People remark all the time that their pkg, as they tracked online, was picked up in a city two hours away, flown to Memphis which might be halfway across the country, then back to where they live. People are paying for fast delivery and those flights are going to fly anyways. As Fred said, Ground is taking over the last mile. But to your point, in some areas, like the Northeast, they have a Bleed Off and Bypass Operation, BABO for short. Rather than fly to Memphis regional freight is sorted and trucked from distribution points. Works in high population areas with a lot of stations.
These resi packages are excellent candidates for FXG. Those that originate in-market or nearby. FXE can reduce the cost of that flight. 767 replacing MD-10. Reducing flight crew and saving on MX and fuel as well as increased reliability. FXE can reduce flight hours, save money, and provide better linehaul.
You're saying all the little stations around the country will send P-2 freight off by truck to a Ground station for further distribution rather than sent to the ramp, flown to a hub, routed to destination in separate containers, and then brought to Ground hubs? How will they possibly get freight delivered ontime? People are paying for Express service and Ground is supposed to be taking over "the last mile."
No. The origin ramp is the diversion point. The stations will move all their freight to the ramp. The exact plan will vary by market as some ramps have better sort capacity than others. In most large markets it will probably be sorted and bulk loaded at the origin ramp into FXG trailers. This will be the most common practice. In some places that isn't feasible and the market will have different solutions.
So if that's the case Ground isn't just delivering the last mile, but completely taking over a large percentage of Express business.
The number of packages in the initial phase will be less than Express lost from Amazon.
Overall, this move makes sense. While some customers will see that the packages they send to X are getting delivered by FXG and just start shipping with them, Express is keeping the lion's share of these packages from pups. FXE makes very little on these packages now, but still gets higher revenue than Ground. Now, there will be cost reductions to move that freight once it is in FedEx possession. I do not know the cost/pkg savings, but even a couple dollars each would save one $1 billion.
Not all resi ES/XS will be eligible and during phase 1 no SO is included. This is not a "test" though. This is happening and it will succeed. We just do not how much yet. The move is better for FXG and FXE. Express will now go get more higher yielding business and Operations officers - MDs and VPs will be on calls with sales to gain more business. The company is changing and moving toward vastly improved profitability. I want employees to see some of that money. At least there's a chance if more is available.