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The Alaska Railroad’s Centennial

by Jun 5, 2023Magazine, Transportation

Coby Brock | Alaska Railroad

 

100 years of passengers, freight, and real estate

Catch a glimpse of the Alaska Railroad snaking its way south to Seward or crossing Hurricane Gulch between Talkeetna and Denali Park, its passengers snapping photographs from a glass-domed car or open-air viewing platform, and you’d be inclined to think the railroad is just another piece of the Alaska tourism puzzle.

But the Alaska Railroad, which celebrates its 100th anniversary this year, is so much more. The last full-service railroad in the country, it’s a vital piece of infrastructure that literally and figuratively keeps Alaska moving. Each year, the railroad transports tourists and residents, delivers freight, and develops its vast real estate holdings to benefit both the railroad and Alaska’s economy.

“The railroad is a big, big deal all around for residents of Alaska… the passenger and freight and real estate sides,” says Alaska Railroad Corporation President and CEO Bill O’Leary, who in 2013 became the first lifelong Alaskan to hold the position. “It’s really critical for Alaska to have this infrastructure in place.”

“The tough thing about being 100 years old is we have some of the original infrastructure… It’s been maintained well, but a lot of care and feeding goes into that, so that’s been our focus of late and going forward.”

—Bill O’Leary, President and CEO, Alaska Railroad Corporation

The infrastructure, which supports the railroad’s combined passenger and freight service, includes 656 miles of track; 170 bridges and culverts; 793 freight and passenger cars; rail yards in Seward, Whittier, Anchorage, and Fairbanks; 10 rail depots; and 36,000 acres of land.

“People have a tendency to think about railroads as, ‘How quaint, how 19th century,’ but so much of this is driven by cutting-edge type technology now,” O’Leary says. “It’s quite incredible what modern railroads are about. It’s not your grandfather’s railroad anymore.”

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Quasi-Public Corporation

The Alaska Railroad was officially born on July 15, 1923, when President Warren G. Harding drove the golden spike in Nenana, signifying the end of construction. But the history of the tracks stretches to 1903, when the Alaska Central Railway built the first railroad in Southcentral. Headquartered in Seward, the railroad extended 50 miles north; seven years later, it was renamed the Alaskan Northern Railway Co. and extended another 21 miles to Kern Creek, near Girdwood.

In 1914 the federal government, looking to access Interior mineral deposits while skirting a private railroad out of Cordova, authorized $35 million to construct and operate the Alaska Railroad. The project extended the tracks from Seward to the Tanana Valley Railroad yard in Fairbanks and relocated headquarters to Ship Creek, which became the town of Anchorage.

Being a full-service railroad means AKRR handles both passengers and freight. No other rail company in the country still does both.

Glenn Aronwits | Alaska Railroad

The railroad’s first profitable year was 1938, and World War II saw profits continue to grow as the railroad hauled military and civilian supplies and materials. Car-barge service out of Whittier began in 1962, followed by train-ship service in 1964. Train-ship service, managed by Lynden Alaska Marine Lines, enables rail cars to be transferred directly from train to barge in Seattle for transport to the railroad’s Whittier dock; the rail cars are then loaded directly from the barge to the railroad for delivery to any destination along the railroad’s route.

In the ‘70s “the railroad was in really bad shape, it was falling apart,” says Jim Kubitz, vice president of real estate and facilities at the Alaska Railroad. “The feds wanted to get rid of it.”

“It’s designed to smell, taste, and feel like private industry, but it is still very much owned by the state… By and large we make our money the old-fashioned way—we go out and earn it.”

—Bill O’Leary, President and CEO
Alaska Railroad Corporation

The state, however, “recognized the railroad’s importance as a key piece of infrastructure,” O’Leary says, and in 1985 bought it from the federal government for $22 million.

The quasi-public Alaska Railroad Corporation (ARRC) oversees railroad operations and management. Headed by a seven-member board of directors appointed by the governor, the ARRC is tasked with ensuring the railroad provides safe, efficient, and economical transportation and real estate services that grow and support development opportunities. State law mandates that the ARRC operates as a self-sustaining entity, which means it is solely responsible for its legal and financial obligations.

“It’s designed to smell, taste, and feel like private industry, but it is still very much owned by the state,” O’Leary says. “By and large we make our money the old-fashioned way—we go out and earn it.”

The railroad earns its revenue through a mix of freight and passenger services, its real estate holdings, and federal grants.

Freight from the Lower 48

When it comes to revenue, the railroad’s cash cow is its freight service. In 2022, the railroad earned $110 million, or 44 percent of its annual revenue, transporting 3.7 million tons of freight. Freight service is provided from the railroad ports in Whittier, Seward, Anchorage, and Fairbanks.

Alaska Railroad (AKRR) operations budget analyst Scott Winther explains, “It’s groceries and dry goods, supplies to Home Depot and Lowe’s, that type of freight, as well as other project freight,” which can include goods like lumber, heavy machinery, and rebar.

The Alaska Railroad also transports materials directly from the Lower 48 through the Alaska Rail-Marine Service. Working in partnership with Lynden Alaska Marine Lines, materials purchased in the Lower 48 are delivered to the railroad’s Seattle dock and loaded onto the barge via Lynden’s rail barge. The patented system allows rail cars to roll between train and barge, which improves efficiency and increases the amount of cargo that can be shipped.

“The barge can hold fifty rail cars on a good day,” O’Leary says. “It’s a tremendously efficient and cost-effective way of transporting heavy bulk cargo.”

Materials for the mining industry and chemicals for the oil fields are the major commodities shipped via rail barge, Winther says. Kubitz adds, “We haul a lot of powdery cement. People just don’t realize how many common things the railroad transports.”

The railroad’s freight service also makes it possible to deliver items that would be impossible to move by any other mode of transportation.

