MIAMI — Florida’s Brightline announced Friday that it would jettison years of branding to become Virgin Trains USA [see “Brightline enters branding, marketing partnership with Virgin Group,” Trains News Wire, Nov. 16, 2018], but that turned out not to be the company’s only big news: Later Friday, it filed a prospectus for an initial public offering with the Security and Exchange Commission.
The 200-plus page document is available here.
The filing reveals details of the economics of current operations; previously opaque strategies the newly-named Fortress Investment Group subsidiary hopes to employ in financing, constructing, and operating its expansion to Orlando and Tampa, Fla.; as well as building out the Las Vegas, Nev., to Victorville, Calif., XpressWest franchise [See “Brightline bets on Vegas,” Trains, December 2018].
Some highlights from the filing:
— With service extended from Fort Lauderdale, Fla., to Miami in mid-May and frequencies increased in mid-August, Brightline ticket revenue jumped $1.5 million in the second quarter to $2.9 million in the third quarter, on a nine-month operating loss of $87 million.
— Company debt stands at $625 million.
— The Siemens trainsets for the existing West Palm Beach-Miami service cost $260 million, and the additional rolling stock for the Orlando extension is pegged at a similar amount.
— It appears the Orlando and Tampa build-outs will be concurrent, because the company expects ridership and revenues to “stabilize” by early 2024 after a two-year “ramp-up.”
— The Tampa expansion is expected to cost $1.7 billion; Las Vegas-Victorville is tabbed at $3.6 billion.
— Ridership projections were scaled back about 8 percent from those originally estimated in the Nevada’s “High Desert Corridor Study” because the route will now be built to a lower-speed, 125-mph standard.
— Expected ticket prices are $100 between Miami and Orlando, and $35 Orlando to Tampa.
— Virgin Trains USA says it will seek to operate its brand in other corridors, such as Dallas-Houston, even though that market already has an established high-speed rail entrant.
The filing, which is being underwritten by J.P. Morgan Chase and other major investment houses, provides an underlying reason for attempting to utilize Virgin’s worldwide name recognition to tempt investors in augmenting funds that Fortress’ deep pockets and private activity bond financing could not solely provide. If approved, it will be listed under the stock symbol VTUS on the NASDAQ stock exchange.
Mr. Carleton: One little known fact: In the early 60s Frisco also made a bid for Central of Georgia. SOUTHERN got it of course. I enjoy playing the “What if” merger game. Though probably lost in history but I’d still like to know what really did transpire behind closed doors and how it came to pass that the ICC approved the merger between ACL and SAL which virtually eleiminated all rail competition in Florida save the FEC on the east coast.
You’re absolutely right regarding a better fit had Southern and Seaboard merged. ACL should have merged with L&N as well as Clinchfield with Frisco grabbing the CG. This of course is my opinion which many of the experts will probably knock down. In reality, this is speculation and probably belongs on the Classic Trains forum instead.
Don’t guess you just happen to have an extra copy of your dad’s The Erie Lackawanna Story stored away waiting for this “Retired Texas railroader derailed in Deutschland” to purchase same? Though AbeBooks lists several copies at very reasonable prices, it would make that special Christmas for me, if I could obtain a personal copy from you!
My wife’s aunt in NJ was married to a railroader who was a retired E-L claim agent. I met him after being discharged from the US Army Transportation Corps in 1967. He and his Mrs., along with my new German “frau”, picked me up at the Newark airport and we stayed with them in Hasbrouck Heights before I returned to my native Lone Star State. Though I had a “Highball of fun” switching for Cotton Belt as well as ATSF, I’ve often wondered if we should have stayed in NJ. Afterall, Frank R. could have got me a job on the E-L! Not to menton, I loved their big two story frame house complete with basement, and the back yard full of squirells! They were just as nuts as I was then…shucks, I still am today!
If you currently reside in Florida I plan to visit my nephew in Jax as well as friends in the Tampa Bay area next year. Talking “shop” over lunch with you would be rail-fan-tastic!
Regards,
Joe
Virgin also has ties to Hyperloop-One.
The LOP&G episode is something of an enigma. Here’s a seemingly unrelated point – Wouldn’t the Seaboard gone together better with the Southern Railway, and wouldn’t the CofG gone together better with the ACL? That’s arguably why the Perry line was built in the first place. So why didn’t the ACL stop the SOU from taking over the CofG? Did Tom Rice and Bill Brosnan agree in advance on how to divide the territory? In that case, was the SOU demand for a line to Tampa just a bluff? But if it was a bluff, then why did the SOU take over the LOP&G? Or was it done to signal a change of intention on the part of the SOU? That’s the enigma.
You are correct that my father was Paul Carleton of D. Carleton Rail Books. The Erie Lackawanna Story was his magnum opus.
