FedEx continues to focus on airfreight capacity as Q2 results under pressure

FedEx will continue to examine further air cargo capacity retirements following a decline in its fiscal second quarter operating performance on the back of a weaker global economy and the loss of Amazon business.

The express giant saw its revenues for the quarter ended November 30 drop by 2.8% year on year to $17.3bn while operating income fell 52.6% to $554m and net income was down 48% to $560m.

Following the announcement the company cut its earnings guidance for the year.

It blamed the performance on: “Weak global economic conditions, increased FedEx Ground costs from expanded service offerings, the loss of business from a large customer [Amazon], a continuing mix shift to lower-yielding services and a more competitive pricing environment.

“In addition, the later timing of the Thanksgiving holiday resulted in the shifting of Cyber Week into December, which negatively impacted the quarter’s results.”

FedEx announced earlier this year that it would stop working with Amazon in the air and on the ground.

FedEx Express recorded asset impairment charges of $66m related to the permanent retirement of 10 Airbus A310-300 aircraft and 12 related engines.

It will retire another 29 aircraft over the next 30 months.

During the remainder of fiscal 2020, FedEx Express will make further network capacity changes by reducing flight hours by around 8%, it said.

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“The company continues to evaluate if additional aircraft retirements are warranted,” the company said.

Fred Smith, FedEx Corp. chairman and chief executive said: “Fiscal 2020 is a year of continued significant challenges and changes for FedEx, particularly in the quarter just ended due to the compressed shipping season.

“We have significantly enhanced our e-commerce capabilities with strategic initiatives including year-round seven-day FedEx Ground delivery, enhanced large package capabilities and the insourcing of FedEx SmartPost packages.

“These changes have been well-received by the marketplace as reflected in our record volumes this peak season.

“While we have experienced some higher-than-expected expenses this quarter, we forecast FedEx Ground operating margins to rebound to the teens in our fiscal fourth quarter as the bow wave of costs for these changes is absorbed.”

Rajesh Subramaniam, FedEx Corp. president and chief operating officer, added: “We are also taking immediate actions to address the short-term challenges facing our business, including eliminating multiple international flights to reflect reduced global airfreight demand.

“These actions combined with benefits from the TNT integration should allow FedEx Express to enter fiscal 2021 with profit improvement underway.”