FedEx plans to remove 29 aircraft from its fleet this year through permanent retirement and temporary storage, fulfilling its new program to eliminate permanent costs and make its logistics network more flexible as global trade slows.
CEO Raj Subramaniam said on Tuesday’s earnings briefing that the Express unit will park 20 aircraft in fiscal year 2024 and permanently retire nine additional MD-11 freighters. But the latest fleet statistics show the integrated logistics and parcel carrier’s mainline fleet will actually grow by 10 aircraft this year as Boeing planes ordered years ago are delivered.
FedEx Express retired 18 aircraft in the just-completed fiscal year, including 12 MD-11s, four Boeing 757-200s and two Airbus A300-600s. FedEx wrote off the $70 million book value of the planes plus 34 related engines in its fourth-quarter results.
FedEx (NYSE: FDX) began flying less in October as part of a corporate restructuring aimed at improving efficiency and reducing immediate costs as the downturn in shipping and e-commerce sales took hold.
Express revenues fell 13% in the fourth quarter, ended May 31, to $10.4 billion while operating income was halved at $430 million. Success in decreasing expenses and higher U.S. yields partially offset lower volumes and helped improve profits, which tumbled 64% for the full year. The company said Express package volumes declined 7%, an improvement from the third quarter.
Since fall, the company’s in-house airline has slashed dozens of daily flights from its schedule, accelerated the retirement of aging aircraft and deactivated other aircraft until demand picks up. Management has also indicated it plans to rely more heavily on partner airlines in the future instead of purchasing capacity itself to improve cash flow and prioritizing owned aircraft for parcel shipments over heavy freight, which will be moved more by third parties.
FedEx reduced global flight hours by 12%, year over year, during the fourth quarter. Domestic aircraft utilization is down even more, according to a recent analysis by Morgan Stanley.
“We continue to make significant progress in taking cost out of our network, delivering a $2 billion year-over-year reduction in operating cost in the fourth quarter of FY ’23. This included more effectively matching flying with demand, marking the first quarter of this year where our flight hours declined more than the underlying volumes,” said Subramaniam.
The express delivery company decommissioned its few remaining MD-10-30 cargo jets in December. Those planes were taken off the accounting books at the end of fiscal year 2022 but were utilized a few months longer because FedEx was still anticipating continued strong demand midway through last year.
Overall fleet size decreased during the fiscal year by 10 units, with retirements offset by the addition of 14 factory-built Boeing 767-300 freighters and two Boeing 777s. FedEx currently has 700 aircraft, including 407 mainline aircraft and 293 feeder aircraft — 14 more than the prior year.
Decisions on aircraft acquisitions were made years ago, well before the current financial pressures forced FedEx to rebalance its network and consolidate Express and Ground operations to better utilize existing infrastructure and personnel. The fleet additions are mostly for fleet modernization as they will replace aircraft being retired.
FedEx currently has 46 MD-11s, which will be phased out by fiscal 2028.
During the next two years, FedEx plans to add 55 aircraft to its fleet, the majority of them small feeder aircraft operated by contractors. It will get rid of 18 MD-11s, while adding 24 767s and six 777s, 27 all-new Cessna 408 SkyCourier aircraft, and 16 ATR72-600s, barring production delays.
The Cessnas and ATRs are small turbo-prop planes. FedEx has committed to buying 41 SkyCouriers and 17 ATR72s.
After fiscal year 2025, FedEx has no firm commitments for aircraft purchases. Capital expenditures for aircraft are expected to decrease to about $1 billion in fiscal 2026, the company’s CEO said. A big piece of the company’s transformation roadmap is becoming more disciplined with capital allocation to boost earnings.
For FedEx Corp., overall, fourth-quarter adjusted operating income dropped 20% to $1.77 billion. Ground and Express volumes were lower than expected, but the rate of decline slowed. FedEx continued to make progress with its DRIVE cost campaign, cutting $2 billion in operating expenses in the quarter versus the prior year and $800 million more than in the third quarter.
Management recently agreed on a five-year contract with its pilots’ union. Pilots will vote next month on whether to ratify the deal.
Click here for more FreightWaves stories by Eric Kulisch.
RECOMMENDED READING:
Fewer FedEx flights raises red flag for fourth-quarter earnings
FedEx to transfer LAX airport maintenance to Indianapolis
FedEx says air network restructuring to save $700M annually
FedEx readjusts air network again amid sharp volume declines
Freighters flying fewer hours underscores market weakness in air cargo
The post FedEx to shut down 29 more aircraft as demand shrinks appeared first on FreightWaves.