Mr. Carleton: Right you are. Need your assistance due to memory loss. Didn’t SOUTHERN add the LOP&G to their family tree? Could this have possibly been a move to obtain entrance to Tampa Bay via the Perry Cut Off? If so, no wonder SCL ripped it up.
Please permit me to ask if your father was Paul Carleton, publisher/author of many fine railroad books? My personal copy of The Erie Lackawanna Story was loaned out to my best friend, the late R.E. Taff, of Tampa. When he suddenly died in 2006 the book didn’t make it back home.
Regarding the photo of a Virgin train at Edinburgh Waverley under the VTEC brand (Virgin Trains Eats Coast) in the previous report, please note that Virgin has dropped the franchise of the East Coast Main Line (London King’s Cross to Edinburgh and Scotland) from June 24, 2018. The ECML is now (temporarily?) directly operated by the government under the LNER brand, using the historic London & North Eastern Railway name.
Mr. Toth:
Whether you realize it or not, you are actually explaining why the SCL had such a commitment to passenger service. While freight customers around the Tampa Bay may have been outraged by the degradation of their freight service, their pleas were drowned out by the praise being heaped on the SCL for their commitment to passenger service. At the time most other carriers were ambivalent about their passenger service, or worse. Then Amtrak came around at just the right time for the SCL to walk away from the passengers. (In fact, after Amtrak the SCL was then able to briefly bask in the glow of the original Auto-Train til their under-capitalization caught up with them.)
The SCL just needed enough good will to keep the ICC from reopening the SCL merger docket regarding the Southern Railway’s petition for a line to Tampa. Note that the Perry Line, mentioned in earlier comments, connected directly to the Central of Georgia, which had become a Southern Railway property. Of course, the SCL tore the Perry Line out. But that’s okay says the group-think, the Perry Line wasn’t a passenger line!
A Second Thought: Perhaps a better definition regarding the way SCL began to neglect any possible growth to St. Petersburg and environs should be called “Rip Up”. Fact remains, the tracks were ripped up while former dedicated customers previously served by ACL and SAL were ripped off from the Get Go!. It would be interseting to compare the SCL map of Florida on M-Day, July 1, 1967, to that of CSX today, had SOUTHERN won the right to “invade” the greater Tampa Bay area as a condition to the ACL/SAL merger.
Can’t help but make a man wonder if SCL didn’t “buy” the ICC much in the same way I contend that D&RG did when the government shut down Colorado Midland during WWI, leading to CM abandonment of all lines save the track from Colorado Springs to Manitou Springs, up through Ute Pass, and on to Divide, which Midland Terminal received so it could continue rail service to the Cripple Creek mining community.
Mr. Grant: BRAVO! You are the first gentleman who has professionally addressed the acute problem regarding the rail disaster that occured in Florida after the ICC approval of the merger between ACL and SAL that created SCL on July 1, 1967. I have mentoned on Trains blogs for several years now about the major abandonments, including the famous ACL Perry Cut Off, Ocala Division north out of Tampa, the St. Pete “Rip Off”, and much much more. I always received negitive comments to my messages.
It should be remembered that Southern Railway had demanded a route to serve Tampa as a result of the merger that created SCL. I never have found out why this demand was rejected. Perhaps you sir can shed some light on the subject?
OK, I didn’t attend college. I did proudly serve three years in the US Army Transportation Corps in Germany ending a 40 year railroad career that began on the Cotton Belt in Texas (1967-68), followed by more of the same with ATSF (1968-76) also in Texas, retiring in 2010 with Deutsche Bahn in Nuremberg, Germany.
I lived in Tampa from 1959-1964, excluding a short time back in Texas during 1961, graduating from T.R. Robinson High School, Tampa, in 1964, followed by military service.
My late best friend, Tampa native, R.E. Taff, (RIP) and I often discussed the SCL mismanagement after M-Day. The logical move in Tampa would have seen construction of a new yard on the ACL Ocala Division north of Tampa (land was still available off of the ROW at the time), closing Uceta (ACL) and Yeoman (SAL). opening the land to a new industrial park at this location served by rail off both the A-Line and S-Line.
As a result of such gross negligence to look towards the future of the greater Tampa Bay area, as you mention, now requires trains to detour via Lakeland to Jax, thus placing the Port of Tampa and Port Manitee at a huge disadvantage when compared to the east coast ports located on the FEC.
Item: If I ran a railroad that served SW Florida I’d operate a “cruise train” that would begin in Orlando, serving Tampa with a newly constructed art deco station east of the city, and terminating in Ft. Myers. It would be known as The Glades!
If wishes were goobers I’d be a peanut patch.
Happy Thanksgiving
Some feedback of my own on the affiliated businesses;
Brightline will be the sole owner of the Cocoa-Orlando ROW and will be collecting revenue from the FEC to run freight over it during off hours. The opposite of the FEC ROW owned by Ferromex, where Brightline has segment LLC’s. That revenue will provide a source of ROW maintenance.
