FedEx 3Q earnings tumble 75%

[TechGrrl]

Yeah but those DC8s were payed for. How much money is UPS going to lose when they get caught with there pants down when the economy picks up. You bean counters can't see past the end of your pencil, you don't know anything about running an airline and you only see numbers. Why did we buy the MD11? Because FEDX had them? Why did we spend millions putting glass cockpits and new engines on 727s and why didn't we take the option for 30 more Airbus 300s for 30 million a piece? Mistake after mistake and the pilots make to much.

Sorry, pal, I'm not a beancounter, and I do know what I am talking about. Does the concept of amortization have any meaning to you? Even though a DC-8 or a 727 is "paid for" in the sense there is no outstanding debt left on the purchase, there is still a very high cost of ownership to operate beasts like that. 4 engines burn more fuel than 2, and 3 people in the cockpit is 50% more than 2 people in the cockpit. And each airplane requires at least 3 full crews, usually 4 or more, to cover vacations, and the fact that a pilot is only able to fly 100 hours per month.

As far as "only seeing numbers", when the numbers have as many zeros trailing as airline costs do, it's a good idea to see the numbers first. One extra airplane = approximately $100 million in excess costs. One extra package car on the road, or even one extra feeder driver on the road, is, comparatively, chump change.

And the pilots may make too much money from our lowly point of view, but they have legally negotiated the deal with the company, and that's the way it works in a free market. Go to flight school, accumulate about 1,000 hours in a cockpit, and apply for a job as a pilot. That's also the way it works in a free market. We get to choose what we want to be when we grow up.

 

[Ricochet1a]

No, the airfeed costs actually are lower. Although superficially it appears that we fly the same routes, small differences add up. I was once involved in a project that demonstrated one less airplane equaled over $100 million in annual costs. UPS flys fewer airplanes to cover more volume. I know FedEx IE's are working hard to make up ground, but airplanes are really really really expensive. One airplane = at least 6 pilots + mechanics + fuel + spare parts + yada yada yada.

When it comes to jets, FedEx operates 352 aircraft, and UPS operates 208 aircraft. The specific numbers are as follows (excluding props operated by contractors):
UPS ..................FedEx
747-400: 8....... MD11: 57
747-400BCF: 2 .MD10: 64
MD11: 38......... A300: 63
767: 32 ............A310: 66
A300: 53.......... 757: 22
757: 75............ 727: 80

With the exception of the FedEx 727’s, the fleets are comparable in capability and efficiency in fuel use per cargo ton/mile. The last time I checked (been awhile) the typical cargo aircraft flew just under 80 hours a week, or about 4,000 hours a year. Operating cost per flight hour does vary, but falls between $7,000/hr to $10,000/hr (fuel, maintenance, depreciation, crew). That places the annual operating cost of a cargo aircraft in the ballpark of $30-40 million a year, not $100,000,000. The 747’s may approach $100 million a year in operating costs, but I think the real figure for them is between the $40 million and the $100 million you state (closer to $40 than $100 M).

The 727s are inefficient, but I have to assume that they are a fully depreciated asset, reducing the cost to operate to: fuel, maintenance and aircrew costs. The variance between FedEx and UPS on this is most likely really small, since this is the MAJOR cost incurred by both companies for “air” cargo. I have no familiarity with the UPS air routing system, but I’d have to assume that UPS has to have a greater number of aircraft service two ramps before going to the hub. FedEx does have aircraft make two ramp “stops” before hitting the regional hubs, but this is limited to the greatest extent possible. When you state that UPS uses fewer planes to cover more volume, those fewer numbers have to make more landings on route back to the hub. Every landing costs money. The majority of FedEx aircraft serve a single ramp, they fly to the hubs without making stops en route for additional cargo (majority, not all).

UPS has 2,908 pilots for 208 aircraft, or just under 7 crews for each aircraft. FedEx has 4,678 pilots for 352 aircraft, or 6.6 crews per aircraft. This data is current as of today.

If UPS had a significant advantage in the line haul system for air cargo, FedEx would be out of business in short order. I’m going to go out on a limb and state that the costs per ton/mile for UPS and FedEx are within a few percentage points of each other. FedEx makes it profit on the margin on International air (just under 50% of total revenues). The margin on docs (UPS flats) is also very good for FedEx. Combined with the contract with the USPS, FedEx is able to keep its aircraft operating without any voided positions in the aircraft in most flights.

If one were to compare UPS Air rates to Express rates for similar services, the variation is extremely small. Where FedEx gets its advantage is through its lower labor costs.

 

[unionman]

When it comes to jets, FedEx operates 352 aircraft, and UPS operates 208 aircraft. The specific numbers are as follows (excluding props operated by contractors):
UPS ..................FedEx
747-400: 8....... MD11: 57
747-400BCF: 2 .MD10: 64
MD11: 38......... A300: 63
767: 32 ............A310: 66
A300: 53.......... 757: 22
757: 75............ 727: 80

With the exception of the FedEx 727’s, the fleets are comparable in capability and efficiency in fuel use per cargo ton/mile. The last time I checked (been awhile) the typical cargo aircraft flew just under 80 hours a week, or about 4,000 hours a year. Operating cost per flight hour does vary, but falls between $7,000/hr to $10,000/hr (fuel, maintenance, depreciation, crew). That places the annual operating cost of a cargo aircraft in the ballpark of $30-40 million a year, not $100,000,000. The 747’s may approach $100 million a year in operating costs, but I think the real figure for them is between the $40 million and the $100 million you state (closer to $40 than $100 M).

