The Business Times

FedEx parks planes as weak demand prompts cost-cutting steps

Published Wed, Nov 9, 2022 · 09:02 AM

FEDEX has reduced the frequency of flights and parked some of its planes, following through on the courier’s plan to reduce costs in response to weak demand for package delivery.

The company has halted 23 domestic flights and about nine international ones, chief financial officer Mike Lenz said on Tuesday (Nov 8) at the Baird 2022 Global Industrial Conference. FedEx has also reduced sorting points and consolidated loads at the Ground unit, he said.

The efforts are in line with those laid out in September, when FedEx said it would reduce costs by as much as US$2.7 billion in its current fiscal year due to a variety of issues, including weakness in Asia and challenges in Europe. The company withdrew its forecast at the time.

The cutbacks are a response to a large shift of spending towards services rather than goods - reversing a pandemic trend - that has particularly hurt business in Asia. While FedEx knew those spending habits would revert towards services, Lenz said the company didn’t expect it to happen so quickly.

“Unquestionably, the commencement and the speed and depth of that shift was beyond what we certainly had anticipated,” Lenz said. “That’s why we have been taking down trans-Pacific flights.”

Along with the reduced flight frequencies, Lenz said FedEx will temporarily park aircraft because it doesn’t need as much air capacity as anticipated. FedEx is also eliminating older, inefficient planes from its fleet. The company will completely retire its MD-10s by the end of this year and will then look at retiring MD-11s.

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FedEx shares pared gains as Lenz spoke and briefly moved into negative territory. The stock was up less than 1 per cent at 3:34 p.m. in New York.

Soft demand

In Europe, demand is soft because of the impacts of Russia’s war on Ukraine and the energy crunch.

Lenz said the peak holiday season will be “solid”, but more moderate than the last two years when the pandemic was driving people to spend more on goods than services.

On-time deliveries at the company’s Ground unit have improved in recent weeks and are now at 2019 levels, he said. Even as the company slashes expenses, maintaining pricing power will remain a priority, Lenz said. BLOOMBERG

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