FedEx has announced plans to restructure its air network, with a goal of reducing costs by $700 million annually. The company plans to achieve this by downgrading to surface transportation where possible, outsourcing more flights, implementing more direct routes and streamlining ancillary support functions like maintenance. FedEx will also invest less in its own aircraft by relying more on partner carriers for surge capacity. The restructuring is part of a broader enterprisewide initiative to eliminate $4 billion in structural costs and boost profitability by the end of fiscal year 2025.
FedEx is looking to make its air network leaner by 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. The company currently has an asset-heavy network that relies on a hub-and-spoke system, but it plans to move toward a more asset-light model. FedEx aircraft will be reserved for high-margin, time-critical routes, while increased point-to-point flying will minimize stops.
In addition, FedEx plans to redesign its domestic network to emphasize surface transportation as the first option and stimulate regional consolidation, with aircraft used for premium overnight moves. The changes enable logistics teams to use smaller aircraft on some routes and reduce schedule frequency, resulting in higher load factors and greater operating efficiency.
FedEx estimated the combined impact of the air network overhaul translates to $250 million in reduced spending per year. However, analysts have raised concerns that the cost savings could come at the expense of operational reliability if there is severe weather or unscheduled employee absences. There are also concerns about whether FedEx will be able to reroute parcels from express air to truck and utilize noncentral air hubs without diminishing service levels.
The changes will play out in a big way in the Asia-U.S. market. Beyond short-term flight adjustments due to the global economic and trade slowdown, FedEx 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.
The FedEx changes are a two-edged sword for transport suppliers like Cargojet and Atlas Air that could pick up some ancillary business but also be victim to schedule reductions they previously felt immune from on the assumption that express carriers needed to run planes full tilt no matter the load factor to keep promises to customers for fast delivery.
FedEx is not canceling orders for Boeing 767 and 777 freighters, or small turboprop planes used to serve rural areas, but 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.
Overall, the restructuring of the air network is expected to result in significant cost savings for FedEx, but there are concerns about how the changes will impact operational reliability and service levels. The company is optimistic that the changes will enable it to move toward a more asset-light model and optimize its network for greater efficiency.