Ferromex will be responsible of the ROW where Brightline is not the owner. They (Brightline) simply have a contract to run trains over it.
Flagler Development is owned by FIG/Softbank, the majority owner of Virgin Train USA, so the real estate cross revenue will continue. FIG also owns Parallel, which owns and manages the fiber along the ROW and provides bulk broadband for the in car wifi and Brightline for train control and services for any other carrier who wants to lease. Parallel also leases access to their cell towers on their ROW.
When the Tampa link is complete to Orlando, Parallel will have a fiber network tying in 4 major metro’s in Florida (Miami, Tampa, Orlando, Jacksonville).
If/when Virgin Trains does build a LA-LV ROW, they will install similar services. SP developed something similar on the Sunset Route in the Anschutz era.
One service that will be offered is express package space on the cars. Not a mail car, more like room in the luggage hold for containers of express ship. Available to Amazon, UPS, FedEx, USPS. Since the trains will have a large amount of frequency between 3 metros, this will serve as another income source. Not too different than what Southwest Airlines does with USPS. Not a huge revenue source, but a consistent one.
The biggest demerit to passenger rail has been its inability to cover its costs through the farebox. For years rail entities paid the way via freight to cover its large capex. Now someone has come up with a way to cover the farebox shortage with other affiliated entities that can feed off of each other to increase the “total revenue” acquired through the service. This is where people lose sight of what Brightline/Virgin Trains USA bring to the table in operating. They only look at the farebox and the number of people and say it won’t work. They are only adding 1 part of the pie.
I don’t think this will ever be “subsidized” as a state run operation or sold to the state government. If it couldn’t be made to work privately, why would a state want it? This is why Scott killed HSR in Florida, The Feds were paying the upfront capex, but the state DOT was on the hook to prop up the farebox. WIth little or no other commercial sources to tap into (only the taxpayer), it was a bad deal all the way, no matter what anyone says otherwise.
Fortress isn’t going to separate the train operations division from the real estate division, as both rely upon one another. AAF’s business model is Transit Oriented Development. ToD is based upon the observed fact that properties that are well served by transit generally are worth – rents, sales, etc – about 20-80% more than similar properties that aren’t.
So… if TrainCo is separate from PropertyCo, then TrainCo will be less secure and risk going bust during more difficult periods, with the result that PropertyCo’s land holdings no longer has the added value of TrainCo’s stations. PropertyCo then finds it loses between 10 and 40% of its rental income.
If the companies stay together, then PropertyCo can spend some of that 10-40% on TrainCo, covering any losses during bad times for TrainCo. Both companies benefit.
An IPO without both together will fail.
I do think long-term that the higher speed network will be an asset for the State of Florida. It is just hard to get over the profitability hurdle given the prior track record of passenger rail. I personally would love to buy a State of Florida bond if they were building the insfrastructure, or issuing the bonds to buy the infrastructure from VTUSA, if the State of Florida would ever become the owner. It is not a bad thing if passenger rail ends up being a State-provided service similar to the Hiawatha Service between Chicago and Milwaukee.
Consider that the Virgin Group is headed by British billionaire Sir Richard Branson and Brightline will soon undergo a name change to Virgin Trains USA and you’ll have the Savior of the American passenger train!
Now if the Virgin Group can be convinced to start a joint venture with Austrialia’s Great Southern Rail the United States can undergo a reniassance in long distance travel equal to many of the fine trains that operate in Europe, Africa, Asia, but not to forget the Rocky Mountaineer in Western Canada.
ALL ABOARD…without Amtrak!
Paul:
Interesting analysis. The only thing I can add is this: if VTUSA fails, then FEC will utilize the upgraded network / including extension to Tampa, to build-out an option to CSX in FL. the down-sizing that happened under SCL has destroyed what could have been a far more efficient rail operation in FL. The lines south of Plant City to MIA/NAP/FTM have either been lifted, down-graded, sold-off or woefully underutilized (sit in Sebring for a day and count the trains on CSX!), that FEC could build a great franchise incorporating the former CSX panhandle route to a BNSF interchange. I can foresee in ten-fifteen years the Perry-cut-off being resurrected if FEC leverages the build-out to MCO/TPA and abandoned SCL corridors north/northwest-ward.
SW Florida is growing so rapidly; we no longer have adequate rail infrastructure in-place to support the heavy haul/HAZMAT/Natural gas moves. having to go via JAX is insane, whether FEC or CSX! Sometime in the future, if it’s not too late, SWFL will regain some rail infrastructure that will alleviate issues with movement of material, let alone people, by hardening a rail route that stays WEST of Orlando/Ocala to exit the state.
