A drop in short distance fares helped boost ridership for Brightline in South Florida in August while it was able to raise prices from a year ago for its longer route with Orlando.
Brightline’s ridership kept growing last month as it offered cheaper tickets between stations in South Florida. The train service raised fares for its more lucrative long distance trips servicing Orlando last month. That helped increase revenue as Brightline continued looking to sell a “substantial” part of the company, according to its monthly ridership report.
Total ridership was up 21% in August on Brightline compared to a year ago. Two-thirds of its passengers rode between South Florida and Orlando on what the company refers to as its long distance route. Average fares for those passengers rose 6% from last summer.
Fares for Brightline’s shorter haul service to stations between Miami and West Palm Beach fell 20% as the company cut fares in hopes of attracting riders. It marketed $15 weekend fares and $12 fares between West Palm Beach and Boca Raton at times during the month.
The pricing strategy appeared to work as short distance ridership jumped 34% in August versus a year earlier.
"I think they're building a good base of demand,” said John Miller, chief investment officer of the credit municipal team at First Eagle Investments. The firm owns about $1 billion of Brightline bonds.
Since opening its service to Orlando, Brightline has adjusted its efforts to concentrate on longer trips with higher fares. That shift has resulted in faster growing long distance ridership this year compared to South Florida-only ridership, which is up just 2% year-to-date.
Total ridership so far this year has grown even as Brightline runs fewer trains. It has been adding cars to its trains. It experimented with a 10-car train for two weeks in August “to evaluate how best to utilize capacity and enhance service during peak travel times,” according to the company’s August ridership report releases for bond investors. It expects to make schedule changes in October.
I think the most bearish view is currently embedded in today's (bond) pricing.First Eagle Municipal Credit Team Chief Investment Officer John Miller
Brightline has been adding cars to its trains this year, increasing capacity.
It has added 20 cars to its rolling stock in the past year, all of them the lower-priced Smart fare class. Miller thinks that has held down the service’s average fare since it hasn’t expanded its Premium inventory. “There's pent-up demand that they're not able to fulfill,” he said.
Brightline expects to add 10 new Premium-fare class cars before the end of the year. That will double the service’s higher-priced seat capacity, which Miller believes will help boost the company’s average fares in the months ahead.
Premium ridership has fallen this year for long-haul trips with Orlando and shorter trips between South Florida stations while passengers paying the lower priced Smart fares has increased.
“ The ability to accommodate the growth and demand has all come in the Smart (fare) category,” Miller said.
Under pressure
Overall, Brightline revenue is up 13% this year thanks to its longer distance business and other sales like food, beverage and luggage fees. Short haul revenue is down 8%.
The company has been under pressure to improve its financial performance. Several bond rating agencies cut their judgment of Brightline’s bonds this summer over worries about ticket prices and the firm’s spending trends.
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The company deferred payment of interest on some of its loans in July. Earlier this month, its 2024 tax-exempt bonds traded around 63 cents on the dollar, a substantial drop from the most previous trade in June around 95 cents on the dollar. The lower price reflects growing investor concern.
Miller said the market reaction to Brightline bonds “implies a very bearish view.”
The passenger rail service has been largely funded through tax-exempt bonds. Brightline Holdings total long-term debt was $4.4 billion at the end of last year. First Eagle Investments owns several different vintages of its bonds.
“The market initially said, ‘Okay, this is going great. This is going to work.’ Then all of a sudden, ‘This is not gonna work,” Miller said. “I think the most bearish view is currently embedded in today's (bond) pricing.”
Brightline releases monthly ridership and revenue data for its lenders. The data does not include details on the company’s expenses or financial operating performance.
However, when the company refinanced $985 million of its bonds in August as they neared maturity, the financial filing included disclosure that Brightline lost $60.2 million in the first quarter of the year. That was an improvement from a year earlier, though, when it ran a net loss of $116 million. About half of Brightline’s loss was due to interest paid on its borrowings. The train service ran an operating loss of $30 million in the first quarter.
For months, the company has been working to attract outside investors for the first time.
“Brightline continues to actively progress the planned issuance of a substantial amount of equity, with a global process underway engaging with potential strategic partners,” it said in its August ridership report.
Any sale of part of the company would mark a new chapter in Brightline’s story.
