alaska Railroad is a public corporation but it does not receive state funding to support its general operations. The railroad does receive federal formula grants largely tied to its passenger service, as is the case for many passenger railroads nationwide. The federal funding has totaled about $52 million to $57 million annually in recent years, according to the report.

Aside from its traditional operations, the Alaska Railroad also owns title to about 37,000 acres across the state, roughly half of which are revenue-generating properties. Income from that real estate totaled just more than $14 million in 2019, which accounted for about 11 percent of the railroad’s total revenue and was $1 million more than 2018.

Railroad officials noted in a statement accompanying the report that despite just 9 percent annual growth in the volume of freight hauled by Alaska trains in 2019, freight revenue grew by nearly $14 million, or 16 percent to $85.3 million. Gravel accounted for more than half of the nearly 3.5 million tons of freight moved last year but the jump in revenue is largely attributed to increased demand for the railroad’s rail-barge service between Seattle and Whittier from North Slope oil companies. The rail-barge link allows railcars loaded in the Lower 48 to be barged to Whittier where they are added to Alaska Railroad trains.

In addition to normal oil production operations, companies are in the midst of developing several billion-dollar-plus new projects on the Slope following a burst of large oil discoveries in recent years.

Alaska Railroad spokesman Tim Sullivan wrote via email that there hasn’t yet been a slowdown in demand for freight transit, but company officials are concerned about what current low oil prices may mean for the state and the railroad’s business.

Oil Search Alaska, ConocoPhillips and BP have all announced work slowdowns this month with oil prices at the lowest levels seen in nearly two decades — a combination of failing global demand in response to the virus and a subsequent Saudis-Russian price war. In light of that situation, it’s unclear how the railroad’s main business lines will be impacted this year, which CEO Bill O’Leary acknowledged in a formal statement.

“We recognize COVID-19 is weighing heavily on the global economy, and the railroad is responding with the ingenuity and durability that are our hallmarks. Whatever the outcome of COVID-19, one thing is certain: The Alaska Railroad is stronger for the gains, triumphs and investments made during 2019,” O’Leary said. “We remain realistic and optimistic that the railroad can bank on that strength, foster growth where it is plausible, and help fellow Alaskans weather the challenges ahead.”

While freight service accounted for more than 40 percent of the railroad’s total revenue, passenger service provided nearly 20 percent of its 2019 revenue stream as well.

The railroad carried 522,101 passengers last year, which was about 10,000 passengers less than 2018. However, railroad officials attribute the decline mostly to an odd combination of wildfires and flooding along tracks in Southcentral Alaska that both disrupted passenger service for several days in separate events.

Prior to last year, passenger volumes had been on a steady annual increase driven primarily by a growing visitor industry in the state. A trip on the railroad is part of many tour packages marketed by cruise companies and other tour operators.

Additionally, a focus on marketing winter excursions has also helped the railroad roughly double its “offseason” ridership over the past several years.

However regular summer passenger service had been suspended until early July in response to the COVID-19 pandemic, according to information posted on the railroad’s website.

Railroad officials also began initial planning work on a $60 million-plus overhaul to the Seward cruise dock and terminal, which the railroad owns, late last summer. Construction of the new facilities was originally planned to run through late 2023.

Sullivan said the Seward project is still an “important and critical project” for the railroad, but its pace has been slowed given the uncertain future of the cruise industry.

Railroad officials also expect to finally finish the drawn out and costly federally mandated safety program known as Positive Train Control, or PTC, this year to meet a Dec. 31, 2020, implementation deadline. According to Sullivan, the Alaska Railroad has spent $165 million to-date to develop a PTC system on its tracks. That total is likely to reach $182 million by the end of the year, Sullivan said.

PTC is a safety system designed to eliminate human error accidents on passenger railroads. The PTC mandate came down from Congress in 2008 after several serious accidents involving passenger trains in the Lower 48.

The PTC implementation deadline was first set for December 2015, but Congress extended it to December 2018 with provisions for some railroads to have the deadline pushed to 2020 when it became clear many rail operators across the country were not going to hit the 2015 target.

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