FedEx to reduce trans-Pacific capacity, considering more accelerated retirements

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FedEx Express will decrease capacity to and from Asia beginning 1 April and is considering further accelerated retirements of its oldest freighter aircraft, says FedEx chairman Fred Smith on a 20 March conference call.

Executives at the Memphis-based freight and logistics company could retire some more of its older, less-efficient aircraft in its fleet, for example Boeing 727s and tri-jet aircraft like the MD-10 and MD-11. The carrier is still considering how that plan would look and whether taking aircraft out of its fleet would mean permanently retiring or grounding them. Details on how many aircraft could be retired and the timeframe for taking those out of the fleet remain to be seen, and FedEx declined to comment further on how much capacity would be taken out of the trans-Pacific market.

The announcement comes after FedEx posted results $100 million below its guidance for the third quarter of 2013 of the fiscal year that ends 31 May, which FedEx Express chief David Bronczek calls a "significant decline in profitability."

FedEx has talked for several quarters about right-sizing its air network, as it has seen a trend of customers choosing lower-yielding, slower, deferred shipments in favour of premium services that it expects to continue at least into the next quarter. While international export package volumes increased 4% with gains in both economy and priority services, international export revenue per package fellow 3% and reflects customers' shift to lower-yielding services. The carrier is focused on transferring some of that lower-yielding international economy traffic into other shipping lanes to better utilise its aircraft assets in light of overcapacity in the overall air freight market.

Accelerated retirements have been part of FedEx's strategy to adjust its network in recent months as it renews its fleet. The carrier accelerated the retirements of 18 Airbus A310-200 freighters and six Boeing MD-10-10 cargo aircraft in June, and has had plans to retire 50 aircraft during fiscal years 2012 and 2013. It retired five Boeing 727-200 aircraft in the fourth quarter of 2012 and has been planning to drop an additional 21 727s in the 2013 fiscal year.

In addition to those retirements, FedEx Express deferred and pushing back orders for the Boeing 777-200LRF in fiscal 2012 in favour of Boeing 767-300ERFs. In December, it purchased four additional 767-300ERFs and deferred two 777-200LRFs. Before that it converted four 777 freighter orders to go towards the purchase of 19 new 767-300ERFs.

FedEx still has nine Boeing 777s on order, due to arrive between September 2013 and 2018, according to Flightglobal's Ascend Online database. It has also ordered an additional 46 Boeing 767-300s, which will continue to arrive through this year until 2018.