FedEx is scaling back the number of flights it operates and putting aircraft in temporary storage to offset falling revenue from sinking e-commerce demand sinks following a pandemic boom.
The express delivery giant in October eliminated eight to nine daily international flight frequencies and about 23 domestic frequencies to help achieve $2.2 billion to $2.7 billion in accelerated savings after announcing a steep drop in quarterly earnings, CFO Mike Lenz said Tuesday at the Baird Global Industrial Conference. The bulk of the savings will come from the Express division.
The integrated express delivery provider plans to chop eight to nine more domestic frequencies this month and is temporarily parking aircraft because fewer are needed, he added. The plan is to structurally lower costs by $4 billion starting in fiscal year 2025, with the air network a strong candidate for more streamlining.
FedEx (NYSE: FDX) is also consolidating its Ground network. And on Saturday, FedEx confirmed it is enacting driver furloughs in its less-than-truckload arm, FedEx Freight.
The planes being parked are mostly older aircraft with low ownership costs. Not flying them defers the next major maintenance event, saving money, Lenz said. “It’s an operationally and financially flexible way to manage capacity.”
The speed at which consumer spending shifted from goods to services caught the company by surprise.
“Unquestionably, the commencement and the speed and depth of that shift was beyond what we had certainly anticipated,” Lenz explained. “That’s why we have been taking down trans-Pacific flights.”
FedEx expected demand for premium shipping service to revert from pandemic highs, when consumers fueled by government stimulus programs spent on home goods while social distancing, but not until the second half of 2024, said Lenz.
As COVID travel barriers in Asia come down, Lenz said FedEx will take advantage of increased belly capacity on trans-Pacific passenger service to move deferred shipments, which are the primary casualty of FedEx’s freighter pullback.
FedEx’s finance chief said the cuts in trans-Pacific capacity will be permanent.
“We were up to 16 flights across the Pacific, that was the plan. There’s no scenario where we envision coming back to that level of trans-Pacific flying, even if you were to see a shift. Every downturn begets an upturn, but even in that circumstance we wouldn’t go back to that level of flying,” Lenz said.
FedEx will retire its oldest three-engine widebody aircraft, the MD-10s, at the end of the calendar year, months earlier than originally planned, and the MD-11s will be terminated next.
One network strategy
Lenz said the downturn in demand and explosion in e-commerce, which now represents nearly 100% of parcel market growth, illustrate the importance of the Network 2.0 initiative launched over the summer to improve productivity by harmonizing independent express, ground and truck networks.
But the change won’t happen overnight and has to be done carefully because the units have different systems and assets, and deploy people differently, the CFO said. An express parcel or a container from an Express airplane can’t simply be injected into a Ground station, and straight trucks can’t easily go into an Express facility.
“We will spend some cap ex there to get the facilities cross-utilized” within the broader plan of reducing annual expenditures by up to 1.5%. “We have to be thoughtful about sequencing it and be thoughtful that it’s a network and we just can’t singularly make one piece of it work while the rest of it operates another way,” he said.
(Correction: An earlier version of this story misspelled Mike Lenz’s name.)
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Doug Gibson
Gregory Schrier, I went to work at Federal Express in April 1978 through June 2010. Retired aircraft mechanic. Believe me when I say during that time PSP was very much in place. I met Mr. Fred Smith several times. Anything you want to make the company better was no problem. I even got into a beer guzzling contest with him one Christmas party–he won. I started before they got the big airplanes. Started with the Falcon DA-20 and graduated with the MD-11.
DAVID HARRIS
amazon delivery sucks id trust fed-ex and ups more with my packages
Derek
Yet they STILL can’t deliver a package on time.
Tim
So how many flights did FedEx add during the pandemic to meet the incredible demand for Asia to US freight? Is this just an adjustment back to more normal operations? What about the amount of revenue that was produced during the pandemic? Seems to be a very narrow look at FedEx operations.
Faisal
Buying white Elephant TNT was the biggest mistake in history of FedEx. Surprisingly FedEx is now Number 3 player in such a high demand and revenue market.
Phillip Beach
FedEx losing our. They charge to much to ship. And they treat their employees badly. I worked for FedEx ground for almost 4 yrs. They don’t care about being limited (by dr.orders). They break your back then kick ya out the door. I walked out !! Took me 4 yrs. And my back won’t allow me to work because of FedEx. FedEx needs to treat their employees a lot better. Oh and customer service. Omg. I’ve seen packages thrown, stomped, etc. And good luck on getting any money back from your damaged insured package cause they don’t care and blame it on drivers. Who do not work for FedEx. They are contracted workers
Gregory schrier
FedEx is losing business because it changed it’s People – Service – Profit motto to Profit – Profit -Profit ,,,, They dummed down the company so idiots can do the job and hired a bunch of idiots to do the job and now these idiots they hired don’t give a crap about the company and do whatever they want without any repercussions from management,,, I could go on and on… Retired after 32 years there…
I seen
Ba ba arupa is what foreign black people driving as their own trucking company said after they accused everyone of taking their freight while saying this is our freight we kill you next time you haul a load here we’re taking over