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Railroad's income declines slightly

Posted: Monday, April 11, 2011

The Alaska Railroad Corp. saw a slight decrease in net income last year compared to 2009, according to an annual financial report released April 1.

In 2010, the company netted $13.4 million, the report stated. The year before, they pulled in $13.9 million.

"We remain in a continuously challenging fiscal position despite the stronger-than-expected performance this year," President and CEO Christopher Aadnesen wrote in the report.

Times have been tough for the railroad over the last several years. From a high of $16.3 million in 2007, the company's net income dipped to $12.6 million the following year.

To cope with the loss, the railroad had to lay off 127 workers. In 2009, the railroad actually managed to improve its net income, pulling in $13.9 million.

Recently, the railroad has reinstated a handful of the laid off workers, Aadnesen said, but it doesn't plan to take them all back.

Last year's net income represents a slight dip from 2009, mirroring a general small downtick in freight and passenger revenue.

According to the report, the largest single source of operating revenue for the railroad is its freight revenue. Freight revenue was down slightly more than $600,000 from 2009.

Hauling refined petroleum products, including jet fuel, from the Flint Hills Resources refinery in North Pole constitutes the largest share of the company's freight business.

But the refinery in 2009 rolled back production of jet fuel following a drop in air travel through Anchorage.

Still, the drop in jet fuel has been offset to some degree in other areas, Aadnesen said, particularly in the carriage of coal from a mine in Healy to a deepwater port in Seward. Aadnesen has previously said that shipments of the coal have been increasing in recent years.

In 2008, the railroad handled nearly 750,000 tons of coal, he said. In 2009, that number went up to roughly 850,000, and last year the railroad handled approximately 970,000 tons.

"And that offset decreasing traffic and decreasing market share from a railroad standpoint for Flint Hills refinery products," he said.

But despite a slight drop in revenue and small downticks in specific areas, the railroad overall has been successful in increasing efficiency dramatically over the last year, officials said.

"Our original budget was prepared last fall of 2009," said Wendy Richerson, controller with the railroad. "And so we kind of were able to expand the revenue and contain the costs, and that resulted in a higher net income than projected."

One of these methods has changed the way the railroad goes about actually getting that Healy coal to Seward. Traditionally, 67-car coal trains had to be divided into two separate segments to make it over Grandview Pass along the trip, due to the 3 percent grade.

Primarily, the three locomotives used to power the trains were clustered in the front.

But by increasing the number of locomotives to seven, and by inserting some in the middle of the train and in the back as well, the trip can be made in one run on a 75-car train, the railroad said.

The increased efficiency has led to a more than 150 percent increase in coal revenue since 2008, the report stated.

Potential losses were recouped after the railroad recovered $4.2 million in a settlement with the federal government to reimburse the costs of investigating environmental degradation that occurred under federal ownership.

This came alongside a $4 million settlement with a contractor for defective rail welding, according to the report.

In terms of the future, passenger service is looking better but returns from the Flint Hills freight are uncertain.

Passenger reservations are up so far this year over last, according to both Aadnesen and Steven Silverstein, the railroad's vice president of business development.

Initial confidence on the part of the railroad that Flint Hills would increase production this year has been stymied by revenue lost in the temporary shutdown of the trans-Alaska oil pipeline that resulted from a leak discovered early January, Aadnesen said.

The rising price of oil also has affected production.

"The higher that gets, the less margin they have, and they cut down production when oil prices get high. So we're experiencing that again," he said.



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