FedEx Corp. has initiated a significant reduction of its air fleet, announcing the permanent retirement of 22 Boeing 757-200 freighter aircraft. This move, disclosed in conjunction with their fourth-quarter earnings, is part of a broader strategy to adapt to decreasing parcel demand. The company exceeded analysts’ expectations with its latest financial results.
In its earnings release, FedEx highlighted a $157 million impairment charge associated with the decommissioning of the 757 cargo jets and seven engines. This follows a previous year’s fourth-quarter write-off of $70 million for the retirement of 18 MD-11 freighters and 34 related engines. In addition, FedEx permanently deactivated nine MD-11s during the last quarter, bringing the total number of aircraft removed from service to 31. The decision to retire the older, less fuel-efficient 757s aligns with the company’s efforts to optimize operational efficiency, as FedEx still operates 92 of these narrowbody freighters.
Further adjustments to the fleet include a reduction in the number of aircraft from 417 in fiscal 2022 to 389. However, the company plans to bolster its capacity with new acquisitions, expecting the delivery of two Boeing 777 freighters and 14 B767-300s over the next two years.
The strategic reshaping of operations also comes in light of FedEx losing its position as the primary air cargo provider for the U.S. Postal Service to UPS. With a new five-year contract awarded to its competitor, FedEx anticipates a transition period where volumes will hover at the contract minimum until the end of September. Post-transition, the company forecasts significant cost reductions within its U.S. domestic network, driven by a realigned aircraft strategy.
On the financial front, FedEx reported an adjusted operating income increase of 5.6% to $1.87 billion and a revenue uptick of 1% to $22.1 billion for the quarter ending May 31. This performance underpins the effectiveness of their ongoing cost containment efforts amid challenging market conditions. The adjusted diluted earnings per share stood at $5.41.
Looking ahead, FedEx aims to continue its financial discipline, targeting $2.2 billion in savings from its transformation program for fiscal year 2025. This follows $1.8 billion in structural savings achieved last year. Additionally, plans to downsize the European back-office and commercial staff by 1,700 to 2,000 personnel are expected to yield annual savings of between $125 million and $175 million by fiscal year 2027.
FedEx is also contemplating strategic options for its FedEx Freight division to enhance shareholder value, which could include a spin-off of the less-than-truckload segment among other possibilities. This consideration underscores the company’s proactive approach to refining its business structure and boosting profitability.