IP Gave Up Hoosier State for Financial Reasons

As the Indiana Department of Transportation frames it, the withdrawal of Iowa Pacific from operating the Hoosier State was due to IP making an unreasonable demand.

But as Iowa Pacific CEO Ed Ellis sees it, it was the result of a quirk in the contract that his company had with INDOT to operate the train.

Iowa PacificThat quirk, Ellis said, was that the compensation IP received declined each time the on-time performance of the Chicago-Indianapolis train improved.

Ellis said he sought to renegotiate the contract to guarantee that IP would receive a guaranteed $150,000 a month. But INDOT turned that down.

The situation is complex because Amtrak was also involved in operating the Hoosier State by providing operating crews and handling relationships with the host railroads.

Iowa Pacific provided the rolling stock (including locomotives) and food service employees, and did the marketing and promotion work.

Ellis told WBAA radio station in West Lafayette, Indiana, that INDOT paid Amtrak before it paid Iowa Pacific whenever there was any profit.

INDOT held separate contracts with Amtrak and Iowa Pacific. Amtrak billed the state for fixed operating costs plus “estimated third party costs,” that included maintenance of way charges and “performance incentives” paid to CSX for running the Hoosier State on time.

Iowa Pacific received the difference between what INDOT paid Amtrak and a fixed monthly sum of $254,000, INDOT spokesman Will Wingfield said.

Consequently, Amtrak received $4 million in 2016 while IP got $500,000.

Amtrak received monthly payments of between $288,000 in April to $172,000 in August. IP lost $34,000 in April but earned $82,000 in August.

The costs charged by Amtrak and Iowa Pacific are separate from what those companies earned in coach revenue, food service and business-class fares.

The guarantee that IP sought was more than what the contract specified said Wingfield, who added that it was more than what was reasonable for Iowa Pacific to seek.

Ellis said going into the arrangement to operate the Hoosier State that he didn’t realize how much the payments would favor Amtrak.

“The one thing that I would want to change going forward is to make sure that we put some kind of a floor under what our monthly revenue would be from the contract so that we don’t get into a situation where, at the end, we’re several hundred thousand dollars less than where we thought we would be,” Ellis said.

The Hoosier State began on Oct. 1, 1980, as an Amtrak train. IP took it over in July 2015.

It operated quad-weekly on days that Amtrak’s Chicago-New York Cardinal did not operate between Chicago and Indianapolis.

Amtrak will begin operating the Hoosier State with its own equipment on March 1. Wingfield said Amtrak has verbally committed to trying to add some of the amenities that Iowa Pacific offered, including Wi-Fi service.

INDOT agreed to let Iowa Pacific out of its contract, which was to expire on June 30.

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One Response to “IP Gave Up Hoosier State for Financial Reasons”

  1. Todd Schultz Says:

    Did Ellis really make a mistake and sign a contract he didn’t fully understand? I don’t believe that. I suspect he knew exactly what he was signing but believed he could boost ridership enough that the revenue disparity would not be an issue. But that didn’t happen and now he’s out of money and it’s a face-saving explanation. I rode twice and was amazed both times–by the caliber of service, but also by the small ridership and the lack of non-buisiness class food sales.

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