Dive Brief:
- FedEx is expecting a $175 million headwind to its adjusted operating income this fiscal year due to the grounding of its MD-11 fleet, EVP and CFO John Dietrich said on a Q2 earnings call Thursday.
- The carrier already incurred $25 million of that amount in November, with the remainder projected to take place in the third quarter, Dietrich said. The CFO noted that FedEx will face "significantly higher costs" in December in particular due to expenses associated with securing third-party air cargo capacity.
- "It's an expensive time of year to be getting outsourced lift to begin with, let alone when you have fleet grounded," Dietrich said. FedEx's current financial outlook accounts for its MD-11 aircraft to return to service in Q4, which begins March 1, he added.
Dive Insight:
FedEx and UPS paused operations of their MD-11 aircraft last month at manufacturer Boeing's recommendation after the deadly crash of an aircraft of that type. The Federal Aviation Administration also issued an emergency directive prohibiting MD-11 flights until inspections and corrective actions take place, straining both carriers' air cargo capacity during the busy holiday shipping season.
Twenty-five of FedEx's 34 MD-11s were operating before the groundings commenced, President and CEO Raj Subramaniam said on the call. He highlighted some of the contingency plans the company has deployed since then, such as shifting volume to other aircraft or truck transportation, to minimize the impact.
"For the final week of peak, we have additional contingencies in place," Subramaniam said. "We lost about 4% of our global cargo capacity before mitigating actions during our busiest season. As a result, our cross-functional teams are working around the clock to minimize any service disruption."
Despite the ongoing MD-11 challenges, FedEx is handling the peak season rush effectively, EVP and Chief Customer Officer Brie Carere said.
"I cannot say enough about the incredible airline work," Carere said. "But the team does need to execute next week without the MD-11, we're very focused on that, and they have demonstrated that this is definitely going to be a strong peak and could not be more pleased."
