Private Rail And The USA

Virgin Trains USA (Nasdaq: VTUS) is planning a $500M IPO this week to become something of a private force in the build-out of private train systems in parts of the US. The company has a small and successful train service in Southern Florida that it plans to expand to the central part of the state. Management is also planning to construct a brand new route between Los Angeles and Las Vegas. There's a lot of history to draw on when looking at this deal.

Despite having more miles of railroad tracks than any other country in the world the US is very low in terms of train ridership. There are lots of reasons for it including the fact that the tracks are mostly owned by freight companies, most were built during the "golden age" of US train travel in the 1800s, and the US is sparsely populated in most places. Cars and planes took over from trains for passenger travel in the US.

Yet somehow the opportunity remains for train travel to have a greater role in the US. France has only 20% of the US population but has nearly 50x the number of train journeys per day, hundreds of them on very high-speed lines connecting most cities.

Track ownership is a huge problem because it means that Amtrak has little control over when their trains arrive. Companies like Union Pacific own the tracks and give priority to their own trains. In contrast, the railroads in countries like France and Germany own all their own track.

The key ingredient for any successful high-speed rail option is money and lots of it. Amtrak is stuck because they have little money to spend on improvements so their trains and customers suffer. Whereas in France the taxpayer supplies about 1/2 of the funding which allows them to make the needed investments for great service while keeping prices low.

Virgin Trains USA isn't suggesting they are going to change the USA when it comes to train travel. But they have identified two specific areas where they believe they have a strong case for investors.


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Florida is the current home base for Virgin Trains USA. It started as the "Brightline" serving Miami, Ft Lauderdale, and West Palm Beach. People love the service. On TripAdvisor, 89% of the reviews are 5 starts with expressions like "loved it, awesome, impressive, great experience, fast & clean, superb service and convenient." Based on the success of the current but rather short line they are extending the line over 100 miles north to Orlando. This part of Florida has the right characteristics to support a profitable private rail line:

  1. Florida is a big state with a number of cities with a high population density.
  2. Major tourism to Orlando, Miami and warm weather. Annual visitors are 4x population.
  3. Hub of activity for the cruise industry with very large ports which drive major demand to/from cities and airports.
  4. Miserable driving experience with just one large highway (Route 95) that has is nearly always backed up with traffic.
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