AIRLINES SEE LITTLE HOPE OF BETTER TIMES AROUND THE CORNER
There is no question that those who hoped for V instead of a U turnaround, they are now roundly disappointed. Many leading economists are still arguing whether the step economic decline has bottomed out or there is still some way to go. I don’t believe the run up of stock prices on Wall Street has anything to do with reality of where the world is For my money, I feel those smart bastards on Wall Street have been quietly manipulating stock prices over the past three months and flushing out “good news” on the basis that dumb suckers like me will re-enter the market, only to find during the summer holidays, I get cleaned out. For me and many Americans cash is king and there aren’t going to be any fancy vacation trips this summer, no matter how low the air fares are and how good the hotel deal is. For me, the economy remains as dead as a dodo and will stay that way for some time.
That prognosis is basically how one of the bell weather companies FedEx, sees it too. Fred Smith, the eternal optimist, conceded the weak economy will continue to hurt FedEx’s results for some time to come. He did try to suggest there were glimmers of hope though. Inventories, he claimed were getting low. That is not how I view where FedEx is heading. When things do start to pick up, just as has been happening over the past five years 2nd day delivery and road will continue to bite into the highly profitable overnight business. Just like the email/scanner has replaced the fax, only if the package/envelope is a “must deliver by 10.00AM the following day”, second day and time definite trucking service will become the FedEx’s mainstay of domestic business. I believe USPS with their one price up 70lbs “New Priority Mail Box” is a winner and will further erode FedEx’s and UPS’ market share of the domestic express business.
FedEx has already become the best trucking company in America and with Yellow on the brink of bankruptcy they can step in and over the next two years swallow up the lion’s share of both the LTL and FTL business. Fred can start parking up all those gas guzzling DC 10′s and cancel his Boeing orders and put investment into thousands more Freightliner trucks and tens of thousands of 53 foot trailers. If I were him, I would strike a deal with DHL to get out of the international business altogether. As for UPS, they probably need another five years of management meetings to decide what engineering needs to take place to meet the changed business environment. That is why FedEx will pass them by.
With regards to the international operations, Fred Smith will rue the day someone sold him the bill of goods on China. International heavyweight express is history. Excess capacity has seen to that. Every airline in the world, especially the combination carriers are now offering overnight at their standard deferred rates tariffs. Who in the heck is going to listen to a FedEx/UPS/DHL salesman telling the customer he must continue to pay a premium to move his high priority goods? Of course the question is if he has any in the newly evolving economy! Fred, your best bet is to become closer with USPS, cut a deal with them for home delivery and continue to be their line haul operator. Your future is domestic and with many large American corporations bringing their factories back to America, Fred your company has a huge future.
Apart from these low cost airlines that compete with the Greyhound buses, there is not one carrier operating in the black. Never in aviation history have so many modern generation aircraft been parked up, most with little chance of flying another passenger or kilogram of freight ever again. Air N.Z. sent its first 747-400 to the Arizona desert to be broken up for parts! Less than five years ago a 400 series Boeing was considered as high tech as the day the world witnessed its maiden flight in the late eighties. British Airways is down to asking its staff to turn up for work with no pay! Others are moving to four day working weeks. Freight volume to many major destinations is down 40% and rates have never been lower. Some carriers are even dealing on the fuel surcharge in an effort to persuade a forwarder to tender the shipment to them. The airline industry is downsizing because all indications are present passenger travel and airfreight levels may remain with us for years to come, not months.
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