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Restructuring its air network, FedEx is downgrading to surface transportation where possible, outsourcing more flights, implementing more direct routes and streamlining ancillary support functions like maintenance. It is also reducing investment in its own aircraft and increasing reliability on partner carriers for surge capacity.
FesdEx estimates that this restructuring will end up saving $700 million annually.
Belt-tightening within the global air network is part of an aggressive enterprisewide initiative to eliminate $4 billion in structural costs and boost profitability by the end of fiscal year 2025.
FedEx by redesigning its network will prioritise efficiency and will drive an additional $2 billion in incremental cost reduction.
Structural improvements will lower service costs focus on using assets more efficiently and making the network more flexible from a cost and service standpoint.
Its strategy for cost reduction includes parking aircraft, accelerating the retirement of MD-11 freighters, increasing point-to-point flying and leaning more on contractors, commercial airlift and trucking. Forty percent of global air savings will stem from using less jet fuel, with crew and maintenance each representing 20% of the value associated with reduced flight hours.
“Having more flexibility in how we move volume means we can improve density and utilize our purple tail fleet for what it is intended for: to quickly move high value expedited time definite shipments around the world,” said Richard Smith, the head of FedEx Express, who will serve as president and CEO of airline and international under the reorganization. “We’re changing the fly-fly-fly model for a lot of this traffic to a much more economical truck-fly-truck model.”
Currently relying on an asset-heavy network, that relies on hub-and-spoke system. FedEx now has plans to make its’ air network leaner. To do so the company is engaging in point-to-point flying, substituting truck service on certain connecting routes to enable consolidation and increase aircraft fill rates, and relying more on outside partners.
As per the management, the company would increasingly rely on outsourced air transport for growth. The updated plan calls for a more diversified use of in-house assets, contract carriers and commercial airlift, as well as shipment segmentation. The company’s aircraft will be utilised for high-margin, time-critical routes, while increased point-to-point flying will minimize stops — allowing the logistics integrator to optimize and densify its hub-and-spoke network.
Commercial freighter and passenger aircraft will move deferred parcels and freight on routes with fluctuating demand, effectively balancing lanes by flying into multiple international gateways and substituting cheaper capacity for lower-priority pieces.
As per officials, removing heavy freight from the dedicated parcel system will not only reduce congestion at hubs, and improve transit times, but it will also allow time for general cargo to be built into dense pallets for transport in alternative channels.
These changes will enable logistics teams to use smaller aircraft on some routes and reduce schedule frequency, resulting in higher load factors and greater operating efficiency.
Going beyond the short-term flight adjustments due to the global economic and trade slowdown. FedEx has plans to reduce trans-Pacific flying by an additional 30% in the coming years through consolidating priority volume on self-operated aircraft and primary routes.
Another alternative for nonpriority volume involves increased use of trucking and flying into regional hubs to reduce the number of transfers and miles a shipment flies.
FedEx is redesigning its domestic network to emphasize surface transportation as the first option and stimulate regional consolidation, with aircraft used for premium overnight moves.
“We’re taking the vast connectivity and capacity we’ve been building over the last 50 years and making it smarter, more efficient, and more flexible,” said Smith.FedEx estimated the combined impact of the air network overhaul translates to $250 million in reduced spending per year.
Smith said the company is accelerating the retirement of its MD-11 fleet by the end of fiscal year 2028. FedEx currently operates 58 of the older, tri-engine jets. Nine MD-11s exited the fleet during the third quarter, and six more are slated for retirement between April and June.
Although, it is reducing investment on its own aircraft, FedEx will not be cancelling orders for Boeing 767 and 777 freighters, or small turboprop planes used to serve rural areas. However, the company will pull back on future growth as it relies more on long-term charter partnerships. Capital expenditures for the fleet are budgeted to fall from $2.3 billion last fiscal year to $1.5 billion in fiscal year 2025.
