Planes, Trains and Data

It was recently announced that the Union Pacific railroad was seeking to merge with Norfolk Southern.

The deal would create the first U.S. transcontinental railroad.

Source: https://www.foxbusiness.com/lifestyle/union-pacific-norfolk-southern-merge-creating-first-us-transcontinental-railroad

What caught my eye in the announcement was that Norfolk Southern was being valued at an $85 billion  in the deal.

If approved, the combined Union Pacific/Norfolk Southern could be valued at more than $250 billion.

BNSF (Burlington Northern Santa Fe) is the other railroad industry giant. It is privately owned by Warren Buffet's Berkshire Hathaway but is valued individually at $200 billion according to one analyst.

CSX is the other major U.S. railroad and is valued at $66 billion at its recent stock price.

In total, these U.S. rail companies have a total market cap value of about a half a trillion dollars.

How does the market value of what many see as the boring and old rail business in the United States compare to the more glamorous and newer airline business?

Here are the current market values of the leading U.S. air carriers

American           $8 Billion 

Delta                 $35 Billion 

Southwest         $16 Billion 

United               $29 Billion 

This chart puts it in a little better perspective.

You begin to understand the significance of the Union Pacific/Norfolk Southern deal when you realize that Norfolk Southern is being acquired at a price that is almost equal to the value of all four of the major U.S. air carriers.

What else can we conclude from this data?

It appears to be a lot more profitable to transport freight than people.

This data also does not suggest an optimistic outlook for high speed passenger rail in the United States.

If the rail companies saw high speed rail as a lucrative enterprise these private sector companies clearly have the experience and financial capability to make it happen.

The private sector obviously does not see high speed rail as economically viable.

Instead, liberals want government to fill the void and provide high speed passenger rail service anyway.

How has that worked out in California?

In 2008, California voters approved a proposed high speed passenger rail line between Los Angeles and San Francisco that voters were told would cost $33 billion.

17 years later not one mile of passenger track is in service and the cost is now projected to exceed $128 billion for a scaled down plan.

It was originally stated the high speed rail line would be operational by 2020. New estimates put that date into the 2030's if it gets completed at all. 

That is looking more unlikely as the Trump administration is pulling federal funding for the project which has already seen $7 billion of taxpayer dollars go to California.

Of course, all of this was predictable from the start.

In fact, I wrote a blog post in 2012 that the high speed rail project looked to be "a train to nowhere" and quoted from an article by Joel Kotkin titled " The Great California Exodus".

Gavin Newsom has replaced Jerry Brown as Governor since that time.

Things have only gotten worse in California in the last 13 years.

Mr. Kotkin calls the runaway-cost train "classic California." "Where [Brown] with the state going bankrupt is even thinking about an expenditure like this is beyond comprehension. When the schools are falling apart, when the roads are falling apart, the bridges are unsafe, the state economy is in free fall. We're still doing much worse than the rest of the country, we've got this growing permanent welfare class, and high-speed rail is going to solve this?"

The first clue to the liberal Democrats should have been when Union Pacific did not see the great opportunity to build its own high speed line between LA and San Francisco years ago.

Merging with Norfolk Southern is a much better deal.

Sadly, for what California is projected to spend on its high speed rail project, it could have acquired all the major U.S. airline carriers and had money left over,

Or it could have bought Norfolk Southern and Delta (or United). Or both American and Southwest.

The numbers and data always tell a much bigger story than you can imagine.

Why is it that liberal Democrats always seem to ignore reality?