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 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 US$2.2 billion to $2.7 billion in accelerated savings after announcing a steep drop in quarterly earnings, CFO Mike Lentz said recently 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.
The planes being parked are mostly older aircraft with low ownership costs. Not flying them defers the next major maintenance event, saving money, Mr Lentz 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, report New York's FreightWaves.
FedEx expected demand for premium shipping service to revert from pandemic highs, when consumers fuelled by government stimulus programmes spent on home goods while social distancing, but not until the second half of 2024, said Mr Lentz.
As Covid travel barriers in Asia come down, Mr Lentz 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,"Mr Lentz 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.
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