FedEx boosts operating income 15% in fiscal Q2

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FedEx boosted its operating income 15% year-over-year to $827 million in the second quarter of its fiscal year ending 31 May.

Revenues rose 3% to $11.4 billion and net income grew 14% to $500 million compared to the same period in the carrier's 2013 fiscal year.

The Memphis-based firm recorded a 42% increase in operating income for its Express segment, which totalled $326 million in the quarter. The unit produced slightly lower revenues of $6.84 billion compared to $6.86 billion in the second quarter of the 2013 fiscal year.

FedEx is on track to complete its $1.7 billion profit improvement plan on time and has seen “significant progress” in results for its Express segment driven by changes so far, says the firm's chief financial officer Alan Graf during a 18 December earnings call.

“We're on track where we need to be by the end of fiscal year [2015],” he says, referring to FedEx's goal of realising a majority of the cost benefits by that time.

The programme first announced in October 2012 focuses mainly on cost reductions in FedEx's Express segment, achieved in part by fleet modernisation efforts as the carrier replaces its older aircraft with new Boeing 767 and 777 freighters and converted 757 freighters from United Airlines.

As the new 777s are deployed on international routes, older MD-11s will be placed on domestic routes to replace MD-10s being phased out of the fleet, says David Bronczek, chief executive of FedEx Express. The carrier has a long-term goal of operating all twin-jets but has not laid out a timeframe for doing so.

The carrier is continuing to adjust its network to account for trade-down of lower-yielding services as customers opt for slower shipments to save on costs, however Smith notes that the carrier's priority air freight network for transpacific and transatlantic flights will likely not materially change in the near term.

Part of the adjustment strategy includes carrying certain types of shipments via under-belly capacity in passenger aircraft, says Smith, citing a recent study that showed this capacity would increase 5% in the next year.

“I think what you're going to see is not very much change in the near term in the backbone of the network, and a lot of growth in the economy traffic, which lends itself to being put in under-belly,” says Smith. He adds, “We are very effectively utilising that.”

Bronczek adds: “We just have a lot of opportunity around the world to continue to move lower-yielding traffic into the right networks to make us more money."