Uh, oh. If the rail operation had to wear the debt of construction and is not benefiting from the real estate sales along the line, this won’t turn out well. This is starting to sound like the transit/RE development of 100 years ago. Build the line. Sell the land at windfall prices. Dump the transit line.
@JosepnToth’s remarks are well put. Privately operated passenger trains can succeed with the right investment where government fails.
Finally we can invest in this. The nearest we were able to in the past was to buy FIG, which… there’s a lot of stuff they do I don’t care for. And that option disappeared when Softbank took over.
The Virgin brand becomes interesting if you think of tourism from the UK, and other parts of Europe. Fly Virgin to Orlando, spend a while and make a side trip to Tampa, next on to Miami by Virgin train, spend some more time, and then return home by Virgin. Make it all one package and include the hotel and amusement parks. Balance the airline traffic by starting the trip at Miami for half the tourists. Make the whole thing a Virgin experience.
Piggybacking on JF Turcotte’s comments and Gerald McFarlane’s, the Fortress Real Estate Portfolio will almost certainly not be part of the Virgin Trains USA LLC. Fortress will keep those properties in their main corporate entity, reaping the benefit of all that net income, rather than having to use that net income to subsidize the almost-certain loss of the passenger train operation. Ultimately, one of two things are likely to be the fate of the VTUSA passenger service. 1. After several years of losses and the inability to maintain roadbed to 125 mph operation, the infrastructure will be sold to the State of Florida, and VTUSA contracted to run the service only having to cover their “above-the-rails” cost as Virgin Trains has to do for their services in the United Kingdom. Florida taxpayers will subsidize the State of Florida infrastructure entity, or 2. The Federal Government will step in and purchase the whole entity and assign it to Amtrak to be operated as a “Southeast Corridor” just like the Northeast Corridor, with Federal taxpayer subsidies to cover operating losses and pay for any infrastructure maintenance and renewal when necessary. I suppose technically there is Option 3, which is that Virgin Trains USA LLC actually ends up being a “unicorn” of passenger rail service in the US in the 21st Century and operates at a level of profit sufficient to cover costs of capital, operations, and deliver returns on invested capital to Fortress. Other than a tourist-type operation such as Durango & Silverton or Grand Canyon, that type of profitable passenger operation is very rare in the United States.
JF Turcotte,
In this case, if you have your own land to build on for real estate purposes, all of the income from the business properties will be ongoing and continuing to add to the bottom line for as long as those properties are leased out, the same could be said for residential properties as well for as long as they remain part of the same portfolio.
BRAVO Brightline! It’s high time that privite enterprise prove to the braindead morons in DC that there IS a place for passenger rail in the U.S. Had Amtrak been properly funded when it was created (even 1 cent of every dollar spent on a gallon of gas nationwide would have worked) America would have a fantastic high speed rail network like Japan has had since the Shinkansen was initially placed in service in 1964 for pete’s sake!
The American rubber tire mentality has resulted in coast to coast bumper to bumber traffic and over crowded airports while many rail lines have been ripped up instead of being railbanked for future use with the intent to construct and operate high speed trains on. True, the right-of-way would require highway grade separation and new modern stations would need to be constructed but the long term investment would be adding new jobs to the economy and smooth high speed pollution free electric trains when completed.
It’s time for all Americans to live the American Dream again and put the Nightmare to bed once and for all. Help create a future, not only for our children but the generations to follow, before it’s too late. Wake up; the Eleventh Hour is here!
I wish Brightline/Virgin all the luck and success they desserve. But count me as a skeptic because there are very few examples, if any, of successful, privately-run passenger trains operating on privately-owned infrastructure which both turn a profit covering the (high) cost of capital. This economic model may have work at some time in the past, but it died at the end of WWII because of competition with government-subsidized transportation. Real-estate development ventures may sweeten the pot, but at some point, I expect that public subsidies (or takeover) may be required.
At least these people are investing in passenger rail, in cities where our government agencies are lacking. I truly hope this model works, but I will be surprised if it does work past the short term, 3-5 years. I hope these smart people have long-term plans
Other than the Orlando airport terminal, which by the way Brightline is paying a lot of rent for and future per passenger fees tomuse, none of the Brightline stations have or will be publicly funded. Brightline plans to purchase land and build the Tampa station with their own money.
It is always amazing how many people are so negative in regards to Brightline. Yet it has succeeded where everyone else has failed. Before anyone says they are in financial trouble, they say they don’t expect to break even for several more years until only after Orlando is operational.
Interesting… but looking at ticket sales and the investment, one has to wonder how extensible the Brightline model really is. Much of it in Florida is driven by (1) FEC owned property amenable to high density development (2) very favorable bonding terms (3) public expenditures at terminals. These criteria generally do not exist at other locations cited.
One has to wonder is the financial engineers are not looking to cash out in an IPO, leaving subsequent investors holding an empty bag. Happened before, many, many times.