FedEx Still Sees Profits Grow as Airlines Up Cargo Game
FedEx reported record profits in its fiscal fourth quarter and full year as consumers trapped at home during Covid-19 lockdowns shifted their purchases of even mundane household goods online. But even better news for FedEx is that this trend shows no signs of abating, marking a structural shift toward e-commerce that the company expects will fuel it to sustained profits and growth of between 13-18 percent this year, a forecast that surprised Wall Street.
FedEx is so confident the package and air freight sectors will grow that it is adding 20 aircraft to its fleet. The company exercised options for the Boeing 767F, with 10 aircraft expected in fiscal 2024 and an additional 10 joining the fleet the following year, a spokesperson confirmed. The company has 102 767Fs in its fleet now, and had planned to take 30 more by fiscal 2025. By exercising its options, FedEx now expects 50 767F deliveries by the end of that year. FedEx has 406 aircraft in its mainline fleet, and by the end of fiscal 2025 after factoring in retirements, expects to have 525. The 767F will be the dominant aircraft type in the carrier’s fleet by then.
FedEx is also stepping up its air operations with TNT Express, which it acquired in 2016. The integration will allow the combined carrier to move packages and freight between Europe and both Asia and the U.S. more seamlessly, and allow for overnight deliveries between the regions, Raj Subramaniam, president and chief operating officer, told analysts during the company’s fiscal 2021 fourth-quarter and full-year earnings call.
This integration and focus on Asia and Europe will right FedEx’s historic lower market share in traffic flows between the two continents, Subramaniam added. Strengthening the company’s position in Asia-Europe cargo traffic is especially important now, as maritime shipping bottlenecks have hamstrung cargo transport just when companies are restocking inventories as the world begins to shake off its Covid-19 economic torpor, he said.
In fact, FedEx projects global GDP to grow by almost 6 percent this year and by 4.5 percent next year. The company expects U.S. economic output to grow by almost 7 percent this year and just over 4 percent next year. The company forecasts industrial production in the U.S. will grow by 6 percent this year and 4.5 next year.
All these indicators give FedEx confidence in the years ahead. It’s revenue growth forecast of between 13-18 percent beat analysts’ expectations. “As the pandemic wore on, we thought we would see a slower growth rate, but growth has continued uninterrupted,” Cowen & Co. Analyst Helane Becker wrote in a note to investors. “People got used to having everything delivered, and although we thought we would see more people shop in person, that’s not occurring.” Retail inventory in stores also is low, forcing more people to turn to e-commerce even if they want to shop in stores, she added.
Right now, FedEx has international package transport largely to itself. Although airlines have added thousands of cargo-only flights on converted passenger aircraft, or “preighters,” belly-hold cargo capacity is down significantly as international flights are a fraction of what they were before the pandemic. FedEx expects competition to rise as the world reopens and adds more flights, but the company still is bullish on its growth prospects.
The main challenge for FedEx in the near term is the shortage of labor, which the company expects will last until the end of this year. The inability to hire workers is causing “inefficiencies” in package handling and delivery, Subramanian said. Wages will rise, putting pressure on FedEx’s earnings this year, especially as the company ramps up for its peak season at the end of the year. To alleviate the long-term labor shortage, FedEx is investing heavily in technology to automate as much of its processes as it can, he said.
FedEx reported fiscal fourth-quarter 2021 profits of $1.4 billion, up 105 percent from the same period last year, on revenues that were 30 percent higher than fiscal 2020. Revenues for the full year were up 20 percent to $84 billion. The company’s fourth-quarter operating margin was 8 percent for the fourth quarter, up from 2.7 percent the year prior, and 7 percent for the full year, double that of 2020.Subscribe Now to Airline Weekly