FedEx to cut daytime domestic flight activity by 60%
FedEx to cut daytime domestic flight activity by 60%
Reduced demand for FedEx services, hundreds more FedEx employees expected to get ax´d.... remaining pilots anticipate additional pay cuts
FedEx to cut daytime domestic flight activity by 60%
500 surplus pilots identified as Postal Service contract nears end
·Friday, July 26, 2024
(UPDATED: 2 P.M. ET with comments from the Air Line Pilots Association)
FedEx Corp. plans to significantly slash daily flights and the number of U.S. cities served by air during the daytime when its air cargo contract with the U.S. Postal Service expires on Sept. 29, resulting in significant pay cuts for pilots, senior managers informed crews this week.
Shedding daytime flying capacity in response to the lost postal business is part of a broader FedEx (NYSE: FDX) initiative to boost corporate profits that includes restructuring airline operations to align with lower parcel demand and improve efficiency.
The parcel logistics giant will reduce daytime domestic flying time by 60% and the number of city destinations by 55%, which will add about 500 pilots to the existing surplus, said Justin Brownlee, senior vice president for flight operations and network planning, in a letter to airline workers obtained by FreightWaves. No pilots will be hired for the foreseeable future, he added.
The company now has 5,500 pilots, down from 5,800 at the start of the year. With the workforce redundancy, remaining flight hours will be divided up among the entire cohort, resulting in a “significant” reduction in the minimum number of flight hours guaranteed to pilots starting in October, Brownlee told the flight team.
The Postal Service in early April selected UPS (NYSE: UPS), instead of incumbent FedEx, as its air cargo carrier for the next 5 1/2 years. The last day FedEx will provide service to the Postal Service is Sept. 29, but the company has already been scaling back flights as the agency transitions volumes to UPS. FedEx recently said losing the Postal Service business will drag down operating income by $500 million in the current fiscal year.
Lower postal volumes left FedEx with surplus equipment for its daytime air network and higher operating costs per unit. Management previously said the Postal Service contract wasn’t making money. Postal revenue in the fiscal year ending Sept. 30, 2022, fell $236 million to $1.9 billion and was expected to continue decreasing. The contract previously generated annual revenue of at least $2 billion.
Equity research analysts argued that FedEx’s airline was much bigger than necessary, partly because of commitments to fly postal shipments during the daytime in addition to its overnight express operation.
FedEx officers earlier this year said expiration of the Postal Service contract gives them more flexibility to reorganize the daytime air network because aircraft won’t be dedicated to a single customer.
Pat DiMento, vice president flight operations and training, provided pilots more details about the network changes in a follow-up memo, also shared with FreightWaves. The route map in October will go from 75 to 28 cities served – a 63% reduction versus the 55% mentioned by Brownlee, with daily flight trips in an average week falling nearly two-thirds. Cities losing daytime service include Atlanta; Austin, Texas; and Baltimore. Weekly flight hours will tumble from 2,045 to 1,203 (down 60%). Airbus A300 freighters, for example, will experience an 81% reduction in weekly daytime flight legs while Boeing 767 trips will be cut 70%, going from nearly 700 to 209 per week.
Executives stressed that the tentative October schedule was released now to give flight operations personnel pertinent information as early as possible, but that adjustments could still be made.
“The above plan will likely change as we settle into the new system form and other business opportunities develop. Our company is rapidly moving towards the network efficiencies that will ensure we remain the leader in the incredibly competitive cargo and logistics industry. We appreciate the significant impact these changes will have on your schedules and value your commitment to FedEx as we navigate these changes together,” DiMento wrote.
Despite the reduced daytime flying, FedEx expects to maintain fleet size at current levels because the number of aircraft is primarily dictated by the priority overnight network and the company is working to attract other cargo business, Brownlee said.
“In preparation for the conclusion of our air freight contract with the United States Postal Service, we have begun implementing adjustments to network operations that support postal volume. These adjustments include a reduction in daytime flight hours,” said Caitlin Adams Maier, FedEx’s director of public affairs, in a statement to FreightWaves. “As we transform our network and operations for the future, we remain committed to delivering world-class service to our customers around the world while providing outstanding service to the USPS through the contract’s completion in September.”
Pilots have made substantially less money the past year because they share a smaller pool of flying assignments. No progress has been made on a new labor contract since June 2023, when members of the pilots’ union rejected a tentative contract. Negotiations remain in federal mediation. Company officials have privately suggested that a new ratified contract would incentivize pilots to retire, which would help address overstaffing.
The Air Line Pilots Association, which represents the FedEx pilots in collective bargaining, urged management to resolve the contract talks so that the business transformation can fully achieve the desired financial outcome.
Brownlee’s comments that aircraft count will stay the same while overstaffing levels increase “are contrary to one another and conveniently ignore the negative impact of the Drive and Tricolor [restructuring] on our pilots. We are certainly wondering how exactly management intends to implement Network 2.0 and Tricolor with a misaligned crew force,” said Jose Nieves, chair of ALPA’s FedEx Master Executive Council in a message to members and the company.
Fleet plan
The airline’s mainline fleet has shrunk from 417 aircraft in fiscal year 2022 to 389 as more aircraft are put out of service than are being added to modernize the fleet. FedEx last quarter permanently retired 22 Boeing 757-200 freighter aircraft as part of the downsizing effort. The older 757s were expendable because they are less fuel-efficient than other planes operated by FedEx, which still has 92 of the narrowbody freighters in the fleet. The company also retired nine MD-11s in the fiscal year ending May 31 and plans to phase out the tri-engine aircraft by mid-2028, subject to changes in customer demand.
FedEx last year received 14 freighter aircraft from Boeing (four 777s and 10 767-300s medium widebodies). The company is scheduled to take delivery of two factory-built 777 freighters in the next 12 months and 14 B767s over the next two years, according to its latest statistics.
Meanwhile, as part of the new effort to consolidate the Express and Ground networks into one integrated system, FedEx in late January began repainting mainline cargo jets to present a unified brand, said Brownlee. That means aircraft will no longer show Express markings. The new paint scheme, which features a larger logo and different positioning to reflect a more modern look, has been applied to 18 freighters so far.
Tricolor drive
FedEx is now implementing its Tricolor strategy for streamlining its global air network with the goal of segregating the fleet according to various product categories and demand. Brownlee said new flights are being added to the Orange network to accommodate nonparcel cargo growth.
The so-called Purple network is geared toward international customers willing to pay the most for the fastest speeds using dedicated aircraft that are well timed to go overnight into FedEx hubs for next-day delivery. Fewer large freight shipments will be mixed in to maximize density on aircraft and sorting efficiency, executives explained in the spring.
Orange-designated flights will operate during the daytime and focus on priority international freight. Management describes this deferred air network as an extension of its European and U.S. less-than-truckload networks, designed to attract high-yield freight, such as pharmaceuticals, perishables, electronics and automotive components, that is more profitable per pound than heavier, general consignments. FedEx says it will mix in deferred parcels to fill out the aircraft.
The White network will handle e-commerce and other low-priority shipments, much of it processed through the company’s freight forwarding arm, FedEx Trade Networks. Those loads will utilize the belly space of commercial passenger aircraft operating between major international gateways that can be integrated into the FedEx Ground network in the U.S.
https://www.freightwaves.com/news/fedex-to-cut-domestic-flight-activity-by-60