Major American cargo airline FedEx Express will be cutting back flights and parking more aircraft in the coming weeks due to the ongoing low demand for freight shipping. Executives of the airline confirmed the move last week.

The decision represents a nearly 10% reduction in aircraft utilization as larger aircraft will be grounded and smaller aircraft will be used on specific routes. It is reportedly part of a larger cost-cutting initiative that the parcel company has set, including shutting down offices and cutting jobs.

A "fixed expense structure"

FedEx CEO Raj Subramaniam spoke about the money-saving measures during a fiscal earnings call transcribed by The Motley Fool.

“We are taking additional steps to address our fixed expense structure. This quarter, we reduced flight hours by 8% and salary and benefit expenses by 4%. We also parked an additional nine aircraft, downgauged on certain routes, and implemented various productivity improvements. As a result of these actions, we mitigated 45% of total revenue declines on an adjusted basis.”

Air and international operations were reportedly the major contributor behind its lower revenue and income. FedEx Express generated lower revenue while its adjusted operating income plunged 81% year over year, according to Freight Waves.

"Revenue at FedEx Express was down 8% year over year primarily due to lower volumes globally and yield softness in Asia and Europe," said Brie Carere, FedEx's Executive Vice President of Chief Marketing and Communications Officer. "In Europe, we're seeing improved operational execution with service at the best levels they have been since fiscal year '21. There's more work to do, but the momentum is building as our team has improved service levels while maintaining a healthy sales pipeline."

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Out with the old

FedEx has also introduced DRIVE, a program to support its transformation into a more efficient and profitable company. Subramaniam said he expects the company to deliver $4 billion of permanent cost reduction by the end of fiscal 2025. DRIVE also includes plans to modernize FedEx Express' aging fleet.

"This requires many steps, including plans currently being developed to phase out our fleet of MD-11s," Subramaniam noted. "Our aircraft modernization program and use of 777s and 767s affords us the ability to flex our plans. And as we operate more collaboratively, we are leaning into the ground transportation more, requiring less capex while enabling us to reconfigure our network more quickly."

In with the new

The airline's McDonnell Douglas MD-11s have been used to serve flex capacity. As the old planes are retired, the company will reportedly lean more on its ground network for domestic parcel shipments. According to Freight Waves, nine MD-11s exited the fleet during the third quarter, and six more are slated for retirement in the current quarter.

The carrier operates 58 of the tri-jets, while its remaining nine MD-10-30 freighters were recently retired earlier than initially expected.

UPS Airlines, which also operates a plethora of MD-11s, has begun to retire the aircraft as well.

FedEx has 27 new Boeing 767 and six 777 freighters on order, expecting delivery from Boeing in 2024 and 2025.

Sources: Reuters, Freight Waves, The Motley Fool