Date: Wednesday, August 23rd, 2023
Source: Wall Street Journal
FedEx’s FDX 0.49%increase; green up pointing triangle highfliers have been grounded.
A sharp drop in package volume and a move to combine FedEx’s Express and Ground delivery units created a glut of pilots, leaving what was long the company’s most revered class of workers in a state of angst.
“There are many concerns about FedEx flying and what the future holds,” Pat DiMento, the company’s vice president of flight operations, wrote in a July letter to Express crew members viewed by The Wall Street Journal. The Memphis-based delivery company has an excess of about 700 pilots, according to the letter. FedEx has a total of roughly 5,800 pilots after a pandemic-fueled hiring spree.
FedEx union pilots last month voted against a new labor contract, protesting what they describe as insufficient wage increases and operational changes that could lead to declines in work hours. The rejection comes as other transportation workers have had standoffs with their employers in recent months over wages and labor practices.
Under the existing contract, FedEx pilots are paid between $69 and $336 an hour based on factors such as the type of plane they fly and their seniority. Pilots typically have a minimum guaranteed 68 hours of work a month.
The pilots said they are flying fewer hours in recent months, and some are concerned about furloughs. In previous economic downturns, FedEx held on to these high-skilled workers. The company hasn’t furloughed pilots during its 50-year history.
FedEx declined to comment on whether it would consider furloughs. It said the agreement rejected by the pilots provided substantial increases to compensation and retirement benefits and addressed some quality-of-life issues that the union had identified. FedEx said the agreement had increased protections for pilots, including making it harder for the company to furlough pilots.
If FedEx decides to furlough pilots, it could save money, but also leave it vulnerable to a labor shortage over a longer period. Some railroads faced similar issues after using furloughs to cut costs but ended up not having enough trained conductors and locomotive engineers when demand recovered.
Some FedEx pilots said they believe changes in the agreement would give the company more flexibility to sign contracts with aircraft lessors, which could reduce the volume of parcels that go on the company’s own planes. The tentative agreement lowered the compensation FedEx has to give union members in certain cases when the company leases aircraft.
The Air Line Pilots Association, International, the union that represents FedEx pilots, said some pilots’ concerns about leasing are unfounded. Union leader Chris Norman said it is more costly for the company to lease planes than use its own, so FedEx only contracts with aircraft lessors when it has more business than it can handle. That doesn’t mean that the pilots’ underlying worries about job protections and career delays aren’t justified, he added.
A spokesman for FedEx said it is committed to reaching a new agreement with its pilots and optimistic about such an outcome.
In April, FedEx Chief Executive Raj Subramaniam said that the company was combining its Express and Ground units to drive more efficiency and lower costs. The restructuring includes having just one truck serve a neighborhood rather than separate Express and Ground trucks coming to the same address in a day, and closing stations to remove the overlap.
Another change is diverting freight from planes to trucks—which cost less—whenever it would still arrive on time for customers. During a video presentation to analysts and investors, the company said it is “changing the fly-fly-fly model for a lot of this traffic to a much more economical truck-fly-truck model.”
FedEx expects to save $4 billion in costs by the end of fiscal 2025.
FedEx’s roots are as an airline, and it didn’t enter the trucking business until 1997 when it acquired a trucking company. “It has always been an airline-dominant culture under Fred Smith,” said Jeffrey Kauffman, an analyst at Vertical Research Partners, referring to FedEx’s founder and former CEO who was also a pilot. Longtime executives said privately that Smith always had a soft spot for the pilots.
Though having the biggest fleet of cargo aircraft has always been a source of pride for FedEx, Kauffman said, it made less and less sense financially. Plane profit margins are in the single digits, he said, while truck margins are in the midteens. FedEx had 700 aircraft as of the end of May. Unionized pilots fly about 400 of them, said Norman, the union leader. UPS had 291 aircraft as of the end of last year, and around 3,400 pilots.
As FedEx Ground became more efficient and profitable over the years, analysts and investors pressed the company to rein in costs. In 2022, FedEx added three board directors in an agreement with activist investor D.E. Shaw, which has pressed for changes at major companies.
Some pilots voted against the contract in July because they said their counterparts at passenger airlines got better deals. Others said their “no” vote was also a protest to show management how they feel about their career prospects. Some have aired their grievances in public forums.
In the letter last month, DiMento, the flight-operations executive, admonished employees who he said were spreading misinformation, adding that the “sheer volume and ridiculous nature of rumors can simply be too much to bear.”
During the pandemic, FedEx boosted its pilot recruitment to address the outsize demands for deliveries. Parcel volume has since become more subdued as consumers reverted to prepandemic spending behavior.
In recent months, FedEx has continued to park planes, laid off some management and closed several FedEx offices and stations. It has announced closures of Express operations in Jackson, Miss.; Temple, Texas; Macon, Ga.; and Youngstown, Ohio. Staff said they have been asked to relocate or accept severance packages.