FedEx reports $876m 4Q loss as air cargo demand plummets

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FedEx has reported a net loss of $876 million for the quarter ending 31 May, compared to a $241 million loss one year ago, as air cargo revenues dropped by more than 20%.

The company saw its fiscal fourth quarter operating loss increase from $163 million to $876 million as revenues dropped 20% from $9.87 billion to $7.85 billion. This includes a $136 million operating loss at its air cargo unit, FedEx Express, compared to a $426 million operating profit in the fourth quarter of last year.

FedEx says the operating loss at its express unit includes $260 million in charges related to employee severance programmes, terminating aircraft leases and removing 10 Airbus A310 and four Boeing MD-10 freighters from its fleet of owned aircraft.

The grounding of the aircraft, first announced in April, is part of a major restructuring at FedEx to align capacity with shrinking demand. In the quarter, FedEx saw revenues drop 21% in its domestic air network and 27% in its international air network.

Overall revenues at FedEx Express dropped 25% in the quarter from $6.37 billion to $4.80 billion.

For the full year ending 31 May, FedEx still reported a net profit of $98 million on revenues of $35.5 billion. But this compared to a net profit of $1.13 billion the previous year on revenues of $38 billion.

FedEx expects more challenging times ahead with demand not recovering until late 2009 at the earliest.

"The operating environment for our first two quarters in fiscal 2010 is expected to be extremely difficult," says FedEx CFO Alan Graf.

He adds manufacturing activity, which drives air cargo volumes, is expected to show negative growth through the summer, and the cargo carrier is now feeling the impact of increasing fuel prices.

"At this time we do not have enough visibility into the economic recovery and jet fuel prices to provide a meaningful annual earnings forecast," Graf says. "However, we believe that FedEx will be poised for growth in our fiscal second half, as our many cost saving initiatives gain traction and the economy begins to improve."