“If it wasn’t for the railroad, there wouldn’t be a windmill farm up in Healy,” Kubitz says. “The wind turbine arms were carried in special rail cars that were long and arched in the middle.”

There are secondary benefits to the railroad’s freight business as well. One train can carry the equivalent of hundreds of truckloads. Winther says trailer companies typically move between 150 to 200 trailers per week between Anchorage and Fairbanks and another 50 per week out of Whittier. Minimizing the number of trucks on the road reduces wear and tear on Alaska’s highways, reduces greenhouse gas emissions, and eliminates the challenges of transporting freight during the winter.

Combined with passenger services, which reduces the number of motorcoaches transporting tourists across the state each summer, railroad service translates to fewer headaches for motorists traveling by car.

“Anybody who has ever been stuck behind a convoy of buses heading down to Seward or up to Denali knows that rail is a tremendously efficient way of moving passengers,” O’Leary says. “It’s a tremendously efficient and cost-effective way of transporting heavy bulk cargo.”

Alaska Railroad

The Last Flag and Whistle Stop Service

The railroad’s passenger service is its most visible and second most profitable; in 2022, the half million passengers it served brought in $45 million, or 18 percent of its annual revenue.

The railroad serves independent travelers who want a leisurely, scenic way to travel anywhere from Seward to Fairbanks. It also partners with the cruise ship industry to transport passengers from the cruise ship docks in Seward to its train depots, including those in Anchorage, Talkeetna, and Denali National Park and Preserve.

But not all the railroad’s passengers are tourists. Special holiday and event trains during the off-season cater to locals, and the train’s flag and whistle stop service, the last of its kind in the country, provides Alaskans access to remote locations.

“Flagstop and whistle stop service refer to operating a train on a loose schedule without really standard scheduled stops,” explains Meghan Clemens, AKRR marketing communications manager. “We will bring the train to a stop when a passenger asks the conductor to let them off at a given post, and we’ll bring the train to a stop if we see someone standing along the tracks, flagging them down. It allows homesteaders with properties off the road system to access their cabins and get to properties they couldn’t get to otherwise.”

Railroad partnerships also provide unique opportunities to access some of Alaska’s more remote locations, such as its partnership with Chugach National Forest to provide whistle stop service to Spencer Glacier, Clemens says. Passengers from Anchorage disembark at the Spencer Glacier stop, where a mile-long trail, built and maintained by the US Forest Service, leads directly from the train station to the edge of Spencer Lake.

“That’s a pretty unique opportunity that we’re able to offer locals and visitors,” she says.

Real Estate Development

If freight is the railroad’s bread and passengers are the butter, its real estate holdings are the mid-afternoon snack that help tide it over. In 2022, the railroad’s real estate development accounted for 10 percent of its operating revenue.

The bank of the beautiful Chena River, on which the Alaska Railroad Corporation owns Chena Landings. Chena Landings is currently zone MFO, or Multiple Family Office, and the railroad is accepting offers for residential lots, most of which have Chena River frontage.

ClaudineVM | iStock

“That land base is something that’s been really critically important to the railroad,” O’Leary says. “The passenger and the freight business, like any business, has its ups and downs. It really buffers the vagaries of those cycles. It’s been a steady, consistent performer for us.”

The state’s purchase of the railroad included 36,000 acres, which includes property in Ship Creek, Chena Landings in Fairbanks, the Seward cruise and freight docks, and land adjacent to the Seward airport, Kubitz says. Of that real estate, 41 percent is devoted to railroad operations, including track beds, rights-of-way, and rail yards. The remaining 59 percent is available for development and long-term leases and permits, which are leaseholds with a term of less than five years.

Twenty-five years ago, the railroad earned $5 million a year from its leases; today, it’s approaching $13.5 million annually from leases alone. Including permit ($5.8 million) and passenger dock, wharfage, and royalty revenue ($6.4 million), all real estate revenue totals $26 million. Several factors account for the increase, Kubitz says.

“Part of that is the railroad got organized with its leases,” he says. “When the railroad was part of the [US] Department of the Interior, the leases were not necessarily done at fair market value. It was a hodgepodge. When the state took over, there was a pretty big effort to organize and enforce the leases and charge fair market value.”

“The passenger and the freight business, like any business, has its ups and downs. [Real estate] really buffers the vagaries of those cycles. It’s been a steady, consistent performer for us.”

—Bill O’Leary, President and CEO
Alaska Railroad Corporation

The railroad also benefited from increased land values and interest in development, particularly in its Ship Creek holdings, “the high-value money in our land,” Kubitz says.

One of those recent developments was with The Petersen Group, which entered a 99-year lease to develop twenty-two townhome-style condominiums on railroad land in Ship Creek, on the edge of Downtown Anchorage. Called Downtown Edge, the development is part of a larger mixed-use project in the Ship Creek Redevelopment zone that will include retail and restaurant space, parks, and trails connecting to the Tony Knowles Coastal Trail.

The railroad’s real estate also “provides an unknown communications amenity to the State of Alaska that people don’t think about,” Kubitz says, by granting utility companies permits to lay fiber optic cables, pipes, and other conduits along the corridor’s 200-foot right-of-way.

There are no restrictions placed on the railroad’s land development, but O’Leary says decisions are guided by its overarching goal of supporting and growing economic development opportunities for the state.

“It’s not something we do from a ‘build it and they will come’ approach,” O’Leary says. “We want to be there for our customers, and we want to be there for the state of Alaska. Almost everything we do falls into that category.”

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Welcome to the 2024 Best of Alaska Business special section! For the ninth time we invited our readers to tell us which Alaska businesses they love the most, this year in forty-four categories. Throughout the month of March, you told us who should be featured in these pages, and we're thrilled to be able to publish the results.
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