https://www.fool.com/earnings/call-transcripts/2022/09/23/fedex-fdx-q1-2023-earnings-call-transcript/
Was waiting for proper earnings call to respond here. A few thoughts from an uninformed cog in the Purple Machine -
While UPS continues to fiddle amid the inflationary flames, FDX has sounded the alarm. I honestly do not think the earnings call is directed at the pilot contract negotiations. The pilot group's inflated sense of self importance may disagree, but the truth is told in the 10-Q filing. Express is certainly being targeted for cost savings (which will be manifested in reducing certain routes and parking the MD-10s), but any apocalyptic pearl clutching for the future of the pilot group is unfounded. The global economy is slowing; we are taking aggressive action. And I don't think FedEx Corp has perfectly executed the COVID surge and now the post-COVID drawdown (plus inflation!), but all these mega-corps are reacting to the market in different ways. So, is UPS simply ignoring the economy, or are they a better managed organization? They sure are taking a victory lap right now. The parable of the grasshopper and the ant comes to mind here.
Bullet points that jumped out at me:
- FDX expecting low volume through EOY
- Flight hour cut: 11% pan-Pacific, 9% trans-Atlantic, 17% Asia to Europe
- Asia economy decline seems to be the major driver, Europe to a lesser degree
- The most shocking number to me - Express adjusted operating income declined 72%. I thought there was a decimal missing. That seems impossible, but then it would make sense that Express would be the primary target for cost savings given the lower demand for air freight in August and beyond. As Raj mentioned in the Q&A, "You can't build half a building". We've stood up a robust flight schedule/hiring to support COVID volume, and now it takes time to draw that down to inflationary reality.
- All questions about problems at Ground were largely deflected by management during Q&A. I think FDX is happy individually negotiating with Ground contractors. Corps don't favor unions obviously, so I laughed when the reporter insinuated that UPS is "better" with unionized trucking. UPS would smite that union from existence if they could.
- interesting to me that FY25 targets remain hopeful. Overall message here - short term pain to adjust to inflationary reality, so long term targets will still be met. Or it could simply be waiting through next presidential election cycle.
- The second most shocking number - FDX Freight producing almost 4x the operating income of Express? Wow, I had no idea that the dropoff in air freight demand was that prolific. I've always understood the concept that Express was higher yield per package than Ground, but Ground did more volume (and therefore more income) for FedEx. But damn, Freight is leading the way.
- Finally, Raj was asked about pilot furlough. "And there is also no furlough of the pilots. That's not even a thing."
Is FedEx better than UPS? It's a false dichotomy. Each company has drawbacks. I was pleased when FDX cut AMZ in June 2019; the low yield/high volume vine was choking the logistical tree. I don't like UPS's position with 12%+ involvement with AMZ; those pallets of cheap chinesium garbage are blocking other high end customers (opportunity cost). I don't think AMZ will necessarily going to strangle UPS, but that AMZ gorilla must be managed going forward. It sure looks like UPS is deaf to global economic trends currently, but I'm sure they will make adjustments when necessary. Just because FDX is the first to ring alarm bells does not mean FDX is smart; just because UPS is still ops normal for another quarter does not mean they are dumb. Global economies are more nuanced than an easy sound bite can portray.
Air freight will survive and thrive despite a week of negative news. And historically, air freight is a much more stable career for pilots. That's not a FDX-specific observation; that's the industry as a whole. Delta went from the most profitable airline in history (Feb 2020) directly into COVID the following month. That level of turbulence is quite stressful...compared with the known post-COVID air cargo drawdown, I'd personally take my chances on the cargo side. But I wear my bias on my sleeve.
Anyway, one bored pilot's thoughts.