FedEx Announces Major Cutback: Domestic Flight Activity to Reduce by 60%

FedEx Corp. intends to significantly decrease its daily flights and the number of U.S. locations supplied by air during the day when its air cargo contract with the United States Postal Service expires on September 29, resulting in severe pay cutbacks for pilots, senior managers informed crews this week.

Shedding daytime flight capacity in response to decreased postal business is part of a larger FedEx (NYSE: FDX) plan to raise corporate earnings, which also includes revamping airline operations to better correspond with lower parcel demand and improve efficiency.

According to Justin Brownlee, senior vice president for flight operations and network planning, in a letter to airline employees obtained by FreightWaves, the parcel logistics company will reduce daytime domestic flying time by 60% and the number of city destinations by 55%, adding approximately 500 pilots to the existing surplus. He said that no pilots would be employed for the foreseeable future.

The company currently has 1,200 more pilots than needed. Company authorities already admitted that there were 700 surplus pilots among the 5,800 on the payroll. With a 21% redundant workforce, remaining flight hours will be distributed throughout the entire cohort, resulting in a "significant" reduction in the minimum amount of flight hours promised to pilots beginning in October, Brownlee informed the flight team.

Pilots have earned significantly less money over the last year because they share a smaller pool of flying assignments, and FedEx is permitted to reduce minimum guaranteed flight hours - hours paid whether a pilot flies or not - when flight activity falls below specified criteria. There has been no progress on a new labor contract since June 2023, when members of the pilots' union rejected a tentative agreement. Officials have quietly stated that if a new contract is approved, the firm will give early retirement plans to hundreds of pilots.

In early April, the Postal Service chose UPS (NYSE: UPS) over incumbent FedEx as its air cargo carrier for the next 5 1/2 years. FedEx's last day of service to the Postal Service is September 29, although the corporation has already reduced flights as the agency shifts volumes to UPS. FedEx has announced that losing the Postal Service contract will reduce operational profits by $500 million in the current fiscal year.

Lower postal traffic resulted in excess equipment for FedEx's daytime air network and increased operational expenses per unit. Management earlier stated that the Postal Service contract was not profitable. In the fiscal year ending September 30, 2022, postal revenue declined from $236 million to $1.9 billion and is anticipated to fall further. Previously, the contract earned at least $2 billion in revenue each year.

Equity research experts believed that FedEx's airplane was far larger than necessary, owing to pledges to fly postal items during the day in addition to its nighttime express service.

FedEx officials stated earlier this year that the termination of the Postal Service contract allows them more flexibility to rearrange the air network because planes will not be tied to a single customer.

Pat DiMento, vice president of flight operations and training, supplied pilots with further information on the network changes in a follow-up message, which was also shared with FreightWaves. In October, the route map will be reduced from 75 to 28 places served, a 63% reduction versus Brownlee's 55%, with daily flying excursions in an average week falling by nearly two-thirds. Atlanta, Austin, Texas, and Baltimore are among the cities that may lose daytime coverage. Weekly flying hours will fall from 2,045 to 1,203 (60%). Airbus A300 freighters, for example, will see an 81% reduction in weekly daylight flight legs, while Boeing 767 excursions will be reduced by 70%, from roughly 700 to 209 each week.

Executives highlighted that the tentative October schedule was provided immediately to provide flight operations workers with relevant information as soon as possible, but that changes could still be made.

"The above plan is likely to evolve as we settle into the new system shape and additional commercial opportunities arise. Our organization is rapidly implementing network optimizations to assure our continued leadership in the very competitive cargo and logistics industry. We recognize the considerable impact these changes will have on your schedules and appreciate your commitment to FedEx as we manage these changes together," DiMento said.

Despite the lower daytime flying, FedEx plans to keep its fleet size at current levels because the number of aircraft is mostly determined by the priority overnight network, and the firm is seeking to attract additional cargo business, Brownlee stated.

"In anticipation for the end of our air freight contract with the United States Postal Service, we have begun making changes to network operations to accommodate postal volume. "These changes include a reduction in daytime flight hours," said Caitlin Adams Maier, FedEx's director of public affairs, in a statement to FreightWaves. "As we transform our network and operations for the future, we remain committed to delivering world-class service to our customers around the world while providing outstanding service to the USPS through the contract's completion in September."