Tuesday 27 June 2023

FedEx to shut down 29 more aircraft as shipping demand shrinks

 Global shipping giant FedEx plans to remove 29 aircraft from its fleet this year as part of a comprehensive cost-cutting initiative. This move aims to significantly decrease permanent costs and enhance the flexibility of the company's logistics network in response to the downturn in global trade.

During a recent earnings briefing, FedEx CEO Raj Subramaniam announced that the company's Express unit plans to park 20 aircraft in the 2024 fiscal year while permanently retiring nine additional MD-11 freighters. However, despite the planned retirements, FedEx's mainline fleet is set to grow by 10 aircraft this year as previously ordered planes from Boeing get delivered.

In the last fiscal year, FedEx Express retired a total of 18 aircraft, allowing the company to write off about $70 million in book value for these planes, along with 34 related engines, in its fourth-quarter financial results.

The fourth-quarter results for FedEx's Express unit revealed a 13 percent drop in revenues, amounting to $10.4 billion, while operating income was halved at $430 million. However, despite lower volumes, successful cost reduction measures and higher U.S. yields helped partially offset the decline and contributed to improved profits.

Overall, the unit experienced a 64 percent drop in profits for the entire year. The retirement of aircraft played a significant role in the Express unit's $1.1 billion reduction in operating expenses. Notably, package volumes declined by seven percent in the fourth quarter, reflecting an improvement from the previous quarter.

"We continue to make significant progress in taking cost out of our network, delivering a $2 billion year-over-year reduction in operating costs in the fourth quarter of fiscal year 2023," said Subramaniam, emphasizing the progress made in cost reduction efforts. "This included matching flying with demand more effectively, marking the first quarter of this year where our flight hours declined more than the underlying volumes."

FedEx initiates cost reduction and restructuring amid ongoing economic uncertainty 

FedEx's decision to reduce flight operations and retire aircraft stems from corporate restructuring efforts initiated in October 2022. These measures were implemented due to the ongoing issues in the supply chain and increasing economic uncertainty.  

Since last fall, FedEx has undertaken several measures to adjust its flight schedule and streamline operations. These actions include reducing daily flights, accelerating the retirement of aging aircraft and temporarily deactivating certain planes until demand recovers.

Moreover, the company intends to rely more on partner airlines, focusing on capacity purchased from third parties instead of investing in additional aircraft. FedEx also plans to prioritize the use of owned aircraft for parcel shipments. At the same time, heavy freight will be increasingly moved by third-party carriers.

In December, FedEx decommissioned its remaining MD-10-30 cargo jets, which were officially taken off the accounting books at the end of fiscal year 2022. These planes were initially expected to remain in service due to strong demand projections, but the company's revised strategy prompted their retirement.

While the overall fleet size decreased by 10 units during the fiscal year, primarily due to retirements, FedEx added 14 factory-built Boeing 767-300 freighters and two Boeing 777s to its fleet. Currently, FedEx operates a total of 700 aircraft, including 407 mainline aircraft and 293 feeder aircraft, representing an increase of 14 aircraft compared to the previous year.

The decision to retire and add aircraft was made several years ago, predating the current financial pressures faced by FedEx. These fleet adjustments primarily serve to modernize the company's aircraft, replacing older models that are being phased out.

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