The 727s are inefficient, but I have to assume that they are a fully depreciated asset, reducing the cost to operate to: fuel, maintenance and aircrew costs. The variance between FedEx and UPS on this is most likely really small, since this is the MAJOR cost incurred by both companies for “air” cargo. I have no familiarity with the UPS air routing system, but I’d have to assume that UPS has to have a greater number of aircraft service two ramps before going to the hub. FedEx does have aircraft make two ramp “stops” before hitting the regional hubs, but this is limited to the greatest extent possible. When you state that UPS uses fewer planes to cover more volume, those fewer numbers have to make more landings on route back to the hub. Every landing costs money. The majority of FedEx aircraft serve a single ramp, they fly to the hubs without making stops en route for additional cargo (majority, not all).

UPS has 2,908 pilots for 208 aircraft, or just under 7 crews for each aircraft. FedEx has 4,678 pilots for 352 aircraft, or 6.6 crews per aircraft. This data is current as of today.

If UPS had a significant advantage in the line haul system for air cargo, FedEx would be out of business in short order. I’m going to go out on a limb and state that the costs per ton/mile for UPS and FedEx are within a few percentage points of each other. FedEx makes it profit on the margin on International air (just under 50% of total revenues). The margin on docs (UPS flats) is also very good for FedEx. Combined with the contract with the USPS, FedEx is able to keep its aircraft operating without any voided positions in the aircraft in most flights.

If one were to compare UPS Air rates to Express rates for similar services, the variation is extremely small. Where FedEx gets its advantage is through its lower labor costs.

How come FEDX has 2620 Aircraft mechanics and UPS has 920 and getting smaller? FEDX is bringing more maintenance inhouse while UPS outsources everything that isn't bolted down. UPS has a 4 o 1 mechanic to aircraft ratio while FEDX has a 7 to 1.

 

[TechGrrl]

Your figures are impressive! I'm not going to refute them in detail, just repeat what the results of our project were. Our airfeed costs are lower than FedEx, and that helps offset the higher labor costs we have everywhere else. If our airfeed costs were NOT lower, WE would have gone out of business long ago.

Look at DHL--lower costs than UPS or FedEx, but they still couldn't compete, even with the deep pockets of Deutche Post behind them.

Management skill still counts for something. We used to joke around, while standing in a steaming pile of cock-up, "Hey, we could be working for a POORLY managed company!"

 

[mungrin]

Mark my words,Fedex is going out of business.Ive been saying it all along.

 

[Ricochet1a]

The reports for the fiscal year which just ended are due out Friday, but I’ll use the fiscal year before the last for a starting number to get another perspective on operating cost for aircraft. FedEx reported just under $38 Billion in operating revenue for FY08, with Express listing $24.4 Billion (64.3% of total FedEx revenue). Express is actually shrinking in terms of total percentage FedEx revenue due to the growth of the Ground and Freight companies (where the majority of the investment has gone in the past few years). Personnel expense for Express has been listed around 50% of revenues, and direct aircraft related expenses are around one-third of revenue. Including the direct personnel expenses to the operation of the aircraft would mean about 40% of revenues are directly related to aircraft operating expense, or $9.75 Billion.

With 352 aircraft operating, one can divide $9.75 billion by 352 to get an average annual operating cost per aircraft of $27.7 million per year. I originally came up with a figure between $30 and $40 million per year (using information on per hour operating costs that are industry averages, and an assumption of 4000 flight hours per aircraft per year), so it looks like the $30 million per year is the best average operating cost that can be derived without access to actual hard data. This means that the $100 million figure is way off base.


What may have been done is to get a cost to deliver air cargo from shipper to recipient. When all the labor costs of ground transport, sorting, loading, movement to destination “station” from the airport and final delivery is made, a total cost for air cargo per aircraft involved per year can be stated as being in the ball park of $100 million per year. If one takes my assumption of 40% of revenues directly related to aircraft operations ($30 million in this case), and then attempts to get a total cost of air cargo service from shipper to recipient, take $30 million and divide that by 40% to get $75 million. As a sort of cross check to the mathematical assumption, multiply $75 million by the 352 FedEx aircraft and one gets $26.4 Billion (actual revenue is listed as $24.4 Billion). With all the rounding that has been done, the numbers check out. FedEx can state that every one of its aircraft performing air cargo service has a total cost associated of about $75 million per year, from pickup to delivery of air cargo. Given UPS’s higher labor costs, this figure would be higher than FedEx’s by about 35% of labor expense. I get about $12 million per aircraft per year when labor is correctly adjusted, or a number around $87 million per year per aircraft.

 

[Just Numbers]

Mark my words,Fedex is going out of business.Ive been saying it all along.

How can they be going out of business when you use Kinko's for your Copy needs!!!!!!!

 

[Ricochet1a]

How can they be going out of business when you use Kinko's for your Copy needs!!!!!!!

Kinko's no longer exists... It is FedEx Office. That little change and the write off of the "goodwill" of the Kinko's name cost FedEx about $800 million. Another $800 million has been lost due to the operating losses of "Office" since its purchase almost 5 years ago. This is a case of the "Borg" attempting to "assimilate", and getting a serious case of indigestion.

FedEx would've been better off copying UPS's model of establishing franchises of "FedEx Store", and letting the owners pick up the headache of running the individual stores (much like Ground operates with ICs)...

This is another example of "proof" that Ground's model was established with the primary intent of keeping out the Teamsters. The model of the UPS store existed for a few years before FedEx bought Kinko's. FedEx would've been better off offering franchise operation of "FedEx Store's", and letting the owners take the headaches (much like Ground). Since there wasn't a fear of these stores being organized by unions, FedEx went ahead and purchased Kinko's lock, stock and barrel, and ran them as a separate FedEx operating company (thinking they had the expertise to make it profitable). If Kinko's had some sort of union, that poison pill would've been too much for FedEx to swallow and they would've forgone the purchase.