FedEx Corp. will cut daily flights across the Atlantic, the Pacific and between Asia and Europe as it begins the process of aligning its cost structure with what the company says is reducing demand worldwide.

FedEx (NYSE: FDX) will cut 11% of its trans-Pacific flights, 9% of its trans-Atlantic flights and 17% of its Asia-Europe flights, the company told analysts on Thursday evening shortly after the official release of its first-quarter 2023 results.

The company stunned everyone last Thursday by pre-announcing very weak quarterly results, highlighted by a more than $600 million year-over-year decline in operating income for FedEx Express, the division that includes airlines and international operations. FedEx admitted it could not scale back the unit’s operations fast enough to offset a sharp drop in volumes in the Asia-Pacific region and Europe.

The financial impact of the flight cuts will begin to be felt in October and November, FedEx said. The company promised that this would not affect the level of service. Pilots are not scheduled to retire.

During a tense and gloomy call with analysts, FedEx said the lion’s share of the problem was macroeconomic. Its clients missed their own forecasts, showing that demand from their customers fell sharply towards the end of the quarter. FedEx’s fiscal year begins on June 1.

“This is a market trend, not a FedEx trend,” said Bree Carrere, executive vice president and chief marketing and communications officer. Carrere said the drop in demand affects everyone.

FedEx has also been plagued by ongoing network integration issues in Europe, a legacy of a difficult six-year European integration since its 2016 acquisition of TNT Express. The company completed the integration of physical networks in March. However, FedEx Express continues to struggle to consistently meet its cross-border delivery targets, Carrere said.

Given the weakness in macro resources expected through the end of the fiscal year, FedEx has for now abandoned growth initiatives in favor of cost cutting and margin protection. On Thursday night, he announced a plan to cut spending by $2.2 billion to $2.7 billion in the current fiscal year and another $4 billion in fiscal years 2024 and 2025.

Along with reducing flights, FedEx plans to park an unspecified number of aircraft this fiscal year. According to a company representative, the reduction in capacity due to aircraft parking is equivalent to eight narrow-body aircraft.

At Fedex Ground, the ground delivery division, FedEx will consolidate sorting operations, cut part of its expensive Sunday delivery network and delay or cancel projects. At the corporate level, FedEx said it will close its FedEx office and corporate offices.

Company executives asked analysts questions that, as expected, given the events of the past week, were sharp and uncomfortable. One analyst argued that the company needs to reexamine the model it has followed for the past 20 years and change or discard parts of its model that have repeatedly failed and may never work. Another, Stephens’ Jack Atkins, noted a “clear lack of outside talent” at FedEx and questioned whether the right people were there to run the company.

Raj Subramaniam, FedEx president and newly appointed CEO, said the best team is in place to lead the company in today’s environment.

The TOP 500 FREIGHTWAVES The list of hired carriers includes FedEx (No. 1).

https://www.freightwaves.com/news/fedex-to-shave-daily-flights-to-align-costs-with-lower-demand

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